Governments on both sides of the Atlantic are taking radical steps to restore confidence in battered financial markets, as the United States proposed a taxpayer-funded mopping up of toxic mortgage-related debt and Britain and Ireland cracked down on short selling of bank stocks.
The impact was immediate and dramatic, driving the U.S. stock market up by its biggest percentage gain in six years, powering a rally in the dollar, and pushing oil prices higher, while the gold price slipped. Asian stocks also rallied.
US Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke plan to work through the weekend with Congress on a plan to deal with toxic bank assets choking the financial system.
They met with Congressional leaders on Thursday night but did not talk directly about a fund afterwards.
"We talked about a comprehensive approach that will require legislation to deal with illiquid assets on financial institutions' balance sheets," Mr Paulson told reporters.
According to two Congressional aides, he has been shopping around a plan to create the fund.
Rep. Barney Frank, who is chairman of the House Financial Services Committee, said there is concern that establishing a formal entity to buy the assets would take too long.
A fund would be similar to the Resolution Trust Corp, which was set up to clean up bad debts from the savings and loan crisis in the late 1980s at a $400 billion cost to taxpayers.
Reuters