Text of Paulson's news conference

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PAULSON: Good morning, everyone. Hope you got a lot of sleep last night.

Now, last night the Federal Reserve chairman, Ben Bernanke, SEC Chairman Chris Cox and I had a lengthy and productive working session with congressional leaders. We began a substantive discussion on the need for a comprehensive approach to relieving the stresses on our financial institutions and markets.

We have acted on a case-by-case basis in recent weeks, addressing problems at Fannie Mae and Freddie Mac, working with market participants to prepare for the failure of Lehman Brothers and lending to AIG so it can sell some of its assets in an orderly manner.

And this morning, we've taken a number of powerful tactical steps to increase confidence in the system, including the establishment of a temporary guarantee program for the U.S. money market and mutual fund industry.

Despite these steps, more is needed. We must now take further decisive action to fundamentally and comprehensively address the root cause of our financial system stresses.

The underlying weaknesses in our financial system today is illiquid mortgage assets that have lost value as the housing correction has proceeded. These illiquid assets are choking off the flow of credit that is so vitally important to our economy.

When the financial system works as it should, money and capital flow to and from households and business to pay for home loans, school loans and investments to create jobs.

As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to have significant effects on our financial system and on our economy.

As we all know, lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing. This simply put -- put too many families into mortgages they could not afford. We are seeing the impact on homeowners and neighborhoods with 5 million homeowners now delinquent or in foreclosure.

What began as a subprime lending problem has spread to other, less risky mortgages and contributed to excess home inventories that have pushed down home prices for responsible homeowners.

A similar scenario is playing out among the lenders who made those mortgages, the securitizers who bought, repackaged and resold them, and the investors who bought them.