Congress urges swift bank rescue

Purchase of stakes called vital to loosen credit; Democrats want $150b post-election stimulus; EU to inject billions of euros to spur lending

This picture provided by the International Monetary Fund shows World Bank president Robert Zoellick, left, shaking hands with IMF managing director Dominque Strauss-Kahn after the Development Committee press conference yesterday. (Stephen Jaffe/ AFP/ Getty Images)

WASHINGTON - Congressional leaders yesterday urged the Bush administration to swiftly use some of the $700 billion financial rescue fund to purchase stakes in the nation's largest troubled banks, a historic step widely considered crucial to freeing up credit around the globe and injecting new confidence in battered stock markets.

The calls for speedy action to effectively nationalize segments of the banking industry came as Democrats called for enacting an additional $150 billion economic assistance package for average Americans immediately after elections on Nov. 4.

The package, proposed by House Speaker Nancy Pelosi, would include extending unemployment benefits and food stamps and financing new public works projects in an effort to create new jobs.

But first, lawmakers urged the Treasury Department to move ahead with tentative plans that Treasury Secretary Henry Paulson first announced on Friday to take ownership in some of the nation's largest banking institutions.

"I am hopeful that tomorrow the Treasury will announce that they're doing it," Senator Charles Schumer, Democrat of New York and chairman of the Joint Economic Committee, said yesterday. "And they have to do it quickly. . . . Markets are waiting."

Government officials, who have been coordinating their efforts closely with Wall Street, expect some banks to welcome the US involvement as the only way to return to solvency.

In Paris yesterday, economic ministers from the European Union agreed to inject billions of euros into their own banks, following Britain's lead last week.

"The goal is to kick-start the interbank lending market," said Didier Reynders, Belgium's finance minister.

The dramatic steps in the United States and abroad are considered necessary because of continuing market slides, blamed in large part on a credit freeze precipitated by the record number of home mortgage foreclosures in the United States.

The crisis, considered the worst since the Great Depression in the 1930s, has made it extremely difficult for major financial institutions, corporations, small businesses, and individuals to obtain loans, the lifeblood of a strong economy.

But there is also mounting support for helping average citizens, not just financial institutions.

To help average Americans bearing the brunt of the recession, which many economists predict could last several years, congressional leaders said they plan to convene a special lame-duck session of Congress in November to pass legislation that would help boost the sagging economy.

"We are going to do a stimulus," Representative Barney Frank, a Newton Democrat and chairman of the House Financial Services Committee, said yesterday.

Part of the proposal would include putting Americans to work on public works improvements such as roads and bridges, akin to the Depression-era Works Progress Administration that employed thousands of jobless Americans.

Frank, who like Schumer spoke on the Sunday talk shows, said the intent of the stimulus package is to "give the middle class and the average citizen the same kind of relief that we try to give the financial sector."

The proposal appeared to attract initial bipartisan support yesterday.

House Whip Roy Blunt, a Republican of Missouri, said in a television interview that he could support at least parts of such a package, though he expressed concern about large allotments for public works projects. "A stimulus plan that makes sense is something that I'll be helpful with," Blunt said.

The credit freeze that has a stranglehold on world economies has also spread beyond the United States to global markets, requiring foreign governments to take emergency measures of their own.

The worldwide stock slide continued yesterday as the Tel Aviv Stock Exchange in Israel fell about 8 percent after reopening after a four-day holiday hiatus. Japan's markets are closed today for a holiday, but markets will be open in New York, despite the Columbus Day holiday.

Finance ministers and central bank chiefs from the world's 20 largest economies huddled in Washington with President Bush during the weekend in an effort to coordinate their responses. At the outset of the talks, the world's seven-largest economies set out five overarching principles, including unfreezing credit and money markets, strengthening banking insurance policies, and improving accounting standards.

But as of yesterday the international community did not announce any concrete steps to be taken collectively and Paulson urged nations not to succumb to the temptation to hunker down and cut off ties to their global economic partners.

"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," he said yesterday at a meeting of the World Bank's policy committee.

"This is a serious global crisis and, therefore, requires a serious global response for the good of our people," Bush said on Saturday. "We resolve to continue our strong efforts to return our economies to the path of stability and long-term growth.

Foreign leaders yesterday said there is deep resolve to act in concert. "There is a resolve in the international community that this crisis will be resolved, that no tools will be spared to address its ramifications," said Youssef Boutros-Ghali, the Egyptian finance minister who chairs the policy committee.

But there is rising concern that the crisis will have detrimental effects on some of the world's poorest nations, who are facing rising food and fuel prices and rely heavily on the world's wealthiest nations for low-interest loans, direct foreign aid, and shipments of food, medicine and other humanitarian supplies.

The World Bank president, Robert Zoellick, said yesterday that 28 countries are at particular risk. "For the poor, the costs of the crisis could be lifelong," he said yesterday. Paulson voiced similar concerns yesterday, predicting in a statement that the crisis will have "major ramifications for emerging markets and the poorest countries."

He called on the international community to "stand ready to deploy their resources to mitigate the impact of this crisis."

Material from the Associated Press was included in this report. Bryan Bender can be reached at bender@globe.com