U.S. Treasury Secretary Henry Paulson says the government must take further "bold" actions to resolve the current financial crisis.
In a televised speech Friday, Paulson said the problem grows out of the millions of U.S. mortgage loans that are in default or foreclosure. When homeowners cannot repay their loans, it damages lenders and investments based on mortgages.
The uncertain value of those investments makes banks reluctant to lend money, and the lack of loans threatens to stall the economic system.
Paulson outlined a larger program to buy up bad "mortgage backed securities" that will cost "hundreds of billions" of dollars.
He called the cost "significant" but said it is cheaper than allowing the financial system to stall.
He pledged to work with key members of Congress to fashion a "comprehensive" plan to resolve the crisis.
President George Bush said this is a "pivotal moment" and time for leaders to come together across party lines to deal with these issues. He said the U.S. economy faces "unprecedented" problems and the government is taking unprecedented actions to solve them.
Even before Paulson and Mr. Bush spoke, world stock markets were soaring today on news the U.S. government is formulating a plan to rescue banks from the bad debts at the center of the U.S. financial crisis.
Investors also were encouraged when U.S. regulators temporarily protected the stocks of financial companies from a trading practice called "short selling" that rewards investors when the stock falls. And the government extended insurance protection to widely-held investments called "money market mutual funds."
Fears of a global financial meltdown forced the U.S. Federal Reserve and other major central banks early Thursday to pump hundreds of billions of dollars into the world's financial markets.
Earlier this week, the Federal Reserve gave an $85 billion emergency loan to bail out the world's biggest insurance company, American International Group (AIG). AIG nearly collapsed after major losses in the housing crisis.
Some information for this report was provided by AP and Reuters.
