Bush reassures Americans on economy, banks

July 16th, 2008 - 3:07 am ICT by IANS  

Washington, July 16 (DPA) After days of US financial turmoil that have sent worldwide markets plunging, US President George W. Bush Tuesday assured Americans that their bank accounts were safe and defended his administration’s decision to shore up two troubled mortgage firms. Bush said the government acted over the weekend to protect the mortgage firms - known as Fannie Mae and Freddie Mac - because they are vital to the economy. The two companies finance or buy half of all home mortgages - estimated at a total of $12 trillion.

Speaking to reporters at the White House briefing room, Bush urged Americans to keep their money in bank accounts because their deposits are backed by the FDIC in the event a bank collapses.

“My hope is, is that people take a deep breath and realize that their deposits are protected by our government,” Bush said.

“A lot of people in the country probably don’t understand how important they are to the mortgage markets,” Bush said at a White House press conference. “And it’s really important for people to have confidence in the mortgage markets and that there be stability in the mortgage markets.”

His remarks came as the head of the US central bank, Ben Bernanke, told the Senate that the US economic outlook was “uncertain” and auto giant General Motors announced new job cuts and asset sales to counter the lowest US auto sales in a decade.

Late last week, US federal regulators seized the assets of California-based mortgage bank IndyMac, the largest such takeover since 1984, and a small number of similar cases could lie ahead over the coming year, Sheila C Bair, the chairwoman of the Federal Deposit Insurance Corporation (FDIC), was quoted as saying by The New York Times.

The move to rescue Fannie and Freddie, led by Treasury Secretary Henry Paulson, comes just months after the US Federal Reserve bankrolled the buyout of Bear Stearns, a large financial firm also beleaguered by the mortgage crisis, to rescue it from bankruptcy. The weekend’s move to guarantee the debts of the two companies, which are chartered by the federal government but have publicly- traded shares, drew fire on Capitol Hill.

Republican Senator Jim Bunnings quipped that writing a “blank check” for Freddie and Fannie made the Bear Stearns bailout look like “amateur socialism”.

Bush denied that the government was bailing out the two firms, saying it was a “temporary action” to “kind of calm nerves” and vowing that they would continue to be “shareholder-owned” companies.

The US president also urged patience in seeing the effect of the $150-billion tax rebate in boosting the economy.

US retail sales in June rose a disappointing 0.1 percent over May figures, the US Commerce Department said Tuesday, and sales of large ticket items like cars and electronics dropped into the negative side.

“It’s going to take some time before we feel the full benefit of the stimulus package, but the early signs are encouraging,” Bush said. “Despite the challenges we face, our economy has demonstrated remarkable resilience.”

In his testimony to Congress Tuesday, Federal Reserve head Bernanke described the economic outlook as “uncertain,” “constrained” and “subdued.”

“The possibility of higher energy prices, tighter credit conditions, and a still-deeper contraction in housing markets all represent significant downside risks to the outlook for growth,” Bernanke said.

Financial shares on Wall Street suffered their largest drop in eight years in trading Monday.

General Motors Corp Chief Executive Officer Rick Wagoner, battling a 16-percent decline in sales this year, said the company would cut salaried payroll by 20 percent, eliminate its 25-cent quarterly dividend and sell assets to raise at least $15 billionover the next 18 months.

GM, turning 100 this year, reported its largest annual loss in 2007, of $38.7 billion, and hasn’t posted a profit since 2004, Bloomberg financial news agency reported.

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