Bush lays out $700 billion bank bailout plan

The Bush administration yesterday formally proposed to Congress what could become the largest financial bailout in U.S. history, requesting virtually unfettered authority for the Treasury to buy up to $700 billion in mortgage-related assets from financial institutions based in the United States.

The plan would raise the US National Debt to $10.4 trillion from the current $9.7 trillion.

The proposal was stunning in its simplicity: less than three pages, it would raise the national debt ceiling to $11.3 trillion. And it would place no restrictions on the administration other than requiring semi-annual reports to Congress, allowing the Treasury to buy and resell mortgage debt as it sees fit.

Democratic congressional leaders have pledged to help approve legislation by the end of this week.

The plan, an ambitious effort to transfer the bad debts of Wall Street into the obligations of American taxpayers, was put forward by the administration late last week after a series of bold interventions on behalf of ailing private firms seemed unlikely to prevent a crash of world financial markets.

Bush pledged to work with Congress to quickly pass legislation as part of the biggest financial bailout since the Great Depression.

"It's big because it needed to be big," Bush said, acknowledging hundreds of billions of dollars in taxpayer money is being put at risk. He added that the risk of doing nothing far outweighed the risks of government intervention.

"People are beginning to doubt our system, people were losing confidence, and I understand it's important to have confidence in our financial system," he said.

Bush's remarks capped a roller-coaster week on Wall Street. The Federal Reserve engineered an $85 billion takeover of insurance giant AIG after seizing control of housing giants Freddie Mac and Fannie Mae earlier in the month. One investment giant, Lehman Brothers, collapsed and a second, Merrill Lynch, was purchased by rival Bank of America for less than half its value.

The government must bail out the financial system "because if we don't, it will have a tremendous impact on American consumers, homeowners, taxpayers and the rest," House Speaker Nancy Pelosi, a Democrat, said at a citizens' workshop in San Francisco.

But, she added, "We cannot deal with this unless this bailout helps families stay in their homes."

Democrats are pressing to require that the plan help more strapped borrowers stay in their homes and that it put new limits on executive compensation.

Signalling what could erupt into a brutal fight with Democrats over add-on spending, the House's top Republican, Ohio Representative John Boehner, warned "efforts to exploit this crisis for political leverage or partisan quid pro quo will only delay the economic stability that families, seniors and small businesses deserve."

Treasury officials met congressional staff for about two hours on Capitol Hill yesterday. Also among the key issues up for negotiation is which financial institutions would be eligible for the help. The proposed legislation doesn't make it clear, leaving open the question of whether hedge funds or pension funds could qualify.