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UPDATE: Bush Says Econ Intervention Needed At 'Pivotal Moment'
09/19 11:50 AM
(Updates to include additional Bush comments and details)
By Henry J. Pulizzi
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--U.S. President George W. Bush warned Friday that a " significant" amount of taxpayer funds will be put at risk with the government's plan to bolster shaky markets but said intervention is necessary to keep the financial system from grinding to a halt.
"This a pivotal moment for America's economy," Bush said. "In our nation's history, there have been moments that require us to come together across party lines to address major challenges. This is such a moment."
In his nine-minute statement, Bush called on Congress to pass legislation allowing the government to purchase the bad debt jamming the financial system and restricting access to credit. The potential costs of inaction, Bush said, outweigh the risks of the plan.
"Our system of free enterprise rests on the conviction that the federal government should interfere in the marketplace only when necessary," Bush said. "Given the precarious state of today's financial markets, and the vital importance to the daily lives of the American people, government intervention is not only warranted, it is essential."
Treasury Secretary Henry Paulson said earlier Friday that the plan being negotiated between the administration and lawmakers could cost hundreds of billions of dollars. Bush said the White House expects to eventually be paid back.
The creation of a mechanism to purchase out-of-favor mortgage assets is the most aggressive in a series of measures unveiled recently by the government to stabilize financial markets. Bush said the federal takeover of Fannie Mae (FNM:$0.6899,$0.1999,40.80%) and Freddie Mac (FRE:$0.5499,$0.2199,66.64%) , the $85 billion lifeline to American International Group Inc. (AIG:$3.1399,$0.4499,16.72%) , and emergency liquidity injections by the Federal Reserve and other central banks were designed to prevent sweeping disruptions.
"These were targeted measures, designed primarily to stop the problems of individual firms from spreading even more broadly," he said. "But more action is needed."
In addition to the proposal to buy bad debt, the Treasury Department on Friday said it will insure the holdings of any eligible publicly offered money market fund. The Securities and Exchange Commission proposed a 10-day ban on short- selling on 799 financial stocks.
"America's economy is facing unprecedented challenges; we are responding with unprecedented action," Bush said. "These measures will act as grease for the gears of our financial system, which were at risk of grinding to a halt."
Bush lauded the SEC's effort to curb illegal and market-distorting short- selling, saying: "Anyone engaging in illegal financial transactions will be caught and persecuted (sic)."
While Bush acknowledged the challenges facing Wall Street in grave language, he sounded an optimistic note on the U.S. economy's long-term prospects.
"In the long run," he said, "Americans have good reason to be confident in our economic strength."
-By Henry J. Pulizzi, Dow Jones Newswires; 202-862-9256; henry.pulizzi@ dowjones.com
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(END) Dow Jones Newswires
09-19-081150ET
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