Quick Action Sought on Plan to Rescue Banks From Bad Debts
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This is IN THE NEWS in VOA Special English.
In recent weeks, the United States government has dealt with struggling financial companies on a case-by-case basis. Now government and congressional leaders are discussing a plan, and they say there is no time to lose.
The idea is to have the government buy troubled housing loans from banks and other financial companies. These bad debts resulted from what Treasury Secretary Henry Paulson calls "irresponsible lending and irresponsible borrowing."
The loans were then sold as securities. Investors bought them for their high returns. But now their loss of value may call into question the financial condition of the companies that own them.
As a result, these bad loans have blocked the flow of credit that the economy depends on.
Removing them from the financial system will require a lot of money. How much? Secretary Paulson was asked that question at a news conference on Friday.
REPORTER: "You said this needs to be a significant size. Are we talking hundreds of billions, a trillion dollars?"
HENRY PAULSON: "We're talking hundreds of billions. This needs to be big enough to make a real difference and get at the heart of the problem."
Details of the rescue plan are still being worked out, but the administration wants Congress to act on legislation next week. Congress is supposed to leave after that to campaign for the November fourth elections, but lawmakers could delay their plans.
President George Bush called on Congress not to add provisions that could delay a bill. He says the proposed action does involve risk to taxpayer money, but he expects the money will be paid back. He says most of the assets that the government is planning to buy have good value over time, because most homeowners continue to pay their mortgages.
And he says the economic risks of not acting would be far higher.
Earlier this week, the government gave a rescue loan to the huge insurance company A.I.G. in return for a controlling interest. That came after the government took control of the housing finance companies Fannie Mae and Freddie Mac last week. And six months ago it provided loans for the bailout of the investment bank Bear Stearns. All these steps, and more, are connected to the bad loans.
President Bush said the American system of free enterprise rests on the idea "that the federal government should interfere in the marketplace only when necessary." He says today's shaky financial markets demand government intervention.
Recent measures have been historic. But there have been other government interventions in private business over the years.
For example, Congress provided billions of dollars to help airlines after the terrorist attacks seven years ago.
And in nineteen eighty-nine, when President Bush's father was president, Congress established the Resolution Trust Corporation. The agency had to deal with hundreds of failed savings and loan banks. Dealing with that crisis cost taxpayers about one hundred twenty-five billion dollars.
And that's IN THE NEWS in VOA Special English, written by Brianna Blake. I'm Steve Ember.