Precarious financial markets require government action: Bush
Last Updated: Friday, September 19, 2008 | 1:22 PM ET
CBC News
President George W. Bush, flanked by, Federal Reserve chair Ben Bernanke, left, and Treasury Secretary Henry Paulson, delivers a statement about the economy and government efforts to remedy the crisis. (Pablo Martinez Monsivais/Associated Press)U.S. President George W. Bush went on television Friday to tell Americans that the government must intervene to stop the financial markets' problems from spreading and further damaging the economy.
Bush said his administration is working to stabilize financial markets and take the pressure off banks and other financial institutions.
"Investors should know the U.S. government is taking action to restore confidence in markets so they can thrive again," he said.
Bush was joined outside the Oval Office by Treasury Secretary Henry Paulson, Federal Reserve chairman Ben Bernanke and Securities and Exchange Commission chairman Christopher Cox.
The president outlined steps the government was planning to take and had already taken to deal with the financial crisis. They include:
- Asking Congress to urgently pass legislation approving the government's purchase of illiquid assets such as troubled mortgages from banks and other financial institutions.
- Having mortgage giants Fannie Mae and Freddie Mac, which are now under government control, step up their purchases of mortgage-backed securities to provide support to the crippled housing market.
- Extending government insurance to cover money market mutual funds, to ease doubts that the investments are safe.
- Temporarily banning the practice known as "short-selling" of stocks of financial companies. The move follows a similar ban by financial regulators in Britain and some other European countries.
- Injecting "much needed liquidity" into the global financial system, which the U.S. Federal Reserve and other central banks moved to do early Thursday morning.
- Bailing out American International Group, one of the world's largest insurance companies, to prevent its disorderly liquidation. The government agreed Tuesday to provide an $85 billion US emergency loan and take an 80 per cent stake in the insurer.
"These measures will require us to put a significant amount of taxpayers' dollars on the line," Bush said.
"This action does entail risk. But we expect that this money will eventually be paid back," he said. "The vast majority of assets the government is planning to purchase have good value over time."
After the immediate challenges are dealt with, Bush said the administration looks forward to working with Congress on measures "to bring greater long-term transparency and reliability to the financial system."
Program involves "hundreds of billions," Paulson says
At an earlier news conference, Treasury Secretary Paulson said the government action would involve "hundreds of billions" of dollars.
"This needs to be big enough to make a real difference and get at the heart of the problem," he said.
Paulson laid the blame for the financial crisis on "irresponsible lending and irresponsible borrowing" in the home mortgage market earlier this decade.
When house prices collapsed, people began defaulting on their mortgages, resulting in illiquid mortgage assets that are now choking off the flow of credit to the broader economy.
"The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," Paulson said.
"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," he said.
