WORLD> America
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WORLD> America
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US launches all-out attack on credit crisis
(Agencies)
Updated: 2008-09-20 20:42 US$1 TRILLION Paulson and Federal Reserve Chairman Ben Bernanke have already put close to US$1 trillion of taxpayer money on the line to try to keep credit flowing. At a meeting with congressional leaders on Thursday night, Paulson and Bernanke made the case for aggressive action to get ahead of events that could devastate an already weak economy. "When I heard his description of what might happen to our economy if we failed to act, I gulped," Democratic Sen. Charles Schumer of New York said, referring to Bernanke's appraisal. A congressional aide on a telephone conference call between the Fed, Treasury and lawmakers on Friday said Bernanke issued a stark warning: "If Congress doesn't act soon, there will be an economic meltdown." Fed spokeswoman Michelle Smith declined to comment directly on the accuracy of the chairman's reported remark, but confirmed that he painted "a dark scenario". At his news conference, Paulson said the latest plan was the best hope of ultimately protecting the public purse and avoiding a grave recession. "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. A Treasury official said hedge funds and non-US financial institutions would not be allowed to offload troubled assets under the plan. The banking industry sources said "reverse auctions" would be held to purchase US$50 billion tranches of debt, which could include residential and commercial mortgages and mortgage-backed securities. One source said the purchases would then be made in further increments of US$10 billion and that five outside asset managers would help run the auctions. A Treasury spokeswoman declined to comment on those details, although the Treasury did confirm asset managers would be hired. PILING ON DEBT? The White House said it was too soon to say how the plan would impact the nation's debt, and said it was possible many of the funds could be recovered as markets stabilise and currently bad assets are sold off. An industry source said there would be no limit on how long the government could hold the debt, which would have had to have been on selling institutions' books as of September 15. A congressional aide said the issue of whether the government should receive warrants in companies offloading assets was under discussion. In addition, Democrats signaled they might try to use the legislation to put some limits on CEO pay and possibly extend further help to distressed homeowners. One financial source briefed on calls made by the Treasury to Washington lobby groups said the Treasury feels it has the authority to take on these assets directly, and therefore won't need to set up a separate agency. |
