President George W Bush today pledged that the US government was acting to shore up the nation's ailing economy, as he warned taxpayers they would bear a significant share of the cost.
'This is a pivotal moment for America's economy,' the president said.
'Problems that originated in the credit markets and first showed up in the area of sub-prime mortgages have spread throughout our financial system. There will be ample opportunity to debate the origins of this problem. Now is the time to solve it,' he said.
US authorities were working with lawmakers to draw up a rescue plan which would involve buying up the assets such as mortgages from ailing banks, the US President said.
He warned that the measures will require Americans to put a significant amount of taxpayer dollars on the line. 'This action does entail risk. But we expect that this money will eventually be paid back. The risk of not acting would be far higher,' he stressed.
'Further stress on our financial markets would cause massive job losses, devastate retirement accounts and further erode housing values as well as dry up loans for new homes and cars and college tuitions. These are risks that America cannot afford to take', he explained.
Earlier, Treasury Secretary Henry Paulson said a rescue plan being drafted with Congressional leaders to help purge bad assets from the banking sector would cost 'hundreds of billions' of dollars.
The latest efforts come amid an intensifying financial crisis that has sent global markets into a tailspin, despite a massive government bailout of insurance giant American International Group and a takeover of mortgage finance firms Fannie Mae and Freddie Mac.
The credit crunch has been caused by a meltdown in US home prices after a frenzied boom that induced a wave of investments before a collapse.
In the most recent example of a government entity stepping in to ease fears, the US Treasury Department said it will use $50 billion to back money market mutual funds whose asset values fall below $1 in another step to contain raging financial turmoil.
After Britain's Financial Services Authority imposed a four-month ban on short selling financial stocks yesterday, the US Securities and Exchange Commission followed suit today with an immediate 10-day ban. Irish regulators also announced moves to ban short selling.
Last night's proposals by Washington and the short-selling bans had an immediate and dramatic effect on world markets.
US stocks clocked their biggest percentage gain in six years late last night, powering a rally in the dollar and pushing oil prices higher, and Asian and European markets picked up this morning where New York's left off.
US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke plan to work through the weekend with Congress on a plan to deal with the toxic bank assets that have been choking the financial system for a year.
Speaking last night, Paulson stressed that any plan would need Congressional approval, but US media reports said he was considering a bail-out by taxpayers similar to that used in the savings and loan crisis of the 1980s and 90s.
At that time, the US government created the Resolution Trust Corp - which bought up assets from failed banks and eventually re-sold them.
'We're coming together to work for an expeditious solution which is aimed right at the heart of this problem, which is illiquid assets on financial institutions in the US on their balance sheets,' Paulson told reporters in a brief appearance with Bernanke after the meeting.
