Proposal to Allow Treasury to Buy Mortgage-Related Assets to Address Financial Instability

Source: Edward V. Murphy and Baird Webel, Congressional Research Service, RS22957, September 22, 2008

Financial markets underwent severe stress during the week of September 15-22, 2008. After Lehman Brothers declared bankruptcy and AIG received a bridge loan from the Federal Reserve, policymakers reassessed their case-by-case approach to resolving financial problems. Secretary of the Treasury Paulson announced a plan to allow Treasury to purchase mortgage-related assets from U.S. financial institutions. The announced intent of the plan is to unclog financial markets, increase the health of the banking sector, and reduce ongoing risks to the economy. This report discusses a draft of the proposal as it stood on September 21, 2008, and analyzes frequently asked questions. This report will be updated as conditions warrant.

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