US government to set up 'billion dollar' bank rescue fund
US treasury secretary Hank Paulson said hundreds of billions of dollars would be needed to buy troubled bank assets
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Saturday, 20, Sep 2008 12:34
The US government is considering setting up a fund to buy troubled bank assets that reports state could be as large as $800 billion (£436 billion).
Speaking yesterday, US president George Bush said unprecedented action would be needed to put an end to the credit crunch which was sparked by defaults on subprime loans.
Under the proposed plan, the government will use US taxpayers' money to buy assets held by banks thereby helping the financial institutions to gain the capital to resume normal operations.
At the White House yesterday, the US head of state said: "This is a pivotal moment for America's economy. Problems that originated in the credit markets - and first showed up in the area of subprime mortgages - have spread throughout our financial system.
"This has led to an erosion of confidence that has frozen many financial transactions, including loans to consumers and to businesses seeking to expand and create jobs. As a result, we must act now to protect our nation's economic health from serious risk."
He added that the country's treasury, the federal reserve and the financial services regulator were working together to help the financial system recover.
Speaking about the measures to assist the financial services industry, US treasury secretary Hank Paulson said: "We're talking hundreds of billions. This needs to be big enough to make a real difference and get at the heart of the problem."
He 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."
Stock markets around the world registered massive gains yesterday on reports of the plan as the FTSE 100 rose by 8.8 per cent in the best day in its history.
New York's S & P 500 index soared by 4 per cent while Shanghai's main index saw average share prices shoot up by 9.5 per cent.
The move caps off an extraordinary week in the financial services industry with the bankruptcy of the US' fourth largest bank Lehman Brothers, the acquisition of Merrill Lynch by Bank of America and the $85 billion (£46.4 billion) loan to insurer AIG that prevented it from going under.