BREAKING NEWS
updated 48 minutes ago
WASHINGTON - The Bush administration is asking Congress to let the government buy $700 billion in bad mortgages as part of the largest financial bailout since the Great Depression.
The plan would give the government broad power to buy the bad debt of any U.S. financial institutions for the next two years. It also would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion — making room for the massive rescue.
A draft of the proposal obtained Saturday by The Associated Press does not specify what the government would get in return from financial companies for the federal help.
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Treasury Secretary Paulson and his team planned to continue discussions with lawmakers through the weekend. Bush was monitoring Paulson's discussions, but had no meeting scheduled with his Treasury chief as of Saturday morning.
Congressional aides awaited a briefing Saturday from Treasury officials.
The proposal would amount to most sweeping federal intervention to rescue failing financial institutions since the Great Depression. Congressional leaders hoped the developing legislation could pass as early as next week.
The administration is asking Congress for far-reaching new powers to take over troubled mortgages from banks and other companies, including purchasing sour mortgage-backed securities.
"The risk of not acting would be far higher," Bush said Friday.
Democrats are insisting the rescue include mortgage help to let struggling homeowners avoid foreclosures.
They also are also considering attaching additional middle-class assistance to the legislation despite a request from Bush to avoid adding controversial items that could delay action. An expansion of jobless benefits was one possibility.
In a briefing to lawmakers, Paulson and Federal Reserve Chairman Ben Bernanke painted a grave picture of an economy on the edge of a major recession and telling them that action was urgent and imperative.
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In a session with House Democrats, they described a plan where the government would in essence set up reverse auctions, putting up money for a class of distressed assets — such as loans that are delinquent but not in default — and financial institutions would compete for how little they would accept for the investments, said Rep. Brad Sherman, D-Calif., who participated in the conference call.
"You give them good cash; they give you the worst of the worst," Sherman said. A critic of the plan, he complained that Bush and his economic advisers were trying to panic lawmakers into rubber-stamping it.
Lawmakers wanted to know what the government would get in return from financial companies for the federal assistance.
Paulson said the new troubled-asset relief program must be large enough to have the necessary impact while protecting taxpayers as much as possible.
"I am convinced that this bold approach will cost American families far less than the alternative — a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion," Paulson said. "The financial security of all Americans ... depends on our ability to restore our financial institutions to a sound footing."
Administration officials hoped the rescue plan could be finalized this weekend, to lend calm to Monday morning's market openings, said Keith Hennessey, the director of the president's economic council. The goal is to have something passed by Congress by the end of next week, when lawmakers recess for the elections.
