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White House scrambles to get rescue plan moving

(Agencies)
Updated: 2008-10-13 20:58

Throughout the weekend, the administration worked to restore confidence, using the annual meetings of the 185-nation International Monetary Fund and World Bank to send a message that global finance officials will do what it takes to resolve the crisis.

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The Group of Seven major industrial countries issued a five-point action plan that pledged to do everything from preventing major banks from failing to unfreezing credit markets.

President Bush met with G-7 finance officials at the White House on Saturday morning and later traveled to the IMF to meet with the Group of 20, which includes rich countries as well as major developing nations such as China, Brazil, India and Mexico. He stressed the need for cooperation.

In Paris, the 15 nations in Europe's single-currency zone agreed Sunday to steps including temporarily guaranteeing bank refinancings.

The Bush administration over the past six weeks has taken over the nation's two biggest mortgage finance firms, Fannie Mae and Freddie Mac, rescued American International Group, the world's biggest insurance company, and won congressional approval of a $700 billion rescue package for the entire financial system.

As the bailout bill rushed through Congress, Paulson stressed that the major aim was to buy bad assets, primarily mortgage-backed securities, from financial institutions. The hope was that taking those bad loans off the books would encourage banks to return to more normal lending operations and unclog credit flows - the economy's lifeblood.

Paulson said Friday that the government also would use some of the money to buy stakes in banks. The goal is to give banks the resources to resume lending at more normal levels.

That about-face has left the administration trying to decide how much to devote to buying bad assets and how much to use for stock purchases.

Lawmakers who pushed to include the stock purchase program in the rescue bill over initial administration objections say the stock purchases can start much faster than the effort to buy bad assets and help restore market confidence sooner.

Sen. Charles Schumer of New York, chairman of the Joint Economic Committee, said Sunday that he hoped the administration would announce as soon as Monday that the stock purchases were being launched.

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