Bush launches $700bn rescue plan and confesses he didn't realise how severe problems were

This weekend, a plan is being put together that attempts – at a huge cost – to deal with the underlying causes of the financial crisis. Details are now starting to leak. David Randall reports

Sunday, 21 September 2008

Details began to emerge yesterday of the US's unprecedented plans to deal with the underlying causes of the present credit and financial crises. The Bush administration is asking Congress to let the government use $700bn to buy the bad debt of any American financial institutions for the next two years. The largest bailout in decades, it would raise the statutory limit on the US national debt from $10.6 trillion to $11.3 trillion.

The news, together with the continuing ban on either side of the Atlantic on short-selling financial shares, is expected to further settle the world's volatile financial markets. But, after Friday's heady rises in the US Dow Jones (up 3.4 per cent) and UK FTSE (up 8.8 per cent), President George Bush had some sobering words. He acted so boldly, he said yesterday, only after realising just "how severe the problems were".

The President said his first instinct was to let the free markets work. But then he heard from experts who said the problem was so significant and so deep that massive federal help was needed. "America's economy is facing unprecedented challenges, and we are responding with unprecedented action," Mr Bush told reporters in the White House rose garden.

President Bush defended the government's financial rescue plan on Saturday, saying the cost to taxpayers of shoring up shaky markets was better than the alternatives. In his weekly radio address, he said: "Further stress on our financial markets would cause massive job losses, devastate retirement accounts, further erode housing values, and dry up new loans for homes, cars and college tuitions."