Paulson Asks Congress for Rescue

WASHINGTON (Reuters) – Treasury Secretary Henry Paulson on Friday called for the U.S. government to spend hundreds of billions of dollars to take toxic mortgage assets off the books of financial firms to restore financial stability.

“We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system’s stresses,” Paulson told a news conference.

“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.

Treasury earlier announced it would siphon up to $50 billion from the country’s Exchange Stabilization Fund for a temporary guaranty program to shore up the U.S. money market mutual fund industry.

It was the latest in a number of dramatic measures to prevent credit markets from freezing up over huge losses on subprime mortgages.

Paulson made plain that such case-by-case measures were not enough, and called on U.S. lawmakers to forge a broader plan.

“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,” he said.

“The ultimate taxpayer protection will be the stability this troubled asset relief program provides our financial system, even as it will involve a significant investment of taxpayer dollars,” Paulson added.

“I am convinced that this bold approach will cost American families far less than the alternative – a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion.”

But Paulson also said additional immediate steps were needed while he worked with Congress over the weekend and into next week to thrash out the broader rescue plan.

“First, to provide critical additional funding to our mortgage markets, the GSEs (government sponsored enterprises) Fannie Mae and Freddie Mac will increase their purchases of mortgage-backed securities,” he said.

In addition, Treasury will expand the mortgage backed security purchase plan it announced earlier this month to complement capital provided by mortgage giants Fannie Mae and Freddie Mac, seized by the government on September 7.

By David Lawder and Alister Bull
(Reporting by Alister Bull; editing by Neil Stempleman)