World economy

Paulson pledges "hundreds of billions of dollars" for finance rescue plan

Article published on the 2008-09-19 Latest update 2008-09-19 15:58 TU

Paulson at the press conference
(Photo: Reuters)

Rescuing the troubled US financial sector will cost "hundreds of billions" of dollars, US Treasury Secretary Henry Paulson said Friday. President George Bush declared that the US faces a "pivotal moment" in its history. Markets around the world rebounded after Thursday's announcement that a plan would be drawn up.

"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," Paulson  said before talks with Congress to hammer out the details of the rescue effort.

Paulson announced "other immediate actions", including an acceleration of purchases of mortgage securities by the Treasury and by Fannie Mae and Freddie Mac, the two government-sponsored enterprises taken over by the government this month in the face of massive losses.

Before Paulson's statement, Republican Senator Richard Shelbly told ABC television that he expects the scheme to cost over a trillion dollars.

Earlier, US stocks surged on rumours of the plan, with the Dow Jones average recovering 3.86 per cent Thursday. Stock markets in Asia also picked up.

"The markets have reacted euphorically," says British-based economist Bob McKee, but he adds that Europe has been slow to react.

"The banks in Europe are continuing to be in a state of denial," McKee told RFI. "Although many of them have confessed to lots of losses and have written down their balance sheets accordingly over the last few quarters, there’s still a hell of a sight more losses out there that haven’t been recorded yet and will appear over the next few quarters."

European governments have been slow to act, partly because mos tof what could be done would have to be be agreed EU level.

On Friday, the European Central Bank made 28 billion euros available for short-term loans, while the Bank of England also provided an extra 28 billion euros to borrowers.

French stocks surged over five per cent as the exchange opened Friday.

Trading was temporarily suspended Friday morning on Russian stock markets when share prices soared shortly after the exchanges opened following a huge Russian government rescue plan.

As the financial crisis deepens, US Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke met with Congressional leaders late Thursday night, and pledged to move quickly amid fears of further bankruptcies. 

Paulson did not give details of the plan, to be put together today and over the weekend, stressing that any scheme would need the approval of Congress.

In France, Socialist former presidential candidate Ségolène Royal criticised President Nicolas Sarkozy for  "incoherence, inertia in the face of the international financial crisis". 

Sarkozy is to make a statement on the crisis next Thursday.