Washington (AP) - Treasury Secretary Henry Paulson on Friday sketched out a multi-faceted effort to confront the worst U.S. financial crisis in decades, outlining a program that could cost taxpayers "hundreds of billions" of dollars to buy up bad mortgages and other toxic debt that has unhinged Wall Street.
"This needs to be big enough to make a real difference and get to the heart of the problem," he told reporters as the administration asked Congress to give it sweeping powers.
He gave few details but said he would work through the weekend with leaders of Congress from both parties to flesh out the program, the biggest proposed government intervention in financial markets since the Great Depression.
The government steps were clearly welcomed by financial markets. As Paulson spoke, the Dow Jones industrials were up over 300 points and at one point had soared by 450 points.
Before the markets opened, the government announced plans to temporarily insure money-market deposits and to block short-selling in financial securities. Short selling is a trading method that bets the stocks will go down.
Speaking to reporters at the Treasury Department, Paulson said that the new troubled-asset relief program that he wants Congress to enact must be large enough to have the necessary impact while protecting taxpayers as much as possible.
"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 said in a prepared statement.
"The financial security of all Americans ... depends on our ability to restore our financial institutions to a sound footing," Paulson said.
Paulson said mortgage giants Fannie Mae and Freddie Mac will step up their purchases of mortgage-backed securities to help provide support to the crippled housing market.
He also said Friday that the Treasury Department will expand a program, announced earlier this month, to buy mortgage-backed securities, which have been badly hurt by the housing and credit crisis.
"As we all know, lax lending practices earlier this decade led to irresponsible lending and irresponsible borrowing. This simply put too many families into mortgages they could not afford," Paulson said.
At a news conference in which he only took three questions, Paulson was asked the approximate dollar size of the government intervention. "We're talking hundreds of billions," he said.
Paulson did not address specifics about the plan to buy back bad debt or whether the government would take a direct stake in troubled banks in exchange for its help.
"These illiquid assets are clogging up our financial system, and undermining the strength of our otherwise sound financial institutions. As a result, Americans' personal savings are threatened, and the ability of consumers and businesses to borrow and finance spending, investment, and job creation has been disrupted," Paulson said.
He said that the administration would present Congress with a proposed legislative package and then work with lawmakers "to flesh out the details through the weekend. And we're going to be asking them to take action on legislation next week."
"This is what we need to do. Because for some time we've been saying that the root cause of the problems in our economy and our financial system is housing, and until we get stability in the housing market we are not going to get stability in our financial markets," he said.
Earlier, President Bush authorized Treasury to tap up to $50 billion from a Depression-era fund to insure the holdings of eligible money market mutual funds. And the Federal Reserve announced it will expand its emergency lending program to help support the $2 trillion in assets of the funds.
Both moves are designed to bolster the huge money market mutual fund industry, which has come under stress in recent days.
The Fed said it is expanding its emergency lending efforts to allow commercial banks to finance purchases of asset-backed paper from money market funds. The central bank's move should help the funds meet demands for redemptions.
The Securities and Exchange Commission early Friday imposed a temporary emergency ban on short-selling of financial company stocks. As the financial crisis widened, entreaties had come from all quarters to stem a swarm of short-selling contributing to the collapse of stock values in investment and commercial banks.
Congressional leaders said they expected to get the rescue plan Friday and act on it before Congress recesses for the election.
The government's actions could help alleviate the uncertainty that has been sending the markets into tumult over the past week. Lending has grinded to a virtual standstill in the wake of the bankruptcy of Lehman Brothers Holdings Inc.
Global stock markets roared higher, too.
And European Central Bank, Swiss National Bank and Bank of England offered up more cash Friday. The three banks put a combined $90 billion into money markets in a lockstep move.
The chairman of the Senate Banking Committee, Chris Dodd, D-Conn., warned the United States could be "days away from a complete meltdown of our financial system" and said Congress is working quickly to prevent that.
Dodd told ABC's "Good Morning America" on Friday that the nation's credit is seizing up and people can't get loans.
The ranking Republican on the Banking Committee, Sen. Richard Shelby, said the U.S. has "been lurching from one crisis to another" and predicted the new bailout plan would cost at least half a trillion dollars.
"We hope to move very quickly. Time is of the essence," House Speaker Nancy Pelosi, D-Calif., said after Paulson and Bernanke briefed congressional leaders Thursday night.
The federal government already has pledged more than $600 billion in the past year to bail out, or help bail out, some of the biggest names in American finance.
Associated Press writers Martin Crutsinger, Andrew Taylor and Marcy Gordon in Washington and Joe Bel Bruno in New York contributed to this report.
Treasury Secretary Henry Paulson on Friday sketched out a multi-faceted effort to confront the worst U.S. financial crisis in decades.