Washington - The US government is submitting a finance rescue package to Congress that is valued at 700 to 800 billion dollars, media reports said Saturday. In the largest intervention in capital markets since the 1930s, the administration of US President George W Bush Friday proposed to mop up bad mortgage debt with its first system-wide attack on turmoil in the finance industry that threatens the nation with economic collapse.
"This is a big package because it was a big problem," Bush said Saturday during a meeting at the White House with Colombian President Alvaro Uribe.
Bush's economic generals and Congressional leaders were meeting over the weekend to iron out the details.
Speaker of the House Nancy Pelosi, a Democrat, said Saturday afternoon that the proposal was being reviewed.
"Democrats will work with the administration to ensure that our response to events in the financial markets is swift, but we must insulate Main Street from Wall Street and keep people in their homes by reducing mortgage foreclosures," Pelosi said in a statement.
The programme may be worth 700 to 800 billion dollars, and would be broken down into tranches of 50 billion dollars each, the Wall Street Journal and Bloomberg financial news agency reported, quoting unnamed sources.
The Treasury Department would buy up the bad mortgage debts that have already brought down major financial firms and auction them off for the lowest prices - a reverse of a normal auction - Bloomberg reported.
In order to fund the purchases, Congress would need to raise the federal debt limit to allow the government to borrow enough money to fund the programme.
Bush warned again Saturday that credit availability for everything from houses and cars to student loans could dry up, bringing to a complete halt the borrowing on which much of the US economy is based.
"The collapse of one part of the system would affect the average citizen," Bush said. "It would affect their capacity to borrow money."
Bush said the cost to taxpayers will be replenished as the economy recovers over time. "The taxpayers are going to get a lot of that money back," he said.
The comprehensive approach marks the first system-wide approach after the year-long crisis that has seen credit dry up and financial giants such as Lehman Brothers and American International Group (AIG) fall.
Earlier, the US floated a bailout of the mortgage giants Freddie Mac and Fannie Mae valued at up to 200 billion dollars.
Stock markets swung widely through the week as Lehman Brothers declared its 600-billion-dollar bankruptcy and even the 85-billion- dollar bailout of AIG failed to calm them. But once news emerged about the larger programme to buy up mortgage debt, markets calmed down and recovered their losses for the week.
The crisis has played havoc with global markets but they, too, recovered for the most part by week's end.
The Federal Reserve is to consult with the Treasury Department in designing the debt auctions.
Democrats who control Congress and must sign off on the final programme are expected to insist on a parallel program of relief for households by restructuring loans of struggling borrowers and other measures.
"We are going to be buying up a lot of mortgage paper," said House financial services committee chairman Barney Frank, a Massachusetts Democrat. "Between Fannie Mae and Freddie now owned by the federal government and the mortgage paper we'll be acquiring" and the Federal Deposit Insurance Corp running failed bank IndyMac Bancorp Inc, "we should now be able substantially to reduce foreclosures."
Senator Harry Reid, leader of the majority Democrats, stressed the need for the bailout.
"Every single American has a stake in preventing a global financial meltdown," he said. "Our first priority must be to prevent that from happening. While the Bush proposal raises some serious issues, we need to resolve them quickly."
On Friday, Treasury Secretary Henry Paulson warned that "illiquid assets are choking off the flow of credit that is so vitally important to our economy."
"As illiquid mortgage assets block the system, the clogging of our financial markets has the potential to have significant effects on our financial system and our economy," he said.
Senator Richard Shelby, an Alabama Republican, warned against the downsides of the bailout which will saddle taxpayers with large debts.
"This could be the biggest bailout in the history of the country," said Shelby, the ranking Republican on the Senate banking committee, said in a Bloomberg Television interview. "Congress is not going to rubber stamp something."
The government intervention comes as nearly 10 per cent of American mortgages are delinquent or in foreclosure, and as home values have fallen for nearly two years straight.
Senator Christopher Dodd, the banking committee chairman, also said it was important for a rescue plan to go beyond bad mortgage debt and consider consumer debt including credit cards.
Congress is expected to adopt the rescue plan by the end of next week, when it is due to recess in preparation for the November 4 presidential and congressional elections.
Already on Friday, the US government moved to curb certain speculative trading on Wall Street, threw its might behind money market mutual funds and started mopping up bad mortgage assets through an emergency purchase plan.
