WASHINGTON – Treasury Secretary Henry Paulson told international leaders on Sunday that isolationism and protectionism could worsen the spreading financial crisis. With a new trading week dawning, U.S. lawmakers urged quick action by the Bush administration on measures to make direct purchases of bank stock to help unlock lending.
Sen. Chuck Schumer, chairman of the Joint Economic Committee, said an administration proposal to inject federal money directly into certain banks, in effect partially nationalizing the banking system, "is gaining steam."
"I am hopeful that tomorrow, the Treasury will announce that they're doing it. And they have to do it quickly ... markets are waiting," Schumer, D-N.Y., said.
The administration has not indicated when it would announce its next steps.
Democrats also are lining up behind House Speaker Nancy Pelosi's plan to bring lawmakers back to Capitol Hill after the Nov. 4 election to work on a second economic relief plan. The idea is "give the middle class and the average citizen the same kind of relief that we try to give the financial sector," said Democratic Rep. Barney Frank of Massachusetts, chairman of the House Financial Services Committee.
Top Democrats are suggesting a $150 billion measure that would extend jobless benefits, provide more money for food stamps and finance some construction projects, such as rebuilding bridges and roads. It would also include either a tax rebate or tax cut.
Rep. Roy Blunt of Missouri, the second-ranking House Republican, said he would help on a plan "that makes sense" but is not laden with huge public works projects or bailouts for states that overspent on social programs.
In another step aimed at easing the financial crisis, the Federal Reserve on Sunday approved the $12.2 billion acquisition of troubled Wachovia Corp. by Wells Fargo & Co. Wachovia is the latest in a string of major banks and financial institutions that have been felled by the financial crisis. The Fed action was expected.
As the International Monetary Fund and World Bank held their annual meetings over the weekend, Paulson warned the bank's policy-setting committee of the dangers of "inward-looking policies."
"Although we in the United States are taking many extraordinary measures to ease the crisis, we are not pursuing policies that would limit the flow of goods, services or capital, as such measures would only intensify the risks of a prolonged crisis," Paulson said.
Meanwhile, the World Bank pledged to protect poor and vulnerable countries and nations with rapidly developing economies. Mexican Finance Minister Agustin Carstens, who heads the bank's policy-setting committee, said the bank and the IMF will draw on the full range of their resources to help these countries.
Bank President Robert Zoellick told reporters the financial crisis "has been a manmade catastrophe. The actions and responses to overcome it lie in our hands."
Jittery investors awaited the reopening of stock markets — the Dow Jones industrial average just completed its worst week ever, plummeting more than 18 percent — and hoped for bold, coordinated international steps to address the crisis.
At a Paris meeting of European leaders Sunday, countries that use the euro agreed to temporarily guarantee bank refinancing to ease the credit crunch. French President Nicolas Sarkozy it would apply in 15 countries through the end of 2009 and was "not a gift to banks."
The United States has not yet gone that far. But President Bush met at the White House with top global financial leaders on Saturday in a display of unity and said afterward that they had agreed to general principles to combat the crisis. Bush, who had spoken about the crisis for 22 of the past 27 days, went biking at a state park in Maryland on Sunday morning and then kept to a private schedule the rest of the day.
Paulson has indicated the administration will use part of the recent $700 billion bailout Bush signed Oct. 3 to have the government take ownership stakes in banks. The plan has wide support on Capitol Hill, although Democrats pressed for quicker action in spelling out specifics.
Sen. Arlen Specter, R-Pa., sounded a cautionary note. "That has to be very, very carefully done," he said. "We are a capitalistic system and we don't want to move away with nationalizing the banking system. So that anything that's done has to be done on a temporary basis."
This plan and other Paulson moves were supported by three former treasury secretaries.
"This is bigger than the private sector can fix by itself," said James A. Baker III, who served under President Reagan. Robert Rubin, treasury secretary under President Clinton and now an adviser to Barack Obama, said it was important "to be highly, highly proactive."
Lawrence Summers, also a Clinton treasury secretary, said, "Any time you have a problem with trust, you've got to deal with it in a very aggressive way."
The lawmakers and ex-Cabinet officers made the rounds of the Sunday talk shows.