WASHINGTON — Treasury Secretary Henry Paulson said Friday he is asking Congress to pass legislation that would create a facility to buy illiquid assets from financial institutions.
Though short on details, Mr. Paulson said the plan would cost "hundreds of billions" of dollars of taxpayer money. But he said such a sweeping plan is necessary to stabilize the housing market and prevent further deterioration.
"The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," Mr. Paulson said. "This troubled asset relief program must be properly designed and sufficiently large to have maximum impact, while including features that protect the taxpayer to the maximum extent possible."
While concerned about the potential cost of the new program, Mr. Paulson said it would be worth it.
"I am convinced that this bold approach will cost American families far less than the alternative — a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion," he said.
Treasury has acted on a case-by-case basis in recent weeks to help Fannie Mae, Freddie Mac, and American International Group, but it has become clear a more systemic solution was needed.
"The underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded," Mr. Paulson said. "These illiquid assets are choking off the flow of credit that is so vitally important to our economy."
Mr. Paulson met with members of Congress Thursday night to discuss his proposal. He said on Friday he plans to work through the weekend with lawmakers to develop legislation, which he called on Congress to pass next week.
He did not provide details during a morning press conference, but Mr. Paulson said he planned to send a legislative proposal to lawmakers on Friday.
In a brief press conference late Thursday, Mr. Paulson, Federal Reserve Board Chairman Ben Bernanke, and Securities and Exchange Commission Chairman Christopher Cox stood side by side with Senate and House leaders and vowed to work together on the plan.
House Speaker Nancy Pelosi Pelosi said she asked the Bush administration to send a proposal to Congress in a "manner of hours."
House Minority Leader John Boehner was on board as well. "This is about saving our economy... and protecting people's savings," he said. "I'm hopeful in the coming days we'll have a proposal that can get this done."
Mr. Bernanke was succinct, "We are working closely with this Congress to resolve the financial crisis."
Banking committee leaders were on board, too, if a bit less sanguine.
House Financial Services Committee Chairman Barney Frank told reporters that "there was virtually unanimous agreement that there would be legislation to … create the authority within the federal government somewhere to buy up these illiquid assets."
But Rep. Frank also said lawmakers needed more details and that any proposal would have to include provisions to stem foreclosures.
"We will have concerns about to the extent there will be some direct foreclosure-avoidance benefit there and the other specifics. We'll wait and see," he said.
Senate Banking Committee Chairman Chris Dodd said in a brief interview that leaders from both parties pledged to work expeditiously but he was grim about the financial situation.
"This is about as serious a moment I've ever been in my public life in 34 years," he told American Banker. "We want to make sure we think through carefully what we are doing. … I want to hear what their ideas are. This is their creation."
On the consequence of not acting, Sen. Dodd said, "I don't want to even think about that. That's how serious it is."
Sen. Dodd said he instructed his staff to be "available all weekend to analyze the proposal and either add or subtract to it working with Sen. Shelby, the leader, the speaker, as these ideas come together."
The Senate Banking Committee's top Republican Richard Shelby was vague on his outlook. "We'll have to see their proposal," he said.