Bush defends bailout

President explains intervention in financial system as necessary to prevent a wider crisis.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- President Bush on Friday defended recent federal intervention in the financial system as necessary to ward off a wider economic crisis and said the actions were not just a Wall Street bailout.

"People look at the crisis and say, 'Oh, it's only Wall Street,' " said Bush, addressing the U.S. Chamber of Commerce. "I don't think so. In fact, I know that if we had not acted, it would have affected the American people directly."

"If the government had not acted, the hole in our financial system would have gotten larger," he added.

Bush's comments - his 34th public statement on the economic crisis since the collapse of Lehman Brothers in mid-September - came just minutes after the Commerce Department reported that initial construction of U.S. homes fell to a fresh 17-year low in September. Housing starts fell to 817,000 residential units, down 6.3% from 872,000 housing starts the prior month.

Wall Street got off to another rough start on Friday, with the Dow falling more than 200 points. Stock prices have been highly volatile. This week alone, the Dow Jones had its second biggest daily point gain and second biggest drop ever.

Of the many recent measures that the U.S. government has taken to address the ongoing economic crisis - and the credit freeze in particular - the most sweeping is the $700 billion in newly approved funding that will be used, in part, to invest in banks and buy bad mortgage assets. The aim is to free up the major banks to lend once again.

Bush said the government would limit its intervention in size and scope, and did not intend to nationalize the banking system. "The government intervention is not a government takeover," he said.

Nevertheless, the government has taken a 79.9% stake in battered insurance giant American International Group (AIG, Fortune 500), in exchange for its initial $85 billion credit line granted on Sept. 16. On Oct. 8, the Federal Reserve extended an additional credit line of $37.8 billion to the company, for a total of $122.8 billion. So far, AIG has tapped $82.9 billion of the emergency funding.

The first big government intervention occurred on Sept. 7, when Treasury Secretary Henry Paulson and James Lockhart, director of the Federal Housing Finance Agency, extended as much as $200 billion to save Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500).

This action, essentially a taxpayer-funded government takeover, was intended to prevent the collapse of these spiraling mortgage giants, which own or back more than $5 trillion worth of mortgage debt, or about half the mortgage debt in the country. To top of page

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.