Bush says financial rescue needed to prevent worse

WASHINGTON (Reuters) - President George W. Bush defended the government's financial rescue plan on Saturday, saying the cost to taxpayers to shore up shaky markets was better than the alternative of massive job losses and devastated retirement accounts.

The Bush administration is working through the weekend with the Democratic-led Congress to craft a plan to spend hundreds of billions of federal dollars to purge securities tied to bad mortgages and other assets from bank balance sheets to keep the financial system from collapsing.

"These measures require us to put a significant amount of taxpayer dollars on the line. But I'm convinced that this bold approach will cost American families far less than the alternative," Bush said in his weekly radio address.

"Further stress on our financial markets would cause massive job losses, devastate retirement accounts, further erode housing values, and dry up new loans for homes, cars and college tuitions."

The plan, which includes a new federal guarantee for money market fund holdings, comes on the heels of an $85 billion Federal Reserve rescue of insurance firm American International Group and the Treasury's takeover of mortgage giants Fannie Mae and Freddie Mac.

At a White House event with Colombia's President Alvaro Uribe to push for approval of a free-trade agreement, Bush said he initially thought the government could deal with the trouble on Wall Street "one issue at time."

But the financial "house of cards was much bigger, and it started to stretch beyond just Wall Street in the sense of the effects of failure. So when one card started to go, we were worried about the whole deck coming down."

Failure to approve a big rescue package would put "hundreds of billions of dollars at risk." Bush said.

"The problem would spread to the average citizen. This is Wall Street plus Main Street and I'm worried about Main Street."

FREE MARKET IS DEAD?

Critics said the government was going too far in bailing out the financial sector.

"The free market for all intents and purposes is dead in America," said Sen. Jim Bunning of Kentucky, a member of Bush's own Republican Party.

The Treasury's proposal would "take away the free market and institute socialism in America," Bunning said in a statement on Friday. "The American taxpayer has been misled throughout this economic crisis. The government on all fronts has failed the American people miserably."

But Bush, and supporters of the rescue plan, said it would allow financial institutions to resume lending and restore confidence in the financial system.

"In the long term, Americans can have reason to be confident in our economic strength," Bush said.

"And as we've seen repeatedly over the past eight years, we have a flexible and resilient system that absorbs challenges, makes corrections, and bounces back."

(Additional reporting by Doug Palmer; editing by Chris Wilson)