MercoPress. South Atlantic News Agency

Congress/White House announce plan to ease global crisis

Paulson: ever optimistic in the worst of times

United States officials said they will hammer out a “comprehensive” plan to ease what has become a global financial crisis. US Treasury Secretary Henry Paulson said after meeting members of Congress that legislation would be required to help rid US banks of their bad assets.

He said this was at the heart of the rescue plan, which will be worked out over the weekend. US stocks had earlier surged on news of the rescue plan, with the Dow Jones up 3.86%, to 11,019.69. Japan's Nikkei echoed the rally in early trading on Friday. World markets have been volatile in the wake of huge upheavals among banks. Since the start of the week, Lehman Brothers has collapsed, the Federal Reserve has bailed out insurance giant AIG, Merrill Lynch has been acquired by Bank of America and in the UK, Lloyds TSB has acquired HBOS. Mr Paulson and Federal Reserve Chairman Ben Bernanke briefed Congress leaders on the plans they were considering. "We talked about a comprehensive approach that will require legislation to deal with illiquid assets on financial institutions' balance sheets," Mr Paulson said. He said the root cause of the stress in the markets was the "real estate correction" and the "price declines in real estate". In an upbeat press conference, the congressional leaders and finance officials were keen to stress they had agreed to work together for the good of the country. "I think we saw the best of the United States of America in the Speaker's office tonight," Mr Paulson said. "This country is able to come together and do things quickly when it needs to be done for the good of the American people." The BBC's Jane O'Brien in Washington says the heart of the problem is the bad debt caused by high-risk mortgages that sparked the housing slump and subsequent credit crunch. There is speculation that one plan being discussed involves a government agency that would take on the debt, our correspondent says. Another possibility is legislation that would force lenders to renegotiate mortgages that homeowners are having difficulty paying, she adds. Reports said Mr Paulson was looking into setting up something akin to the Resolution Trust Corp (RTC), which was formed after savings and loans banks collapsed in the 1980s. RTC took over most of the smaller banks in the US at a cost of 400 billion US dollars, about one trillion US dollars in today's money, and then tried to sell off their assets. BBC economics reporter Steve Schifferes says the cost of such a bailout would be probably be higher this time, with bad mortgage debt believed to be around 2 trillion. Six of the world's top central banks took steps to calm worried stock markets on Thursday, releasing 180 billion US dollars to lift the amount of credit available. On Friday, the Bank of Japan said it had injected a further 19 billion US dollars into money markets, to add to the 80 billion it had already pumped in this week. (BBC).-