Sept. 19, 2008, 4:58 p.m. EDT

U.S. readies broad rescue plan for financial crisis

Action's 'essential,' Bush says; stocks soar on news of multi-pronged plan

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By Robert Schroeder, MarketWatch

WASHINGTON (MarketWatch) -- The U.S. government is moving to enact a sweeping rescue package for the battered financial system that the White House says will sustain U.S. markets and the economy but also put hundreds of billions of taxpayer dollars on the line.

Government intervention is "essential" to stemming the crisis, President Bush said Friday in endorsing the wide-ranging plan.

The nation's economy is facing a "pivotal moment," he said at the White House.

"We believe that this decisive government action is needed to preserve America's financial system and sustain America's overall economy," Bush said.

Click to Play

Paulson: A 'Bold Approach'

U.S. Treasury Secretary Henry Paulson says to restore confidence in the nation's markets and financial institutions, the government must take a "bold approach," which will ultimately protect taxpayers. Video courtesy of Fox News. (Sept. 19)

The plan includes efforts to relieve banks of bad assets, halt some short selling of stocks, expand government purchases of mortgage-backed securities and insure money-market mutual funds.

Helping banks get rid of bad assets will carry a price tag in the "hundreds of billions of dollars," Treasury Secretary Henry Paulson said.

Paulson added that a planned government entity that will buy illiquid mortgage assets from financial institutions must be "sufficiently large" in order to have "maximum impact." He didn't provide details of the type of new agency or program he has in mind, saying only that he will work over the weekend with key members of Congress to examine all approaches.

Paulson and Federal Reserve Chairman Ben Bernanke briefed leaders of Congress on details of the plan Thursday night. Senate Democrats Christopher Dodd and Charles Schumer said Friday they were optimistic that Congress can approve the package next week. House Majority Leader Steny Hoyer said he plans to bring the plan to the House floor "early next week."

"This needs to be big enough to make a real difference and get at the heart of the problem," Paulson told reporters during a brief news conference Friday morning.

'...the crash phase of the Great Financial Crisis of 2008 would appear to be over.'

Stephen Stanley, RBS Greenwich Capital

On Friday, the major stock indexes climbed above the level at which they stood before the start of the watershed week, which saw the Dow Jones Industrial Average lose about 800 points in the first three days of trading. See full story.

The government's plan to buy up assets "was the booster shot that the market was looking for," said Owen Fitzpatrick, head of the U.S. equity group at Deutsche Bank.

"This was what we needed to happen, to remove those assets dwindling on balance sheets. And the short-sale rule, for the sector that it's targeting, will also help near term," he said.

However, Treasury prices plunged and yields spiked higher. See Bond Report.

And the dollar came under selling pressure as foreign-exchange traders pondered the fiscal impact of the government's multibillion-dollar commitment behind its rescue plan. See Currencies.

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