WASHINGTON, March 17, 2008 (AFP) — President George W. Bush said Monday he expects the United States to ride out a financial storm that is roiling markets, with support of his administration and the Federal Reserve.
Bush's comments came after a series of actions by the US central bank over the weekend to ease a credit crisis and a rescue of troubled investment bank Bear Stearns.
"We're in challenging times," Bush said, voicing support for the Fed's rapid moves to add liquidity and support the rescue one of the largest US investment banks.
"The Federal Reserve has moved quickly to bring order to the financial markets," Bush said in a statement after huddling with his top economic advisors, including Treasury Secretary Henry Paulson and chief economic aide Edward Lazear.
Bush was to meet in the afternoon with his Working Group on Financial Markets. In addition to Paulson, the group includes Fed chairman Ben Bernanke and the chairmen of the Securities and Exchange Commission and the Commodity Futures Trading Commission.
In a rare Sunday action to keep cash flowing in the financial system, the Fed lowered a key rate on direct loans to some financial institutions and created a special lending program for securities firms caught in a cash squeeze stemming from the subprime, or high-risk, mortgage crisis.
The Fed actions, taken in close cooperation with the Treasury, were announced just before Asian financial markets opened. They followed a tumultuous week of trading in a mounting crisis of confidence over a global credit crunch that is causing tens of billions of dollars in losses.
Bush said that Paulson had briefed him on the central bank moves, and added: "Secretary Paulson ... is supportive of that action, as am I."
He thanked Paulson for "working over the weekend" to deal with the crisis brought to a tipping point last week with the near-collapse of Wall Street investment bank Bear Stearns.
The Fed and rival JPMorgan Chase rode to Bear Stearns rescue on Friday in an extraordinary bailout, but by late Sunday JPMorgan Chase was announcing it was buying the troubled firm for a fraction of its prior value in a rescue backed by the Fed.
The central bank on Sunday trimmed a quarter-point to 3.25 percent its primary credit rate, which is the rate offered at the Fed's discount window for loans to institutions "in sound condition."
The cut came after a week of market turmoil and was part of "two initiatives designed to bolster market liquidity and promote orderly market functioning," a Fed statement said.
The Fed said it would make liquidity available starting Monday to "primary dealers," which include brokerages that were not previously eligible for direct loans from the central bank.
The moves came ahead of a regularly scheduled Fed meeting Tuesday at which the central bank is widely expected to cut its base federal funds rate further in an effort to get credit flowing.
The Fed has slashed the key rate by 2.25 percentage points since September, to 3.00 percent, in a bid to ward off the financial contagion of a credit squeeze that originated in a US housing slump two years ago but now has weakened the global financial system.
"This was a totally necessary move to prevent these serious problems from spreading, and to avert a possible meltdown of the financial system," said US Senator Charles Schumer, a New York Democrat.
"Hopefully Bear's problems will wake this administration out of its torpor. If they fail to act to deal with the bullseye of this crisis, which is housing, the likelihood of more Bears is too great," Schumer said in a statement.
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