The Federal Reserve and other major central banks pumped extra money into financial markets on Thursday. The aim was to help calm investors and persuade nervous banks to lend to each other.
President George Bush canceled travel plans and stayed in Washington on Thursday to meet with economic advisers about the financial crisis. He made a brief public statement on the extraordinary measures taken by the federal government in recent weeks. He said his administration will continue to act to strengthen financial markets and improve investor confidence.
|A.I.G. is one of the world's largest insurance companies|
Last week, the government took control of the nation's two biggest housing finance companies. And this week the Fed agreed to lend up to eighty-five billion dollars to the nation's largest insurance company, A.I.G., the American International Group. In return, the government will own eighty percent of A.I.G. and receive interest on the two-year loan.
President Bush says the failure of A.I.G. could have caused severe problems in financial markets and threatened other parts of the economy.
A.I.G. got into deep trouble on insurance policies that it provided for securities tied to risky home loans. It has dealings with every major financial company in the United States. And it operates in more than one hundred thirty countries.
In a speech in July, Treasury Secretary Henry Paulson said: "We need to create a resolution process that ensures the financial system can withstand the failure of a large, complex financial firm."
He said that today, expectations that the government will intervene to prevent a failure are based on two concerns. These concerns are that a company may be too interconnected to fail or too big to fail. Policy makers, he said, must take steps because the tools now available are limited.
This week, while the government agreed to help A.I.G., it refused a bailout for a big investment bank, Lehman Brothers. That forced Lehman to seek Bankruptcy Court protection from its creditors.
The United States had five big, independent investment banks before the credit crisis began more than a year ago. Now Lehman has failed. Merrill Lynch agreed Sunday to sell itself to Bank of America. And the Fed agreed in March to provide twenty-nine billion dollars in loans for the sale of Bear Stearns. The two left are Morgan Stanley and Goldman Sachs.
And that's the VOA Special English Economics Report, written by Mario Ritter. To learn more about the financial crisis, go to voaspecialenglish.com. I'm Steve Ember.