In an effort to deal comprehensively with a severe financial crisis on Wall Street, the Bush administration Friday is proposing the creation of a government agency to deal with the bad loans of U.S.-based financial institutions. The plan could cost taxpayers hundreds of billions of dollars, which will be used to buy up bad mortgages and other debt. VOA's Barry Wood in Washington has more.

Saying the financial system faces an unprecedented challenge, President Bush says the government must intervene in the markets to restore financial stability.  

Henry Paulson briefs reporters about efforts to heal the crisis in the U.S. financial markets, at the Treasury Department in Washington, D.C., 19 Sep 2008

Treasury Secretary Henry Paulson says emergency legislation will be presented to lawmakers within the next two days.

"I look forward to working with Congress to pass legislation to remove these troubled assets from our financial system," he said. "When we get through this difficult period, which we will, our next task must be to improve our regulatory structure so that these past excesses do not reoccur."

Paulson and Federal Reserve Chairman Ben Bernanke briefed congressional leaders on the plan Thursday night. The Treasury secretary says he hopes for congressional approval next week.

The plan would create a government entity that would buy bad loans. A similar agency, the Resolution Trust Corporation, was created in 1989 to deal with the bad debt related to real estate lending. The RTC cost American taxpayers about $150 billion. Paulson says this bank rescue is likely to cost much more.

"We're talking hundreds of billions," he said. "This needs to be big enough to make a real difference and get at the heart of the problem."

President Bush, flanked by Federal Reserve Chairman Ben Bernanke (l) and Treasury Secretary Henry Paulson, delivers statement about economy, 19 Sep 2008

President Bush, speaking about the financial crisis for the third time this week, said significant amounts of taxpayer money will be put at risk, but that he expects the money to eventually be paid back. Without government action, he said, there was a risk that financial sector could grind to a halt.

Wall Street welcomed the news of the bail out, as stock market indexes soared. They had registered deep declines earlier this week as one investment bank collapsed and a giant insurer was taken over by the US government. 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.