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Senior US officials and lawmakers were locked in negotiations Saturday over an historic 700-billion-dollar bailout plan for the financial sector in the worst crisis since the Great Depression.
Coming on the heels of the unprecedented government rescue of giant insurer American International Group (AIG) and the seizure of mortgage-finance giants Fannie Mae and Freddie Mac, the legislation could produce the most significant changes in financial regulation since the 1930s.
The plan, sent to Congress late Friday by President George W. Bush's administration, gives Treasury Secretary Henry Paulson sweeping authority over the next two years to buy as much as 700 billion dollars of toxic mortgage-related assets to stem the grave financial crisis, according to a draft proposal.
"This is a big package because it was a big problem," Bush told reporters Saturday.
Speaking after a week of upheaval in financial markets, Bush defended the proposed bailout, citing the gravity of the financial crisis.
"I will tell our citizens and continue to remind them that the risk of doing nothing far outweighs the risk of the package," Bush said.
"And that over time, we're going to get a lot of the money back," he said.
"The government needed to send a clear signal that we understood the instability can ripple throughout and affect the working people and the average family, and we weren't going to let that happen," Bush said.
He said his administration would work with lawmakers "to get a bill done quickly."
Congressional and administration officials, including Paulson, planned to work on the bailout plan through the weekend. Lawmakers expect to pass the legislation next week.
In a fact sheet on the plan released late Saturday, the Treasury Department said that private asset managers would manage the assets at its direction "to meet program objectives."
The pricing of the toxic mortgage-related assets, whose value has plummeted in the worst US real-estate slump in decades, will be done "through market mechanisms where possible, such as reverse auctions," the Treasury said.
The fact sheet did not specify what type of financial institutions qualified for the bailout, but appeared to opens the door to foreign firms.
"Participating financial institutions must have significant operations in the US, unless the (Treasury) secretary makes a determination, in consultation with the chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets."
A battle appeared to be brewing between the Republican administration and leaders of the Democratic-controlled Congress.
House of Representatives Speaker Nancy Pelosi said that Democrats would work with Republicans to craft a bailout measure, but insisted that the interests of common Americans must be kept in mind.
In a statement late Saturday, Pelosi said the Bush administration "has requested that Congress authorize, in very short order, sweeping and unprecedented powers for the Treasury secretary to confront a financial crisis of historic proportions."
Democrats will work with Bush officials to address the crisis, she said, "but we must insulate Main Street from Wall Street and keep people in their homes by reducing mortgage foreclosures."
The Republican Senate Minority Leader, Mitch McConnell, issued a statement calling for the bailout plan to remain free of "partisan plans or pet projects."
"This proposal is, and should be kept, simple and clear," McConnell said. "We have the opportunity here to help protect Americans on Main Street."
Senator Charles Schumer of New York said he had talked with Paulson Saturday afternoon and the Treasury secretary had shown a "great deal of openness and goodwill" to suggestions about how to fix the crisis, "provided it doesn't mean the package can't get through or gets through three, four weeks from now."
Paulson "understood that many in Congress, both Democrats and Republicans, want to make sure there are protections for homeowners, and in the next day there will be a whole lot of discussions between the Congress and the secretary's office about that subject," Schumer said at a news conference.
Negotiations on the proposed bailout could be complicated by a tight presidential election race six weeks ahead of elections and as Democrats battle to bolster their narrow majority in Congress.
The White House bailout plan would lift the public debt limit, to 11.3 trillion dollars from 10.6 trillion. The limit is the maximum amount of money the government can borrow without authorization from Congress.
The rescue package follows an escalating 14-month-old credit crunch stemming from a meltdown in US home prices after a frenzied real-estate boom fueled by easy credit.