President George W. Bush's administration has proposed a $700 billion bailout of the troubled financial sector over a two-year period, US media reported, citing a three-page draft sent to Congress. The unprecedented plan would give Treasury Secretary Henry Paulson sweeping authority to buy up to 700 billion dollars of tainted mortgage-related assets to stem a grave financial crisis, CNN television and other US media reported. The plan also allows for an increase in the public debt limit, to $11.3 trillion, and grants the Treasury secretary powers to buy, sell and hold residential and commercial mortgages as well as securities based on those mortgages. The extraordinary authority would expire in two years but would permit the government to hold the assets purchased for as long as the Treasury Department believes is necessary, according to US media. The rescue calls for the purchase of assets only from US-based firms and grants the Treasury Department legal immunity from any lawsuits as part of the bailout proposal. It remained unclear how the government would manage the assets it buys. But Paulson would have authority to turn to private financial institutions to carry out the operation or create other bodies to purchase mortgage assets and issue debt, the reports said. News of the proposed rescue plan fueled a powerful market rebound on Friday. Bush defended the $700 billion cost of his financial bailout proposal, saying Saturday it needed to be massive so that turmoil on Wall Street did not spread to Main Street. Bush pledged to work with Congress to quickly pass legislation as part of the largest financial bailout since the Great Depression. “This is a big package because it was a big problem,” Bush said. Trying to allay public fears about the health of the economy and people's pocketbooks, Bush said that the risk of doing nothing far outweighed the risks of government intervention. “People are beginning to doubt our system, people were losing confidence and I understand it's important to have confidence in our financial system,” he said. Over time taxpayers will “get a lot of the money back,” he said. The president, speaking to reporters after a meeting with Colombian President Alvaro Uribe, said his first instinct was not to lay out a huge government plan. Bush said that after his top economic advisers told him that the financial problems were so significant and widespread, he decided to take bold action. “In my judgment, based upon the advice of a lot of people who know how markets work, this problem wasn't going to be contained to just the financial community,” the president said. According to a draft of the proposal obtained by The Associated Press, the Bush administration is asking Congress to let the government buy $700 billion in bad mortgages. The plan would give the government broad power to buy the bad debt of any US financial institution for the next two years. It would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion to make room for the massive rescue. The proposal does not specify what the government would get in return from financial companies for the federal assistance. Administration officials and members of Congress were to negotiate throughout the weekend. The plan is designed to let faltering financial institutions unload their bad debt on the government, and in turn the taxpayer, in a bid to avoid dire economic consequences. The White House and congressional leaders hoped the developing legislation could pass as early as next week.
