US Developing Financial Rescue Plan
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This is the VOA Special English ECONOMICS REPORT.
The United States government is working on a plan to rescue banks from the bad debts at the center of the financial crisis. World stock markets have risen sharply Friday on the news.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke met with congressional leaders Thursday night. Secretary Paulson says the measures will require legislation to deal with the bad housing debt held by financial companies. He says work on details of the plan will continue through the weekend and Congress will be asked to take action next week.
Also, the Treasury Department has announced a temporary insurance program to protect money market mutual funds in the United States. Concerns in financial markets spread this week even to money market funds -- normally considered among the safest investments.
And, in another move, the Securities and Exchange Commission has temporarily barred short selling of stocks in financial companies. Short selling is selling borrowed stock in the expectation of buying it back later at a lower price, and keeping the difference. The commission said its emergency action should prevent short selling from being used to drive down share prices. Britain took similar action on Thursday.
Also Thursday, major central banks pumped extra money into financial markets to try to persuade nervous banks to lend to each other.
Last week, the United States government took control of the nation's two biggest housing finance companies. This week the Federal Reserve agreed to lend up to eighty-five billion dollars to the nation's largest insurance company. In return, the government will own eighty percent of A.I.G., the American International Group, and get interest on the two-year loan.
A.I.G. got into deep trouble on insurance policies that it provided for securities tied to risky home loans. It has dealings with every major financial company in the United States and operates in more than one hundred thirty countries.
While the government took over A.I.G., it refused a bailout for a big investment bank, Lehman Brothers. That forced Lehman to seek Bankruptcy Court protection from its creditors.
The United States had five big, independent investment banks before the credit crisis began a year ago. Now two remain: Morgan Stanley and Goldman Sachs.
And that's the VOA Special English ECONOMICS REPORT, written by Mario Ritter. I'm Bob Doughty.