U.S. Financial Markets: Stop the Bleeding

By Reuters -  |  Posted 2008-09-22 Print this article Print

The Fed's agreement to convert the once high-flying investment banks into more conventional depositary institutions was Washington's latest effort to restore calm to chaotic markets. It followed frantic talks between the Bush administration and Congress to prevent the crisis from pushing the economy into severe recession.


Democratic leaders in the U.S. Congress promised swift action on a bailout bill but also want to throw a lifeline to homeowners, not just Wall Street.

With the economy the No. 1 issue in a presidential election less than six weeks away, lawmakers are striving to get a plan in place by the end of the week, fearing delay could send markets reeling again.

Senate Banking Committee Chairman Christopher Dodd said he thinks Congress can give U.S. Treasury Secretary Henry Paulson the authority and the resources he needs.

"It's important we act quickly and but more important that we act responsibly," Dodd told the CBS Early Show. "If we don't, we'll be ruing the day terribly that we didn't think through this carefully enough."

Two key questions remained unanswered even after Paulson appeared on four television talk shows on Sunday to press his case for emergency action: What price will the government pay for these bad debts, and when will it start buying them?

Paulson cast the proposed market intervention as a lesser evil, arguing the consequences of inaction would be more dire than the large burden on taxpayers.

"This is not something that we wanted to do. This was something that was very necessary," Paulson said on the NBC program Meet the Press. "We did this to protect the taxpayer."

Democrats, who control both chambers of Congress, began to swap proposals with the Treasury, including suggested checks on the nearly unfettered power the administration sought for the Treasury secretary.

"Democrats believe a responsible solution should include independent oversight, protections for homeowners, and constraints on excessive executive compensation," said California Democratic Rep. Nancy Pelosi, speaker of the House of Representatives.

As negotiations got under way, both Democrats and Republicans predicted lawmakers would quickly resolve their differences and were likely to pass a bill by week's end.

Paulson said the final cost of the bailout should fall well short of the $700 billion initial price tag since the government would be able to hold the debt until markets stabilize and prices recover. "This is the least costly path," he said.

(Additional reporting by Nancy Waitz, Tom Ferraro, John Poirier, Kevin Drawbaugh and Emily Kaiser in Washington; Kristina Cooke and Richard Leong in New York; Jessica Hall in Philadelphia; Blaise Robinson in London; Editing by Dayan Candappa, David Holmes and John Wallace)


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