The Bush administration has decided that the country's financial crisis is too big and too urgent to fight piecemeal and is working on a massive government bailout that could cost taxpayers as much as $1 trillion.
News of the plan provided a major boost to Wall Street today: The Dow Jones industrial average closed more than 380 points higher at just above 11,400. It marked the second consecutive three-digit rally for the Dow, which now stands at roughly the same level it closed at last week, before the bankruptcy of the brokerage firm Lehman Brothers and other financial sector news battered the markets.
The rescue plan would have Uncle Sam purchase virtually worthless mortgage-backed investments that have been plaguing Wall Street and the U.S. economy for months.
Details are still being worked out by the administration and congressional leaders of both parties. Officials are expected to work through the weekend to finalize a plan.
While the taxpayer cost of such a bailout isn't yet clear, this could be the biggest government market intervention since the Great Depression and is reminiscent of the Savings and Loan bailout of the 1980s. That bailout ended up costing taxpayers $123.8 billion, according to the Federal Deposit Insurance Corporation.
President Bush said that "this is a pivotal moment for America's economy."
"America's economy is facing unprecedented challenges and we are responding with unprecedented action," the president said this morning from outside the Oval Office with Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Christopher Cox at his side.
"Our system of free enterprise rests on the conviction that the federal government should interfere in the marketplace only where necessary," Bush said. "Given the precarious state of today's financial markets and their vital importance to the daily lives of the American people, government intervention is not only warranted, it is essential."
Bush urged Democrats and Republicans to work together to pass whatever laws are needed for the bailout.
"This is no time for partisanship," he said. "We must join to move urgently needed legislation as quickly as possible without adding controversial provisions that can delay action."
Earlier this morning, Paulson said the government must remove these investments which "are weighing down our financial institutions and threatening our economy."
Paulson did not put a specific price tag on this bailout.
"We're talking hundreds of billions. This needs to be big enough to make a real big difference and get at the heart of the problem.
"I am convinced that this bold approach will cost American families far less than the alternative -- a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion," Paulson added.
The government today also took a couple of other steps to halt the economic slide. It temporarily banned the short selling of 799 financial companies, and put up $50 billion to back money market mutual funds to stave off a possible run on those accounts as well.