Trader David O'Day works on the floor of the New York Stock Exchange before the closing bell, Friday Oct. 3, 2008. Stocks ended a volatile week with another sell-off Friday while credit markets remained strained after enthusiasm over the government's $700 billion financial rescue plan gave way to worries about obstacles still facing the economy. (AP Photo/Richard Drew)
WASHINGTON - With the world's financial markets on a stomach-churning ride, the Bush administration is scrambling to get a $700 billion rescue effort for the U.S. banking system up and running. And Europe's central banks began to take unified actions Monday aimed at easing the credit crisis.
The coordinated efforts by European and U.S. authorities to prop up the banking system brought a measure of relief to markets. European markets opened strongly Monday following Asia's lead in response to the widespread government initiatives.
The Bush administration, meanwhile, faced a daunting task as it moves to put together what will be one of the world's largest asset management firms while rethinking how the program should operate.
Neel Kashkari, an assistant Treasury secretary running the program on an interim basis, planned to give a progress report Monday.
In Europe, the Bank of England, the European Central Bank and the Swiss National Bank jointly announced they would work together to provide unlimited short-term funds to make money available to ease the credit freeze. The Bank of Japan said it was considering a similar move.
"The government cannot just leave people on their own to be buffeted about," said British Prime Minister Gordon Brown.
To assist the European banks, the U.S. Federal Reserve said it was taking actions to assure enough U.S. dollar funds were available to meet demand.
The British central bank was making available $63 billion to the three largest British banks to bolster their balance sheets.
The government move will leave British taxpayers owning as much 47 percent of the Royal Bank of Scotland Group PLC, and 43 percent of Loyds TSB Group PLC and HBOS PLC, two British banks in the process of merging. A third bank, Barclays PLC said it would not seek government help as it boosts its capital by $11.4 billion.
"The hope is that today will mark a watershed, with vast measures of government reassurance finally rekindling some confidence in the shattered banking sector," said Keith Bowman, an analysts at Hargreaves Landsdown Stockbrokers in London.
Treasury Secretary Henry Paulson said during weekend meetings with global financial powers that his department was working around the clock to carry out the plan. His comments were meant to convince investors that the world's largest economy is moving quickly to get lending restarted and avert what could be a deep and painful global recession.
Those dire concerns sent markets around the world reeling last week, giving the Dow Jones industrial average it worst week on record. Since peaking a year ago, the Dow is now down 40.3 percent. U.S. stocks have lost $8.4 trillion in value over the past year.
Throughout the weekend, the administration worked to restore confidence, using the annual meetings of the 185-nation International Monetary Fund and World Bank to send a message that global finance officials will do what it takes to resolve the crisis.
The Group of Seven major industrial countries issued a five-point action plan that pledged to do everything from preventing major banks from failing to unfreezing credit markets.
President Bush met with G-7 finance officials at the White House on Saturday morning and later traveled to the IMF to meet with the Group of 20, which includes rich countries as well as major developing nations such as China, Brazil, India and Mexico. He stressed the need for cooperation.
In Paris, the 15 nations in Europe's single-currency zone agreed Sunday to steps including temporarily guaranteeing bank refinancings.
The Bush administration over the past six weeks has taken over the nation's two biggest mortgage finance firms, Fannie Mae and Freddie Mac, rescued American International Group, the world's biggest insurance company, and won congressional approval of a $700 billion rescue package for the entire financial system.
As the bailout bill rushed through Congress, Paulson stressed that the major aim was to buy bad assets, primarily mortgage-backed securities, from financial institutions. The hope was that taking those bad loans off the books would encourage banks to return to more normal lending operations and unclog credit flows — the economy's lifeblood.
Paulson said Friday that the government also would use some of the money to buy stakes in banks. The goal is to give banks the resources to resume lending at more normal levels.
That about-face has left the administration trying to decide how much to devote to buying bad assets and how much to use for stock purchases.
Lawmakers who pushed to include the stock purchase program in the rescue bill over initial administration objections say the stock purchases can start much faster than the effort to buy bad assets and help restore market confidence sooner.
Sen. Charles Schumer of New York, chairman of the Joint Economic Committee, said Sunday that he hoped the administration would announce as soon as Monday that the stock purchases were being launched.
"We're beginning a downward spiral, not just in finance ... but in the whole economy. We need quick action," Schumer said on ABC's "This Week."
Schumer and other Democrats lined up behind House Speaker Nancy Pelosi's plan to bring lawmakers back to Washington after the Nov. 4 election to work on a second economic relief plan of up to $150 billion. It would extend jobless benefits, increase food stamp funding and finance government construction projects.