U.S. Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson have told Congress that immediate action is needed to relieve markets of severe stress. Paulson said: “We saw market turmoil reach a new level last week and spill over into the rest of the economy. We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil.”
The pair said action to buy up hundreds of billions of dollars-worth of tainted mortgage assets was needed as soon as possible. Bernanke told Congress: “I agree with the Treasury Secretary. The Federal Reserve will give full support to the fundamental reform of the financial industry. But whatever reforms the Congress makes should apply to the whole industry, whether they participate in this programme or not.”
Bernanke was testifying days after Paulson proposed a 500 billion-euro rescue fund to absorb credits that have brought down one major financial institution after another.
Lawmakers have vowed to move without delay but are also insisting on change. This will include more protection for taxpayers and limits on compensation for executives of firms that will be offloading bad assets onto the government.
Loan defaults and the rising tide of US home foreclosures has sparked, according to some analysts, the greatest financial crisis since the great depression.