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Congressional Leaders Stunned by Warnings

Mr. Bernanke and Treasury Secretary Henry M. Paulson Jr. had made an urgent and unusual evening visit to Capitol Hill, and they were gathered around a conference table in the offices of House Speaker Nancy Pelosi.

“When you listened to him describe it you gulped," said Senator Charles E. Schumer, Democrat of New York.

As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program “Good Morning America,” the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”

Mr. Schumer added, “History was sort of hanging over it, like this was a moment.”
[emboldenings mine]

"This is a pivotal moment for America's economy," Bush said. "There will be ample opportunity to debate the origins of this problem, now is the time to solve it."

Few exact details of the plan have been revealed, but it essentially involves creating a new government agency that could soak up all the bad assets that are bringing down US financial firms.

Bush said the intervention would require a 'significant amount of taxpayer dollars.' Paulson earlier said the cost would be in the 'hundreds of billions.'

'I am convinced this bold approach will cost American families far less than the alternative,' Paulson said. 'The financial security of all Americans ... depends on our ability to restore our financial institutions to sound footing.'

Bush said he was confident the mortgage-backed securities, which the government is now taking on, would recover their value in the longer term. Their value has plunged due to a record rate of home foreclosures in the US, but Bush pointed out that most Americans still paid their mortgages on time.

"The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," he said.

"This troubled asset relief program must be properly designed and sufficiently large to have maximum impact, while including features that protect the taxpayer to the maximum extent possible."

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 President George W. Bush approved the use of up to 50 billion US 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 US dollars in money market funds, which are generally considered safe investments although they have not up to now been federally guaranteed.

Sept. 20 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson is sending a financial-rescue plan worth about $800 billion to Congress as Democrats prepare to turn it into a vehicle to help people with high-cost mortgages stay in their homes.