U.S. to take on credit crisis - Bush and Bernanke break from their usual form with talk of home loan guarantees and hints of a rate cut.
WASHINGTON — Hoping to calm turbulence in the financial markets, President Bush and Federal Reserve Chairman Ben S. Bernanke took separate steps Friday to ease the credit crunch that has socked investors and dried up access to home loans for millions of Americans.
In their remarks the two leaders displayed a painful recognition that the credit crisis -- triggered by a wave of defaults on sub-prime mortgages -- had ballooned beyond anything they had anticipated.
Speaking in the White House Rose Garden, Bush promised new help for people who are behind on their mortgage payments and in danger of losing their homes. But he insisted that the government didn't intend "to bail out speculators or those who made the decision to buy a home they knew they could never afford."
The most immediate effect of the president's plan will be to help as many as 80,000 troubled borrowers refinance their homes with government guarantees. As many as 2 million homeowners with adjustable-rate mortgages could struggle to make payments as their loans reset in the next few years.
Shortly before the president outlined his proposals, Bernanke said the central bank would do whatever would be necessary to ease the credit problems' effects on the economy and the 6-year-old expansion.
Bernanke's speech at a Fed conference in Jackson Hole, Wyo., was taken as further evidence that the central bank intended to cut interest rates unless credit conditions improved. The stock market reacted by rallying, with the Dow Jones industrial average jumping 119.01 points, or 0.9%, to 13,357.74. Other key indexes gained more than 1%.
The credit crunch was set in motion after mortgages issued to people with poor credit began to see high default rates late last year. That spooked investors who helped fund such mortgages.
As investment funds reported huge losses on mortgage-backed securities, an aversion to risk-taking took hold. Many companies found it more difficult or costly to borrow, and stock prices tumbled from record highs set in July. Now many prospective homeowners, even those with good credit, are having trouble getting mortgages.
In their appearances Friday, Bush and Bernanke -- the two figures with the greatest influence on the U.S. economy -- seemed to concede economic realities contrary to their primary philosophies.
For the president, this included a rare critique of free markets and an acknowledgment that there might be a role for government in solving the problem.
