US financial rescue plan could total $800 bnSeptember 20th, 2008 - 11:37 pm ICT by IANS
Washington, Sep 20 (DPA) The US government is submitting a finance rescue package to Congress that is valued at $700-800 billion, media reports said Saturday.In the largest intervention in capital markets since the 1930s, the administration of US President George W. Bush Friday proposed to mop up bad mortgage debt with its first system-wide attack on turmoil in the finance industry that threatens the nation with economic collapse.
Bush’s economic generals and Congressional leaders are meeting over the weekend to iron out the details.
The programme may be worth $700 to 800 billion, and would be broken down into tranches of $50 billion each, the Wall Street Journal and Bloomberg financial news agency reported, quoting unnamed sources.
The Treasury Department would buy up the bad mortgage debts that have already brought down major financial firms and auction them off for the lowest prices - a reverse of a normal auction, Bloomberg reported.
In order to fund the purchases, Congress would need to raise the federal debt limit to allow the government to borrow enough money to fund the programme.
The comprehensive approach marks the first system-wide approach after the year-long crisis that has seen credit dry up and financial giants such as Lehman Brothers and American International Group (AIG) fall.
Earlier, the US floated a bailout of the mortgage giants Freddie Mac and Fannie Mae valued at up to $200 billion.
Stock markets swung widely through the week as Lehman Brothers declared its $600 billion bankruptcy and even the $85 billion bailout of AIG failed to calm them.
But once news emerged about the larger programme to buy up mortgage debt, markets calmed down and recovered their losses for the week.
The crisis has played havoc with global markets but they, too, recovered for the most part by week’s end.
“We’re going to be buying up a lot of mortgage paper,” said House financial services committee chairman Barney Frank, a Massachusetts Democrat.
The government intervention comes as nearly 10 percent of American mortgages are delinquent or in foreclosure, and as home values have fallen for nearly two years straight.
Congress is expected to adopt the rescue plan by the end of next week, when it is due to recess in preparation for the Nov 4 presidential and congressional elections.
Already Friday, the US government moved to curb certain speculative trading on Wall Street, threw its might behind money market mutual funds and started mopping up bad mortgage assets through an emergency purchase plan.
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Tags: american international group, barney frank, economic collapse, financial giants, financial services committee, house financial services committee, lehman brothers, mortgage debts, mortgage paper, wall street journal