Paulson: Bailout to cost hundreds of billions of dollars
The still-being-formulated plan for the federal purchase of bad debts will cost hundreds of billions of dollars, Treasury Secretary Henry M. Paulson Jr. said in a news conference Friday.
Mr. Paulson said that despite all of the steps taken already, including taking over an insurance company and mortgage finance giants, “more is needed.” He said the root cause of the problem, the proliferation of mortgages that homeowners are unable to repay, has spread to the rest of the financial system. Five million mortgages are in foreclosure or are delinquent, he said.
“These illiquid assets are clogging the system,” Mr. Paulson said. He said the bailout will be less costly to the consumers than allowing that problem to spread. He said he plans to spend the weekend working with members of Congress devising a comprehensive plan for the government to purchase some of these bad debts, and expects the Congress to pass authority to do so in a week.
Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke met with congressional leaders Thursday night in an unprecedented, historic effort to craft a bipartisan solution authorizing Treasury to resolve mounting bad loans that have dragged down a beleaguered Wall Street.
“We are here to work together for solutions … in a way that insulates taxpayers, consumers, Main Street from the crisis on Wall Street,” said House Speaker Nancy Pelosi, California Democrat, surrounded by lawmakers from both parties who assembled for the extraordinary meeting on Capitol Hill.
Reports that the government might abandon its piecemeal approach to bailing out institutions and adopt a comprehensive plan sparked a dramatic recovery in stock markets Thursday, with the Dow Jones Industrial Average rebounding from a 200-point fall and surging to a 410-point gain at the close of trading.
Overseas stock markets and the dollar jumped in overnight trading in hopes that the bipartisan effort will end the yearlong financial nightmare.
Earlier Thursday, the markets got a major boost from a joint action by the Federal Reserve and foreign central banks in Asia and Europe to pump a record $247 billion in cash into the stressed credit markets to try to get banks to start lending to one another again.
In a whirlwind day, Securities and Exchange Commission Chairman Christopher Cox moved to restrict investments that bet on the decline of financial stock prices and sparred with Republican presidential candidate Sen. John McCain, who called for his resignation citing his failure to take action earlier.
President Bush put his support behind Mr. Cox while he canceled travel plans to work with top Cabinet officials on the debt resolution plan and candidly told the American people that “serious challenges” remain ahead in the financial crisis.