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WORLD> America
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Possible financial crisis fix sends US stocks soaring
(Agencies)
Updated: 2008-09-19 15:04 WASHINGTON - The US stock market finally found reason to rally Thursday, and Congress promised quick action as the Bush administration prepared a plan to rescue banks from the bad debt at the heart of the worst crisis on Wall Street since the Great Depression. Details of the plan were still being worked out, but US Treasury Secretary Henry Paulson emerged from a nighttime meeting on Capitol Hill to say he hoped to have a solution "aimed right at the heart of this problem."
As word of a government plan began to reach Wall Street earlier in the day, the Dow Jones industrial average jumped 410 points, its biggest percentage gain in nearly six years. The rebound also came after an infusion of billions of dollars by the Federal Reserve and world governments aimed at getting nervous banks to stop hoarding money and lend again. Stocks had fluctuated throughout the day, without severe swings in either direction, until CNBC reported the US administration might back a new agency to take bad assets off the books of struggling financial institutions, much like it did in the aftermath of the savings and loan crisis of the 1980s. After the discussions Thursday night, Paulson said the goal was to come up with a "comprehensive approach that will require legislation" to deal with the bad debts, or illiquid assets, on bank's balance sheets. He did not provide any details, but the plan taking shape called for Congress to give the administration the power to buy distressed bank assets. Rep. Barney Frank, chairman of the House Financial Services Committee, said that probably would not mean creating a new government agency. "It will be the power -- it may not be a new entity. It will be the power to buy up illiquid assets," Frank said. "There is this concern that if you had to wait to set up an entity, it could take too long." Frank said his committee could begin drafting legislation as early as Wednesday. Paulson, Fed Chairman Ben Bernanke and other officials planned to work through the weekend on a solution. House Speaker Nancy Pelosi said that once the administration had presented its proposal, "we hope to move very quickly" to come to an agreement. There was no immediate word how much the rescue plan might cost. The banks still standing are staggering under the weight of billions of dollars of bad loans and mortgage debt arising from the wave of home foreclosures in the United States, and lending has tightened around the world in response. Before the sun rose on Wall Street on Thursday, the Fed said it would boost by as much as $180 billion the amount of cash it would supply to foreign counterparts that are short on dollars. For banks in the United States, the Fed supplied $105 billion in short-term loans later in the day. But, at least initially, those efforts did little to unfreeze the global credit markets. Banks remained extremely reluctant to lend money. The No.2 official at the International Monetary Fund, John Lipsky, said the past few days were "searing manifestations of a financial crisis that has expanded to historic proportions." He predicted the turbulence would continue for "some time to come." British financial regulators also banned short-selling the stock of financial companies listed on the London Stock Exchange. US regulators tightened rules on short-selling Wednesday. |
