President Bush, warning that the “American economy is facing unprecedented challenges,” joined Treasury Secretary Henry Paulson Friday in calling for a “significant” infusion of taxpayer dollars to lift up the flailing economy.

Bush and Paulson warned that everything from retirement savings to home values are at risk if the administration and lawmakers do not act quickly. They want the government to be able to take over worthless mortgages from banks and other financial institutions.

“We’re talking hundreds of billions (of dollars)," Paulson said when asked how high the price tag could run. "This needs to be big enough to make a real difference and get to the heart of the problem.”

Bush expressed confidence that the rescue plan being drafted in Washington will serve to turn around an economy he said was at risk of "grinding to a halt." The White House was expected to hand in a draft proposal to Congress by Friday night, a Democratic leadership aide told FOX News.

Congressional officials said they expected a request with a cost in excess of $500 billion to the government.

Shortly after his remarks, Bush called congressional leaders with whom the administration would be negotiating through the weekend to devise a rescue package. He spoke to Senate Majority Leader Harry Reid, D-Nev., House Speaker Nancy Pelosi, D-Calif., and Senate Republican leader Mitch McConnell. He planned to reach House Republican leader John Boehner later in the day.

“Government intervention is not only warranted, it is essential,” Bush said. “The American economy is facing unprecedented challenges, and we are responding with unprecedented action.”

The administration wants to see a package emerge from the weekend, to lend calm to Monday morning's market openings, said Keith Hennessey, the director of the president's economic council.

Calling for a "bold approach," Paulson said the government's action will in the long run prove less costly than doing nothing.

“The financial security of all Americans, their retirement savings, their home values, their ability to borrow for college and the opportunities for more and higher paying jobs, depends on our ability to restore our financial institutions to sound footing,” he said. "This is what we need to do."

Paulson and Bush spoke after the federal government announced several short-term measures to stem the worst financial crisis in decades.

The government on Friday said it would safeguard assets in money market mutual funds and temporarily banned short-selling financial company stocks. The Treasury Department has asked Congress to give it sweeping power to buy up toxic debt that has unhinged Wall Street.

Bush authorized Treasury to tap up to $50 billion from a Depression-era fund to insure the holdings of eligible money market mutual funds. And the Federal Reserve announced it will expand its emergency lending program to help support the $2 trillion in assets of the funds.

Both moves are designed to bolster the huge money market mutual fund industry, which has come under stress in recent days.

Relieved investors sent stocks soaring on Wall Street and around the globe. The Dow-Jones industrials average rose 368 points after surging 410 points the day before on rumors the federal action was afoot.

Paulson and Federal Reserve Chairman Ben Bernanke are expected to testify on the rescue proposal next week on Capitol Hill.

Paulson said mortgage giants Fannie Mae and Freddie Mac will also step up their purchases of mortgage-backed securities to help provide support to the crippled housing market.

He also said the Treasury Department will expand a program, announced earlier this month, to buy mortgage-backed securities, which have been badly hurt by the housing and credit crises.

The Fed said it expanding its emergency lending efforts to allow commercial banks to finance purchases of asset-backed paper from money market funds. The central bank should help the funds meet demands for redemptions.

The Securities and Exchange Commission early Friday imposed the temporary emergency ban on short-selling financial company stocks, a trading method that bets the stocks will go down. As the financial crisis widened, entreaties had come from all quarters to stem a swarm of short-selling contributing to the collapse of stock values in investment and commercial banks.

Paulson and Bernanke are crafting the massive rescue plan to buy up dodgy assets held by troubled banks and other financial institutions at the heart of the nation's financial crisis.

Congressional leaders said they expected to act on it before Congress recesses for the election.

The government's moves could help alleviate the uncertainty that has been sending the markets into tumult over the past week. Lending has grinded to a virtual standstill in the wake of the bankruptcy of Lehman Brothers Holdings Inc.

The European Central Bank, Swiss National Bank and Bank of England offered up more cash Friday. The three banks put a combined $90 billion into money markets in a lockstep move.

The chairman of the Senate Banking Committee, Chris Dodd, D-Conn., warned the United States could be "days away from a complete meltdown of our financial system" and said Congress is working quickly to prevent that.

Dodd told ABC's "Good Morning America" on Friday that the nation's credit is seizing up and people can't get loans.

The ranking Republican on the Banking Committee, Sen. Richard Shelby, said the U.S. has "been lurching from one crisis to another" and predicted the new bailout plan would cost at least half a trillion dollars.

"We hope to move very quickly. Time is of the essence," House Speaker Nancy Pelosi, D-Calif., said after Paulson and Bernanke briefed congressional leaders Thursday night.

At least one lawmaker was livid Friday after hearing Bush and Paulson call for taxpayer infusions, and could be preparing to put up a fight against the rescue proposal.

"Instead of celebrating the Fourth of July next year Americans will be celebrating Bastille Day," Republican Kentucky Sen. Jim Bunning said in a statement. "The free market for all intents and purposes is dead in America. The action proposed today by the Treasury Department will take away the free market and institute socialism in America. ... The government on all fronts has failed the American people miserably."

Fallout from the housing and credit debacles have badly bruised the economy and pushed unemployment to a five-year high.

"This staves off Judgment Day," said Anthony Sabino, professor of law and business at St. John's University. "This is a detox for banks, and will help cleanse themselves of the bad mortgage securities, loans and everything else that has hurt them."

The roots of the current crisis can be traced to lax lending for home mortgages — especially subprime loans given to borrowers with tarnished credit — during the housing boom. Lenders and borrowers were counting on home prices to keep zooming upward. But when the housing market went bust, home prices plummeted. Foreclosures spiked as people were left owing more on their mortgage than their homes were worth. Rising mortgage rates also clobbered some homeowners.

As financial companies racked up multibillion-dollar losses on soured mortgage investments, and credit problems spread globally, firms hoarded cash and clamped down on lending. That crimped consumer and business spending, dragging down the national economy — a vicious cycle policymakers have been trying to break.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, discounted the idea of setting up a new agency — similar to the Resolution Trust Corp. — established in 1989 to help resolve a savings and loan crisis at a cost to taxpayers of $125 billion.

"It will be the power — it may not be a new entity. It will be the power to buy up illiquid assets," Frank said. "There is this concern that if you had to wait to set up an entity, it could take too long."

The federal government already has pledged more than $600 billion in the past year to bail out, or help bail out, some of the biggest names in American finance. There was no immediate word on how much the new rescue plan might cost.

The SEC on Friday said it was acting in concert with the U.K. Financial Services Authority in taking emergency action to prohibit short selling in financial companies to protect the integrity of the securities market and boost investor confidence.

"The commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets," SEC Chairman Christopher Cox said in a statement. "The emergency order temporarily banning short-selling of financial stocks will restore equilibrium to markets."

The Associated Press contributed to this report.