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US pledges financial rescue plan US pledges financial rescue plan
(10 minutes later)
US officials say they will hammer out a "comprehensive" plan to help ease what has become a global financial crisis.US officials say they will hammer out a "comprehensive" plan to help 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 help 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.
Stock markets in Asia surged after the announcement, echoing an earlier rally in New York.Stock markets in Asia surged after the announcement, echoing an earlier rally in New York.
Japan's Nikkei jumped 2.8% in early trading. The Shanghai Composite was up 9.3% by mid-morning and Hong Kong's Hang Seng soared 7% on opening. Japan's Nikkei jumped 3.3% by afternoon trading. The Shanghai Composite was up 9.5% and Hong Kong's Hang Seng soared 6.5% by noon.
US stocks had earlier surged on reports of the rescue plan, with the Dow Jones up 3.86%, to 11,019.69.US stocks had earlier surged on reports of the rescue plan, with the Dow Jones up 3.86%, to 11,019.69.
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.
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."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."
Some analysts gave a positive reaction to the news of a possible bail-out plan.Some analysts gave a positive reaction to the news of a possible bail-out plan.
"It's a relief, it allows for an orderly workout for the impaired assets and it will help the banking sector get back to business," said Hans Kunnen of Colonial First State Fund Managers in Australia."It's a relief, it allows for an orderly workout for the impaired assets and it will help the banking sector get back to business," said Hans Kunnen of Colonial First State Fund Managers in Australia.
Central bank actionCentral 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 sectorMarkets have been jittery amid huge upheavals in the banking sector
There is speculation that one plan being discussed involves legislation that would force lenders to renegotiate mortgages that homeowners are having difficulty paying, our correspondent says.There is speculation that one plan being discussed involves legislation that would force lenders to renegotiate mortgages that homeowners are having difficulty paying, our correspondent says.
Another possibility is establishing a government agency that would take on the debt.Another possibility is establishing a government agency that would take on the debt.
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.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.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.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.
But Congressman Barney Frank, chairman of the House Financial Services Committee, said the plan would probably not involve creating a new government agency.But Congressman Barney Frank, chairman of the House Financial Services Committee, said the plan would probably not involve creating a new government agency.
"It will be the power to buy up illiquid assets," he said."It will be the power to buy up illiquid assets," he said.
"There is this concern that if you had to wait to set up an entity, it could take too long.""There is this concern that if you had to wait to set up an entity, it could take too long."
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.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.