US plots rescue plan, markets soar

19 September 2008

The US Treasury is set to implement a new scheme, which will allow banks to get rid of their bad debts.

Henry Paulson, Treasury secretary, headed the development of these plans after days of turmoil on the global financial markets.

In the wake of Lehman Brothers' bankruptcy and Merrill Lynch's merger with Bank of America on Sunday, the Dow suffered its worst day of trading for seven years.

Liquidity concerns are also putting other securities firms such as Morgan Stanley and Goldman Sachs under severe financial pressure.

In response, the Treasury and the Federal Reserve have held discussions over possible ways of stabilising the markets, including establishing an $800 billion fund to buy up hard-to-sell assets.

A separate $400 billion insurance fund to protect investors in money-market funds is also reportedly being considered.

Mr Paulson said: "We talked about a comprehensive approach that will require legislation to deal with illiquid assets on financial institutions' balance sheets.

"This country is able to come together and do things quickly when it needs to be done for the good of the American people."

The Asian and European markets have reacted very positively to the plan.

Tokyo's Nikkei 225 has put on nearly four per cent, the Hang Seng and the FTSE are up by over six per cent.

Become a bobsguide member to access the following

1. Unrestricted access to bobsguide
2. Send a proposal request
3. Insights delivered daily to your inbox
4. Career development