The stock market closed up more than 350 points after President Bush told the nation that extreme measures by the federal government were needed to address the financial crisis he termed a "pivotal moment for America's economy."
"We must act now to protect our nation's economic health," Bush said today after plans were revealed to bail out crippling mortgage debt destabilizing the market. "Given the precarious state of today's financial markets and their vital importance to the daily lives of the American people, government intervention is not only warranted, it is essential."
By the close of trading, the Down Jones Industrial Average was up 380.48 to finish at 11,400.17. Yesterday Dow Jones & Co. announced that as of Sept. 22, Kraft Foods Inc. would replace the recently bailed out insurer AIG on the DJIA.
Before Bush's address to the country, Treasury Secretary Henry Paulson had sketched out a multi-faceted effort to confront the worst U.S. financial crisis in decades, outlining a program that could cost taxpayers "hundreds of billions" of dollars to buy up bad mortgages and other toxic debt that has unhinged Wall Street.
"This needs to be big enough to make a real difference and get to the heart of the problem," he told reporters as the administration asked Congress to give it sweeping powers.
He gave few details but said he would work through the weekend with leaders of Congress from both parties to flesh out the program, the biggest proposed government intervention in financial markets since the Great Depression.
Before the markets opened, the government announced plans to temporarily insure money-market deposits and to block short-selling in financial securities. Short selling is a trading method that bets the stocks will go down.
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Speaking to reporters at the Treasury Department, Paulson said that the new troubled-asset relief program that he wants Congress to enact must be large enough to have the necessary impact while protecting taxpayers as much as possible.
"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," Paulson said in a prepared statement.
"The financial security of all Americans ... depends on our ability to restore our financial institutions to a sound footing," Paulson said.
Paulson said mortgage giants Fannie Mae and Freddie Mac will step up their purchases of mortgage-backed securities to help provide support to the crippled housing market.
He also said Friday that the Treasury Department will expand a program, announced earlier this month, to buy mortgage-backed securities, which have been badly hurt by the housing and credit crisis.
"As we all know, lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing. This simply put too many families into mortgages they could not afford," Paulson said.
"The financial security of all Americans ... depends on our ability to restore our financial institutions to a sound footing," Paulson said.
Paulson said mortgage giants Fannie Mae and Freddie Mac will step up their purchases of mortgage-backed securities to help provide support to the crippled housing market.
He also said Friday that the Treasury Department will expand a program, announced earlier this month, to buy mortgage-backed securities, which have been badly hurt by the housing and credit crisis.
"As we all know, lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing. This simply put too many families into mortgages they could not afford," Paulson said.
At a news conference in which he only took three questions, Paulson was asked the approximate dollar size of the government intervention. "We're talking hundreds of billions," he said.
Paulson did not address specifics about the plan to buy back bad debt or whether the government would take a direct stake in troubled banks in exchange for its help.
"These illiquid assets are clogging up our financial system, and undermining the strength of our otherwise sound financial institutions. As a result, Americans' personal savings are threatened, and the ability of consumers and businesses to borrow and finance spending, investment, and job creation has been disrupted," Paulson said.
He said that the administration would present Congress with a proposed legislative package and then work with lawmakers "to flesh out the details through the weekend. And we're going to be asking them to take action on legislation next week."
"This is what we need to do. Because for some time we've been saying that the root cause of the problems in our economy and our financial system is housing, and until we get stability in the housing market we are not going to get stability in our financial markets," he said.
Earlier, President Bush authorized Treasury to tap up to $50 billion from a Depression-era fund to insure the holdings of eligible money market mutual funds. And the Federal Reserve announced it will expand its emergency lending program to help support the $2 trillion in assets of the funds.
Both moves are designed to bolster the huge money market mutual fund industry, which has come under stress in recent days.
The Fed said it is expanding its emergency lending efforts to allow commercial banks to finance purchases of asset-backed paper from money market funds. The central bank's move should help the funds meet demands for redemptions.
The Securities and Exchange Commission early Friday imposed a temporary emergency ban on short-selling of financial company stocks. As the financial crisis widened, entreaties had come from all quarters to stem a swarm of short-selling contributing to the collapse of stock values in investment and commercial banks.
Congressional leaders said they expected to get the rescue plan Friday and act on it before Congress recesses for the election.
The government's actions could help alleviate the uncertainty that has been sending the markets into tumult over the past week. Lending has grinded to a virtual standstill in the wake of the bankruptcy of Lehman Brothers Holdings Inc.
