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BUSH: Good evening. This is an extraordinary period for
America's economy.


      Over the past few weeks, many Americans have felt anxiety about
their finances and their future. I understand their worry and their
frustration.


      We've seen triple-digit swings in the stock market. Major
financial institutions have teetered on the edge of collapse, and
some have failed. As uncertainty has grown, many banks have
restricted lending, credit markets have frozen, and families and
businesses have found it harder to borrow money.


      We're in the midst of a serious financial crisis, and the
federal government is responding with decisive action.


      We boosted confidence in money market mutual funds and acted to
prevent major investors from intentionally driving down stocks for
their own personal gain.


      Most importantly, my administration is working with Congress to
address the root cause behind much of the instability in our
markets.


      Financial assets related to home mortgages have lost value
during the house decline, and the banks holding these assets have
restricted credit. As a result, our entire economy is in danger.


      So I propose that the federal government reduce the risk posed
by these troubled assets and supply urgently needed money so banks
and other financial institutions can avoid collapse and resume
lending.


      This rescue effort is not aimed at preserving any individual
company or industry. It is aimed at preserving America's overall
economy.


      It will help American consumers and businesses get credit to
meet their daily needs and create jobs. And it will help send a
signal to markets around the world that America's financial system
is back on track.


      I know many Americans have questions tonight: How did we reach
this point in our economy? How will the solution I propose work?


And what does this mean for your financial future?


      These are good questions, and they deserve clear answers.


      First, how did our economy reach this point? Well, most
economists agree that the problems we're witnessing today developed
over a long period of time. For more than a decade, a massive
amount of money flowed into the United States from investors abroad
because our country is an attractive and secure place to do
business.


      This large influx of money to U.S. banks and financial
institutions, along with low interest rates, made it easier for
Americans to get credit. These developments allowed more families
to borrow money for cars, and homes, and college tuition, some for
the first time. They allowed more entrepreneurs to get loans to
start new businesses and create jobs.


      Unfortunately, there were also some serious negative
consequences, particularly in the housing market. Easy credit,
combined with the faulty assumption that home values would continue
to rise, led to excesses and bad decisions.


      Many mortgage lenders approved loans for borrowers without
carefully examining their ability to pay. Many borrowers took out
loans larger than they could afford, assuming that they could sell
or refinance their homes at a higher price later on.


      Optimism about housing values also led to a boom in home
construction. Eventually, the number of new houses exceeded the
number of people willing to buy them. And with supply exceeding
demand, housing prices fell, and this created a problem.


      Borrowers with adjustable-rate mortgages, who had been planning
to sell or refinance their homes at a higher price, were stuck with
homes worth less than expected, along with mortgage payments they
could not afford.


      As a result, many mortgage-holders began to default. These
widespread defaults had effects far beyond the housing market.


      See, in today's mortgage industry, home loans are often packaged
together and converted into financial products called
mortgage-backed securities. These securities were sold to investors
around the world.


      Many investors assumed these securities were trustworthy and
asked few questions about their actual value. Two of the leading
purchasers of mortgage-backed securities were Fannie Mae and
Freddie Mac.


      Because these companies were chartered by Congress, many
believed they were guaranteed by the federal government. This
allowed them to borrow enormous sums of money, fuel the market for
questionable investments, and put our financial system at risk.


      The decline in the housing market set off a domino effect across
our economy. When home values declined, borrowers defaulted on
their mortgages, and investors holding mortgage-backed securities
began to incur serious losses.


      Before long, these securities became so unreliable that they
were not being bought or sold. Investment banks, such as Bear
Stearns and Lehman Brothers, found themselves saddled with large
amounts of assets they could not sell. They ran out of money needed
to meet their immediate obligations, and they faced imminent
collapse.


      Other banks found themselves in severe financial trouble. These
banks began holding on to their money, and lending dried up, and
the gears of the American financial system began grinding to a
halt.


      With the situation becoming more precarious by the day, I faced
a choice, to step in with dramatic government action or to stand
back and allow the irresponsible actions of some to undermine the
financial security of all.


      I'm a strong believer in free enterprise, so my natural instinct
is to oppose government intervention. I believe companies that make
bad decisions should be allowed to go out of business.


      Under normal circumstances, I would have followed this course.
But these are not normal circumstances. The market is not
functioning properly. There has been a widespread loss of
confidence, and major sectors of America's financial system are at
risk of shutting down.


      The government's top economic experts warn that, without
immediate action by Congress, America could slip into a financial
panic and a distressing scenario would unfold.


      More banks could fail, including some in your community. The
stock market would drop even more, which would reduce the value of
your retirement account. The value of your home could plummet.


      And if you own a business or a farm, you would find it harder
and more expensive to get credit. More businesses would close their
doors, and millions of Americans could lose their jobs.


      Even if you have good credit history, it would be more difficult
for you to get the loans you need to buy a car or send your
children to college. And, ultimately, our country could experience
a long and painful recession.


      Fellow citizens, we must not let this happen. I appreciate the
work of leaders from both parties in both houses of Congress to
address this problem and to make improvements to the proposal my
administration sent to them.


      There is a spirit of cooperation between Democrats and
Republicans and between Congress and this administration. In that
spirit, I've invited Senators McCain and Obama to join
congressional leaders of both parties at the White House tomorrow
to help speed our discussions toward a bipartisan bill.


      I know that an economic rescue package will present a tough vote
for many members of Congress. It is difficult to pass a bill that
commits so much of the taxpayers' hard-earned money.


      I also understand the frustration of responsible Americans who
pay their mortgages on time, file their tax returns every April
15th, and are reluctant to pay the cost of excesses on Wall Street.


      But given the situation we are facing, not passing a bill now
would cost these Americans much more later.


      Many Americans are asking, how would a rescue plan work? After
much discussion, there's now widespread agreement on the principles
such a plan would include.


      It would remove the risk posed by the troubled assets, including
mortgage-backed securities, now clogging the financial system. This
would free banks to resume the flow of credit to American families
and businesses.


      Any rescue plan should also be designed to ensure that taxpayers
are protected. It should welcome the participation of financial
institutions, large and small. It should make certain that failed
executives do not receive a windfall from your tax dollars.


      It should establish a bipartisan board to oversee the plan's
implementation, and it should be enacted as soon as possible.


      In close consultation with Treasury Secretary Hank Paulson,
Federal Reserve Chairman Ben Bernanke, and SEC Chairman Chris Cox,
I announced a plan on Friday.


      First, the plan is big enough to solve a serious problem. Under
our proposal, the federal government would put up to $700 billion
taxpayer dollars on the line to purchase troubled assets that are
clogging the financial system.


      In the short term, this will free up banks to resume the flow of
credit to American families and businesses, and this will help our
economy grow.


      Second, as markets have lost confidence in mortgage-backed
securities, their prices have dropped sharply, yet the value of
many of these assets will likely be higher than their current
price, because the vast majority of Americans will ultimately pay
off their mortgages.


      The government is the one institution with the patience and
resources to buy these assets at their current low prices and hold
them until markets return to normal.


      And when that happens, money will flow back to the Treasury as
these assets are sold, and we expect that much, if not all, of the
tax dollars we invest will be paid back.


      The final question is, what does this mean for your economic
future? Well, the primary steps - purpose of the steps I've
outlined tonight is to safeguard the financial security of American
workers, and families, and small businesses. The federal government
also continues to enforce laws and regulations protecting your
money.


      The Treasury Department recently offered government insurance
for money market mutual funds. And through the FDIC, every savings
account, checking account, and certificate of deposit is insured by
the federal government for up to $100,000.


      The FDIC has been in existence for 75 years, and no one has ever
lost a penny on an insured deposit, and this will not change.


      Once this crisis is resolved, there will be time to update our
financial regulatory structures. Our 21st-century global economy
remains regulated largely by outdated 20th-century laws.


      Recently, we've seen how one company can grow so large that its
failure jeopardizes the entire financial system.


      Earlier this year, Secretary Paulson proposed a blueprint that
would modernize our financial regulations. For example, the Federal
Reserve would be authorized to take a closer look at the operations
of companies across the financial spectrum and ensure that their
practices do not threaten overall financial stability.


      There are other good ideas, and members of Congress should
consider them. As they do, they must ensure that efforts to
regulate Wall Street do not end up hampering our economy's ability
to grow.


      In the long run, Americans have good reason to be confident in
our economic strength. Despite corrections in the marketplace and
instances of abuse, democratic capitalism is the best system ever
devised.


      It has unleashed the talents and the productivity and
entrepreneurial spirit of our citizens. It has made this country
the best place in the world to invest and do business. And it gives
our economy the flexibility and resilience to absorb shocks,
adjust, and bounce back.


      Our economy is facing a moment of great challenge, but we've
overcome tough challenges before, and we will overcome this one.


      I know that Americans sometimes get discouraged by the tone in
Washington and the seemingly endless partisan struggles, yet
history has shown that, in times of real trial, elected officials
rise to the occasion.


      And together we will show the world once again what kind of
country America is: a nation that tackles problems head on, where
leaders come together to meet great tests, and where people of
every background can work hard, develop their talents, and realize
their dreams.


      Thank you for listening. May God bless you.

Gallery

A bad day for the GOP on politics, bailout plan

Business and Economic News

Text of President Bush's speech Wednesday on the economic crisis
and a financial rescue plan, as transcribed by CQ Transcriptions

President Bush's speech on economic crisis

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