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US pledges financial rescue plan US pledges financial rescue plan
(20 minutes later)
US officials say they will hammer out a "comprehensive" plan to ease what has become a global financial crisis.US officials say they will hammer out a "comprehensive" plan to ease what has become a global financial crisis.
US Treasury Secretary Henry Paulson said after meeting members of Congress that legislation would be required to rid US banks of their bad assets. US Treasury Secretary Henry Paulson said after meeting members of Congress that legislation would be required to help rid US banks of their bad assets.
He said this was at the heart of the rescue plan, which will be worked out over the weekend.He said this was at the heart of the rescue plan, which will be worked out over the weekend.
US stocks had earlier surged on news of the rescue plan, with the Dow Jones up 3.86%, to 11,019.69.US stocks had earlier surged on news of the rescue plan, with the Dow Jones up 3.86%, to 11,019.69.
Japan's Nikkei echoed the rally, with a 2.8% jump on Friday. Japan's Nikkei echoed the rally, with a 2.8% jump in early trading on Friday.
World markets have been volatile in the wake of huge upheavals among banks.World markets have been volatile in the wake of huge upheavals among banks.
Since the start of the week, Lehman Brothers has collapsed, the Federal Reserve has bailed out insurance giant AIG, Merrill Lynch has been acquired by Bank of America and in the UK, Lloyds TSB has acquired HBOS.Since the start of the week, Lehman Brothers has collapsed, the Federal Reserve has bailed out insurance giant AIG, Merrill Lynch has been acquired by Bank of America and in the UK, Lloyds TSB has acquired HBOS.
'Best of the US''Best of the US'
Mr Paulson and Federal Reserve Chairman Ben Bernanke briefed Congress leaders on the plans they were considering.Mr Paulson and Federal Reserve Chairman Ben Bernanke briefed Congress leaders on the plans they were considering.
"We talked about a comprehensive approach that will require legislation to deal with illiquid assets on financial institutions' balance sheets," Mr Paulson said.
This country is able to come together and do things quickly when it needs to be done for the good of the American people Henry Paulson,Treasury SecretaryThis country is able to come together and do things quickly when it needs to be done for the good of the American people Henry Paulson,Treasury Secretary
"We talked about a comprehensive approach that will require legislation to deal with illiquid assets on financial institutions' balance sheets," Mr Paulson said.
He said the root cause of the stress in the markets was the "real estate correction" and the "price declines in real estate".He said the root cause of the stress in the markets was the "real estate correction" and the "price declines in real estate".
In an upbeat press conference, the congressional leaders and finance officials were keen to stress they had agreed to work together for the good of the country.In an upbeat press conference, the congressional leaders and finance officials were keen to stress they had agreed to work together for the good of the country.
"I think we saw the best of the United States of America in the Speaker's office tonight," Mr Paulson said."I think we saw the best of the United States of America in the Speaker's office tonight," Mr Paulson said.
"This country is able to come together and do things quickly when it needs to be done for the good of the American people.""This country is able to come together and do things quickly when it needs to be done for the good of the American people."
Central bank action
The BBC's Jane O'Brien in Washington says the heart of the problem is the bad debt caused by high-risk mortgages that sparked the housing slump and subsequent credit crunch.The BBC's Jane O'Brien in Washington says the heart of the problem is the bad debt caused by high-risk mortgages that sparked the housing slump and subsequent credit crunch.
Markets have been jittery amid huge upheavals in the banking sector
There is speculation that one plan being discussed involves a government agency that would take on the debt, our correspondent says.There is speculation that one plan being discussed involves a government agency that would take on the debt, our correspondent says.
Another possibility is legislation that would force lenders to renegotiate mortgages that homeowners are having difficulty paying, she adds.Another possibility is legislation that would force lenders to renegotiate mortgages that homeowners are having difficulty paying, she adds.
Six of the world's top central banks took steps to calm worried stock markets on Thursday, releasing $180bn (£99bn) to lift the amount of credit available. Reports said Mr Paulson was looking into setting up something akin to the Resolution Trust Corp (RTC), which was formed after savings and loans banks collapsed in the 1980s.
The RTC took over most of the smaller banks in the US at a cost of $400bn - about $1 trillion in today's money - and then tried to sell off their assets.
BBC economics reporter Steve Schifferes says the cost of such a bailout would be probably be higher this time, with bad mortgage debt believed to be around $2 trillion.
Six of the world's top central banks took steps to calm worried stock markets on Thursday, releasing $180bn to lift the amount of credit available.
On Friday, the Bank of Japan said it had injected a further two trillion yen ($19bn; £10.5bn) into money markets, to add to the eight trillion yen it had already pumped in this week.On Friday, the Bank of Japan said it had injected a further two trillion yen ($19bn; £10.5bn) into money markets, to add to the eight trillion yen it had already pumped in this week.