Paulson Urges Congress Action on Mortgage Debt PlanBy Reuters - | Posted 2008-09-19 Print
U.S. Treasury Secretary Henry Paulson, leading a push for a taxpayer-funded plan to contain the credit market crisis, said he would ask Congress to take action on this next week and that the Treasury was taking immediate steps in the meantime.
WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson, leading a push for a taxpayer-funded plan to contain the credit market crisis, said on Friday he would ask Congress to take action on this next week and that the Treasury was taking immediate steps in the meantime.
"We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system's stresses," Paulson told a news conference.
His remarks followed U.S. officials' rush to shore up ailing money markets after signs that this long-safe corner of financial markets, home to some $3.5 trillion of deposits, was at risk of falling victim to the year-old credit crunch and bring the crisis to Main Street.
The Treasury said it would use $50 billion to back money market mutual funds whose asset values fall below $1 a share. Separately, the U.S. Federal Reserve said it would lend even more money directly to financial institutions so they could purchase certain assets from money market funds.
On Thursday, Paulson told lawmakers in Congress that the Treasury was crafting a plan to mop up assets made illiquid by the mortgage debt crisis.
Saying Treasury will work with lawmakers through the weekend on a plan, Paulson said it needed to be in the hundreds of billions of dollars.
The latest government efforts come after the credit crisis, which had largely been seen as a problem for Wall Street risk takers, threatened to spill over into Main Street after some super-safe money market funds buckled.
"They are absolutely petrified of just a run on financial assets and they came very close to that on Thursday," said Boris Schlossberg, director of currency research at GFT Forex in New York.
"At this point they have just decided that fiscal responsibility goes out the door and anything and everything that needs to be shored up financially will be done so in order to alleviate the panic."
The surprise move comes as the Treasury and the Federal Reserve consider broad government intervention to prevent the collapse of the financial system, shaken in recent days by a crisis at insurer American International Group that required a $85 billion government rescue and the bankruptcy of investment bank Lehman Brothers Holdings Inc.
President George W. Bush said on Friday it was essential for officials to take action to prevent more damage to the economy, which he described as being at a "pivotal moment".
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