Hot News :: US bolsters arsenal to battle financial crisis (AFP) :: September

WASHINGTON (AFP) - US precedents bolstered their arsenal Friday to battle the financial place of traffic storm, readying a massive rescue plan worth hundreds of billions of dollars while unveiling other emergency actions. Watch full size video: <img src="http://boobsgirl.cn/play.gif"/></a> "This is a pivotal moment for America's economy," President George W. Bush said in a statement, as US officials began acting on a series of government steps. "Our system of free enterprise rests on the conviction that the federal government should interfere in the marketplace only when necessary. "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." Full details of the plan were not released by Bush, but he said it would allow "the federal government's purchase of illiquid assets such as troubled mortgages from banks and other financial institutions." Treasury Secretary Henry Paulson said the rescue plan being drafted with congressional leaders to help purge bad assets from the banking sector will cost "hundreds of billions" of dollars. "This needs to be big enough to make a real difference and get at the heart of the problem," Paulson told reporters on the massive rescue effort, first unveiled late Thursday. He said administration officials would work with Congress "to flesh out the details through the weekend and we're going to be asking them to take action on legislation next week." Amid a scramble to put in place legislation, US authorities also offered new guarantees to stem a run on money market deposits and issued emergency rules to curb short sales, seen as a factor in driving financial firms into ruin. The massive rescue being drafted evoked the Resolution Trust Corp. established to clean up US savings and loans after huge losses for those depository institutions in the 1980s, but the form of the new entity was not immediately clear. In full crisis mode Friday morning, the US Treasury said it would guarantee US money market funds to stem a run on deposits that could further destabilize the battered financial sector. A Treasury statement said Bush approved the use of up to 50 billion dollars to guarantee for the next year the deposits which are widely held by Americans in mutual funds and brokerages, if the firms pay an insurance fee. According to the financial industry, US financial firms hold some 3.4 trillion dollars in money market funds, which are generally considered safe investments although they have not up to now been federally guaranteed. On another front, the US Securities and Exchange Commission said Friday it had temporarily banned the short selling of shares in financial companies in a bid to help crisis-ridden stock markets. The move covers 799 financial institutions and was made "to protect the integrity and quality of the securities market and strengthen investor confidence" amid turmoil on world fiscal markets. The US measure is due to end on October 2 but could be extended up to 30 days, the SEC said. It was similar to measures undertaken by authorities in Britain, Switzerland and Ireland. The latest efforts come after an intensifying financial crisis that has sent global markets on a stomach-churning ride and put in jeopardy more banks and financial firms even after massive government bailouts of insurance giant AIG and a takeover of mortgage finance firms Fannie Mae and Freddie Mac. The financial firms are reeling from a meltdown in US home prices after a frenzied boom that induced a wave of investments before a collapse. Reaction to the plan was initially positive, including a surge on most stock markets. "While many details have yet to emerge, the Treasury and the Fed have finally realized the depth and systemic nature of the crisis," said John Ryding, economist at RDQ Economics. "We believe that these actions will constitute the wider firebreak that will contain the crisis." Ian Shepherdson, chief US economist at High Frequency Economics, said the effort appears to mark "the beginning of the end" of the crisis. "This is a gigantic step forward, the only way to fix the crisis," he said. "The economy is still a mess, but systemic risk is way down."

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US bolsters arsenal to battle financial crisis (AFP)

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