Moving ahead with a bailout plan announced this past Friday, the U.S. Treasury Department submitted legislation to Congress requesting authority to purchase troubled assets from financial institutions.

Under the proposed plan, the Treasury would have authority to issue up to US$700 billion of Treasury securities to finance the purchases, which are intended to be residential and commercial mortgage-related assets. The Treasury secretary, Henry Paulson, would also have discretion, in consultation with the Ben Bernanke, chairman of the U.S. Federal Reserve Board, to purchase other assets, as deemed necessary to effectively stabilize
financial markets.

The timing and scale of any purchases will also be at the discretion of the Treasury. The price of the purchases will be established through market mechanisms where possible, such as reverse auctions, it added.

In response to the proposal, the speaker of the house, Democrat Nancy Pelosi, said that Congress is reviewing the plan, which she characterized as seeking “sweeping and unprecedented powers for the Treasury Secretary to confront a financial crisis of historic proportions.

“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,” she added. “In working with the Administration, we will strengthen the proposal by ensuring that the government is accountable to the taxpayers in any future actions under this broad grant of authority, implementing strong oversight mechanisms, and establishing fast-track authority for the Congress to act on responsible regulatory reform.”