THE US government was battling early today to seal an agreement before markets open on a $700 billion (€485.6 billion) bailout package to take bad mortgage assets from the country's struggling banks.
The sweeping plan, which marks the biggest US government intervention in the financial system since the Great Depression, will bring the total cost of its market initiatives in the past fortnight close to $1 trillion.
While Democrats in the US Congress have made it clear they are likely to support the plan when it comes to a vote this week, they were still holding out last night for measures to restrict top-level pay in participating institutions and on provisions to help home-owners under pressure from banks. Democrats also want more oversight of the proposed Federal progaramme and assurances that the government will not veto a subsequent bill to return some money to taxpayers.
US treasury secretary Henry Paulson said the scheme was urgently required to avert a credit freeze in the financial system as markets were fragile. "We need this to be clean and quick."
He called for similar action from other major economic powers to tackle the global crisis.
Mr Paulson's plan was developed late last week with US Federal Reserve chairman Ben Bernanke after credit markets seized up as a result of the bankruptcy of investment bank Lehman Brothers, the sale of its rival, Merrill Lynch, and the government rescue of giant insurer AIG.
The effort to promote stability after weeks of market turmoil signals a move away from the case-by-case approach deployed since the credit crunch began last year. The US government is to buy pools of distressed mortgage assets from banks to remove them from the financial system. "Removing troubled assets will begin to restore the strength of our financial system so it can again finance economic growth," the treasury said. The power being sought by the government to buy out such assets will be virtually unfettered, as the Bill would prevent courts from reviewing actions taken under its authority.
Mr Paulson said the government was taking these steps to protect taxpayers. "This is not something that we wanted to do. This was something that was very necessary."
US president George W Bush said on Saturday that the risk of doing nothing "far outweighs" the risk taxpayers were taking on in the plan.
"The government needed to send a clear signal that we understood the instability could ripple through and affect the working people and the average family and we weren't going to let that happen."
Democratic presidential candidate Barack Obama said in a radio address that he "fully supports" the efforts to stabilise the financial system. However, he said the plan should benefit both "Main Street" and Wall Street.
His Republican rival, John McCain, said the financial crisis required "leadership and action" to restore a sound foundation to financial markets. "I've spoken with secretary Paulson and look forward to reviewing the full administration proposal, as well as any modifications that might emerge in congressional negotiations."
The upfront cost of the plan is $700 billion, a sum which will raise the US debt ceiling to $11.315 trillion from $10.615 trillion. The final cost was likely to come in significantly below the initial amount as the government would be able to hold the debt until markets stabilise and prices recover, Mr Paulson said.
However, the costs the government will incur through the scheme are in addition to its commitment two weeks ago to shore up wholesale mortgage giants Fannie Mae and Freddie Mac to the tune of $200 billion and the $85 billion cost of nationalising AIG last Tuesday.