U.S. launches all-out attack on credit crisis

By Kevin Drawbaugh and David Lawder

WASHINGTON (Reuters) - The United States surged into action on Friday to launch an all-out attack against the worst financial crisis since the Great Depression, readying a plan to tap hundreds of billions of dollars in taxpayer funds to buy up toxic mortgage-related debt.

Capping a week that has reshaped Wall Street, U.S. Treasury Secretary Henry Paulson urged Congress to quickly agree on a program for huge purchases of bad debts held by banks and other financial institutions. Lawmakers promised fast action.

Losses on these debts have choked the financial system, forced lenders into bankruptcy and led the economy to what U.S. President George W. Bush called a "pivotal" moment.

"America's economy is facing unprecedented challenges, and we are responding with unprecedented action," Bush told reporters in the White House Rose Garden.

After having taken a series of other emergency steps that failed to erect a firewall against the spreading credit turmoil, U.S. authorities turned their attention to the underlying problem -- the rising tide of bad mortgage debt.

Paulson offered few details on Treasury's evolving plan but said he would work through the weekend and next week with Congress to get a program put in place. Congressional aides said they expected to see more details within 24 hours.

Rep. Steny Hoyever, the Democratic leader in the House of Representatives, said the chamber would likely take up a bill to implement the plan early next week. House Speaker Nancy Pelosi said lawmakers would stay in town past their hoped-for adjournment next Friday if needed to pass it.

"We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system's stresses," Paulson said at a news conference. "We're talking hundreds of billions. This needs to be big enough to make a real difference and get at the heart of the problem."

U.S. stocks, which chalked up their best day in six years on Thursday as talk of the more aggressive approach spread, soared again on Friday. The blue chip Dow Jones industrial average closed up 368 points, or about 3.4 percent.

The news also caused waves in the U.S. presidential campaign. Republican hopeful Sen. John McCain knocked the Treasury for taking a haphazard approach to the crisis, while rival Democrat, Sen. Barack Obama, supported the latest moves.

$1 TRILLION

Paulson and Federal Reserve Chairman Ben Bernanke have already put close to $1 trillion of taxpayer money on the line to try to keep credit flowing, and the new effort could double that amount.

At a meeting with congressional leaders on Thursday night, Paulson and Bernanke made the case for aggressive action to get ahead of events that could devastate the already weak U.S. economy.

"When I heard his description of what might happen to our economy if we failed to act, I gulped," Democratic Sen. Charles Schumer of New York said, referring to Bernanke's appraisal.

At his news conference on Friday, Paulson said the latest plan was the best hope of ultimately protecting the public purse and avoiding a grave recession.