Next step: U.S. to bankroll banks

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Homeowner relief

But many observers say that, far-reaching as they are, the steps taken thus far don't adequately address the root cause of the credit crisis -- rising defaults and foreclosures on mortgages issued to overextended borrowers who are now financially strapped and unable to keep their homes under their existing loan terms.

Although some homeowner relief has been enacted by Congress, the economy appears to be slowing sharply and job losses are mounting. That has triggered calls for a bailout for Main Street, especially in light of a lingering public perception that the $700-billion rescue plan is a bailout for Wall Street.

Indeed, Democratic leaders in Congress are discussing a new economic stimulus plan, possibly to be considered after the Nov. 4 election.

Among the initiatives that can also be taken by the federal government are programs to convert some mortgages on homes with values that have fallen below their mortgage balances from adjustable to fixed-rate loans. That change, which might make the mortgages more affordable for certain owners, could be undertaken by Fannie Mae and Freddie Mac, the mortgage giants taken over by the Treasury last month.

"You should be using the expertise of Fannie and Freddie to go out to people in trouble," said William Donaldson, former chairman of the Securities and Exchange Commission and a former Wall Street executive. "You could really analyze their creditworthiness and their ability to carry low-interest 30-year mortgages."

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jim.puzzanghera@latimes.com

richard.simon@latimes.com

michael.hiltzik@latimes.com

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Daily developments

* In a somber Rose Garden address, President Bush says of his administration's financial rescue initiative: "The plan we are executing is aggressive. It is the right plan. It will take time to have its full impact. It is flexible enough to adapt as the situation changes. And it is big enough to work."

* The Dow Jones industrial average sinks almost 700 points in the opening minutes and sets a new volatility record before closing down for an eighth consecutive session.

* Finance ministers and central bankers of the leading industrial democracies meet in Washington and issue a five-point plan, promising "urgent and exceptional action" to aid the global financial crisis but providing few specifics.

* Treasury Secretary Henry M. Paulson announces that the government will buy stakes in banks and other financial institutions for the first time since the Great Depression using a portion of the $700-billion bailout package.