Congress vows quick action on toxic assets

The US Congress has promised quick action on a plan to buy up toxic assets, such as bad mortgages held by troubled banks and other institutions, hoping to lift the United States out of its worst financial crisis in decades.

US Treasury Secretary Henry Paulson and US Federal Reserve Chairman Ben Bernanke are crafting a plan, which they intend to soon deliver to lawmakers, after concluding that they need broader powers to combat the fallout from a housing- and credit-market meltdown that has sent shock waves through Wall Street and around the globe.

US congressional leaders said they expected to get the plan yesterday and would act on it before Congress recessed for the election.

"We hope to move very quickly. Time is of the essence," US House of Representatives Speaker Nancy Pelosi said after Paulson and Bernanke briefed congressional leaders on Thursday night.

Stocks on Wall Street shot up more than 400 points late on Thursday on word that a plan was in the works.

Fallout from the housing and credit debacles have badly bruised the economy and pushed unemployment to a five-year high.

"I don't say any prudent money-manager would say we're out of the woods, but right at this moment it all seems positive and leading toward an upward move for the market going into the Friday session," said Scott Fullman, director of derivative-investment strategy for the New York-based institutional broker WJB Capital Group.

Fullman said the biggest bonus of any potential government plan was that it was being put together to help the banking industry as a whole. Until now, the US Treasury and US Fed have selectively bailed out institutions that were the most vulnerable.

The roots of the current crisis can be traced to lax lending for home mortgages, especially sub-prime loans given to borrowers with tarnished credit, during the US housing boom: when the housing market went bust, home prices plummeted.

As financial companies racked up multibillion-dollar losses on soured mortgage investments, and credit problems spread globally, firms hoarded cash and clamped down on lending.

"The root cause of the stress in the capital markets is the real-estate correction," Paulson said, adding that he hoped to have a solution "aimed right at the heart of this problem".

Bernanke said a resolution would "get our economy moving again".

Congressman Barney Frank, the chairman of the Financial Services Committee in the House of Representatives, discounted the idea of setting up a new agency similar to the Resolution Trust, established in 1989 to resolve a savings-and-loans crisis at a cost to taxpayers of US$125 billion (Bt4.27 trillion).

"It will be the power - it may not be a new entity - it will be the power to buy up illiquid assets," Frank said.

"There is this concern that if you had to wait to set up an entity, it could take far too long."

The US federal government has already pledged more than $600 billion in the past year to bail out, or help bail out, some of the biggest names in US finance.

There was no immediate word on how much the new rescue plan might cost the authorities.

Paulson, Bernanke and other US officials planned to work through the weekend on a solution.