Bush admin briefs Congress leaders on Wall St. plan

Traders work on the floor of the New York Stock Exchange September 18, 2008.

WASHINGTON (Reuters) - The Bush administration is developing a plan to soothe battered financial markets, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke told congressional leaders at an extraordinary Thursday night meeting in the U.S. Capitol.

Massachusetts Democratic Rep. Barney Frank said afterward that the administration wants the power "to buy up the illiquid assets" poisoning the markets. There was concern setting up a formal entity to carry out this task "could take too long."

Paulson, Bernanke and Securities and Exchange Commission Chairman Christopher Cox met for nearly 90 minutes with more than a dozen Democratic and Republican lawmakers, including House of Representatives Speaker Nancy Pelosi, in her office.

Afterward, Paulson told reporters he and the lawmakers are working on a plan to "address systemic risks" in the markets and deal with problem assets, but offered few details.

"We talked about a comprehensive approach that will require legislation to deal with illiquid assets on financial institutions' balance sheets," Paulson said.

Pelosi on Thursday sent a letter to President George W. Bush saying the worsening economy demands another bipartisan economic recovery effort, and that Congress is ready to deal with legislation beyond its scheduled September 26 adjournment, if needed.

Until the last few days, lawmakers had generally been looking toward 2009 for dealing with the markets' problems, but a clamor for faster action, likely with taxpayer money, has grown amid plunging stock prices and frozen credit markets.

MARKET SOARS

Word of a possible government fix for the capital crunch sent stocks soaring on Thursday to give Wall Street its best day in six years.

The market had been battered by Monday's bankruptcy filing by investment banking group Lehman Brothers Holdings and by Tuesday's $85 billion government rescue of insurance giant American International Group.

Bush delivered a brief statement from the White House earlier on Thursday, saying he was prepared to take further measures to stabilize and strengthen the markets.

Frank, who chairs the House Financial Services Committee, said there was "virtually unanimous agreement" in the meeting that there would be legislation involved.

Sen. Richard Shelby said the meeting focused on "how to deal with a lot of illiquid assets ... We're waiting to see the proposal that Treasury and the Fed will be sending up to us."

Shelby, from Alabama, is the senior Republican on the Senate Banking Committee. Its chairman, Connecticut Sen. Christopher Dodd, also was in on the urgent discussions.

Dodd said Congress will respond to the administration's proposal for containing the Wall Street crisis after getting details on it, which could occur sometime this weekend or slightly later. He noted that his committee will hold a hearing on Tuesday, with the proposal likely the main topic.

SOBER GATHERING

"I have no idea what it will look like at this point. I can't tell you numbers, volume. This is a very serious moment," Dodd said, adding the meeting was "a very sober gathering ... I've been in the Senate 28 years and Congress 34. There's never been a moment as serious as this one."

Policy-makers are said to be eyeing various models for government intervention. One is the Resolution Trust Corp (RTC) of the 1980s and 1990s, which liquidated almost $400 billion in assets from more than 700 insolvent savings and loans.

Others are the Depression-era Reconstruction Finance Corp, which pumped taxpayer money into private companies, as well as the Home Owners' Loan Corp, which refinanced mortgage to prevent foreclosures and prop up the mortgage market.

Congress had been trying to wrap up its work within a week or so, allowing lawmakers to campaign for re-election.

On November 4, voters will pick a new president. All 435 House seats and one-third of the Senate seats are also up for grabs.

The Dow Jones industrial average on Thursday jumped 3.9 percent, while the Standard & Poor's 500 Index climbed 4.3 percent. The Nasdaq Composite Index shot up 4.8 percent. It was the biggest one-day percentage gain for all three indexes since October 2002 -- when the last bull market was born.

(Additional reporting by Karey Wutkowski, Kim Dixon; with Al Yoon in New York, Editing by Ian Geoghegan)