President Bush, second from left, accompanied by, from left, Federal Reserve Chairman, Ben Bernanke, Treasury Secretary Henry Paulson, and Securities and Exchange Commission (SEC) Chairman Christopher Cox, delivers a statement about the economy and government efforts to remedy the crisis. (Pablo Martinez Monsivais/AP)
Paulson announces plan for massive federal intervention to calm markets
Investors cheered. The Dow jumped 369 points Friday.
By Peter Grier | Staff writer/ September 19, 2008 edition
Washington – To try to stem a financial crisis that has grown to the point where it threatens the livelihood of millions of Americans, the US government is planning to intervene in the economy to an extent not seen since the days of the New Deal.
Ad hoc rescue plans have not proven enough. What’s needed now is further decisive action to sweep away the bad mortgage-based securities now clogging financial markets, said Treasury Secretary Henry Paulson in a brief press conference Friday.
Thus the administration will work with Congress over the next several days to pass legislation creating a vast government entity to take these battered assets off the balance sheets of financial companies and hold them for eventual resale.
“We’re talking hundreds of billions of dollars,” said Secretary Paulson, when asked how large the entity might be. “This needs to be big enough to make a real difference.”
The move made a big impression on foreign markets as well as Wall Street, where relieved investors sent the Dow Jones Industrial Average up 368.75 points Friday. [Editor’s note: This paragraph was added after the markets closed.]
In a Rose Garden statement shortly after Paulson’s appearance, President Bush said that the US economy was now facing unprecedented challenges, requiring an unprecedented federal response.
In this case, “government intervention is not only warranted, it is essential,” said Mr. Bush.
The gears of the financial system are at risk of grinding to a halt, he added. “There will be ample opportunity to debate the origins of this problem. Now is the time to solve it.”
The federal government will be putting much taxpayer money at risk with its current actions. But the risks of inaction are much higher, according to administration officials. And over time, the US may be able to recoup much of its investment through resale of troubled assets.
“This is a pivotal moment for America’s economy,” said Bush.
Paulson’s announcement followed a series of other federal moves taken in concert to address the lack of liquidity in credit markets around the world.
On Friday, President Bush authorized the Treasury to tap up to $50 billion from existing funds to insure holdings of eligible money market mutual funds. These funds are a crucial source of short-term money for credit markets, as well as a haven for investors who thought them safer than the stock market. Yet the money market industry has come under stress in recent days as financial institutions grew wary of lending to all but the most creditworthy borrowers.
The Federal Reserve also announced that it was expanding emergency lending efforts to allow commercial banks to finance purchases of asset-backed paper from money market funds.
The Security and Exchange Commission has announced a temporary ban on short-selling, a trading method that bets that stocks will decline in value.
At his press conference, Paulson announced that Fannie Mae and Freddie Mac, the mortgage giants recently rescued from potential insolvency by Washington, will increase their purchases of higher-quality mortgage-backed securities.
It will be left to the as-yet undesigned new government entity to assume ownership of those mortgage assets too risky for Fannie and Freddie.
All these government actions together add up to a massive government effort to serve as a central clearinghouse of finance. The aim is to get money flowing again through an economy that in recent days has begun to wheeze and sputter as frightened lenders stopped moving their funds.
“The financial security of all Americans … depends on our ability to restore our financial institutions to sound footing,” said Paulson.
Members of the Democratic-controlled Congress vowed to set partisanship aside and work with the administration to produce bailout legislation within days.
“We hope to move very quickly. Time is of the essence,” said House Speaker Nancy Pelosi after being briefed on the Treasury’s plans on Thursday evening.
[Material from the Associated Press was used in this report.]
Comments
2. Monroe Pastermack | 09.19.08
So it’s going to bail out the millionaires who should have known better. companies that took their money and ran.
Short selling should be banned!!!
Where are the regulators? Who is going to watch these unethical people?
4. PJT | 09.19.08
Always quick money for corporations; while those affected by Hurricane Ike have to wait weeks in the hope of a small “scrap” to help out. Let’s face it, we’re on our own.
5. Winnie H. | 09.20.08
The AP is also reporting that Paulson is refusing to include tighter regulations, corporate reforms or limits on executive compensation as part of the measure.
Why would he be doing this? It’s irresponsible and short-sighted, as well as unethical.
Secretary Paulson’s measure seems to be only looking out for the best interests of the corporate giants of the financial sector, while refusing to put into place safeguards that would begin to rehabilitate a corrupted system. How does that even begin to solve this problem?
The taxpayer is already having to pay for the greed and mistakes of these financial institutions. And now Paulson and Bush expect us to pay for the golden parachutes of the architects of this debacle. It’s just wrong.
6. Diana D | 09.20.08
This is the result of a government that left the foxes in charge of the chicken coop. Why does it surprise anyone? There are no checks, balances and accountability. The Bush team believed that by allowing the financial markets to have free reign that eventually things would balance out and the economy would just flourish. I just don’t get that logic, esp. when the money was used to fund faulty ventures. This in turn has affected each and every American in one way or another. Any business that carries so much responsibility over other peoples money should be tightly regulated and every penny counted. Didn’t we learn anything from the 80s?!?!
7. bob lippman | 09.20.08
of course the game is rigged, but if you don’t play you can’t win. save the economy now, execute those resposible later.
8. Garret | 09.20.08
Recently, I read a story about a worker in South Carolina getting 5 years in jail for stealing 5000 dollars worth of road making equipment. O.k., with one trillion dollars now being stolen from the American Tax Payer, I would like to know who are the people who are going to jail for the equivalent of one billion years? Liberty and Justice for all - the great founding principles of the United States of America must be enforced!
9. Don Mitchell | 09.20.08
After the economy settles, there does need to be some justice. Letting Lehmann Brother go out of business was an example. Not that this should be an excuse for leftist demagogues, who would damage our economy even worse.
10. Tony | 09.20.08
What? Say what now?
Nothing is wrong with the financial system. It’s those big names in the financial system that are the problem.
Let them boys with the toxic papers collapse so that we get the new ones taking over to run the financial. The real fix is no fix at all.
We are not idiots.
11. Mary T Ficalora, author of “Choosing Honor” | 09.20.08
We the People Foundation and constitutional activist Robert Schultz filed a federal lawsuit in the United States District Court in Albany seeking to halt the execution of the emergency bailout of AIG. In this article, Bush says, ““This is a pivotal moment for America’s economy.” Pivotal indeed. Government consolidation of a country’s economic system during an economic crisis is how totalitarian states come into power. Our monetary system defies Constitutional dictate, it has been unlawfully centralized repeatedly over the last century. We have lived with this morally hazardous state because the precedent for changing existing laws is: first, the law must be wrong, and second, it must be causing more harm to keep than it would cause to change. To keep our current monetary law and allow Bush and the Federal Reserve to finalize central control of our economy into the government’s hands creates a Totalitarian state. It is time to stop the moral hazard; it is time to change the law. It is time to return to a decentralized monetary system dictated by our Constitution. Please go to http://www.wethepeoplefoundation.org/Update/Update2008-09-18.htm read about the lawsuit and support this action!
12. dicky d | 09.20.08
it is amazing to me,that after well over twenty years of the republican admiministration,how is it possible that this race is even close!!!! This administraion has virtually run this country into the ground. John McCain was one of the main architects of deregulation. His campaign advisors consists of nothing but lobbyists including Phil Gramm.John McCain is the consumate flip flopper.This is a person who says the economy fundamentally sound one day and then he says that the chairman of the FEC INSTEAD OF THE SEC which is Christopher Cox if McCain was the prez,would be fired. John McCain staff later told him the president cannot fire the sec chairman.This man is nothing but an extension of George W.Bush.
13. Joel | 09.21.08
So is this the end of capitalism?
Maybe we should offer an apology to the Russians and Chinese. In exchange, maybe they could give us some advice. That would fair, I think.
14. m&m | 09.21.08
We should apply the same limits and restrictions to corporate welfare recipients as we do to individuals/families receiving social welfare benefits.
15. Carolyne C. | 09.21.08
As a Canadian, I find it interesting that the timing of this predictable & predicted financial crisis is right on cue for this administration’s hand-off to the next government. This administration, which has destroyed so much of American freedoms & America’s role in international democratic leadership, created this with the policies set in place to bail the American economy out of the 9-11 woes… and then went on to fund their personal agendas in Iraq. And now it is likely a Deocratic government will be faced with the clean-up instead of being able to focus on their own policy initiatives, leading to likely dis-enchantment with the next government.
It is comic in a macabre way. And still the fundamentals are not addressed. It will be interesting again in 5 - 6 years to see who are the big profiters from the predictable financail destruction this time…
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1. gregg hammond | 09.19.08
” I pledge allegence to the United States of America and to the randomly chosen inept,incapable and corrupt private enterprises that I will now have to support as an honest, hardworking and law abiding citezen…”
“Uncle Sam wants Your Hard earned income! to bail out Corrupt Big Business’ while the Oil companies, Haliburtin and Military contractor giants enjoy record profits!”