INSTANT VIEW: Treasury plan to calm financial markets

NEW YORK (Reuters) - U.S. Treasury Secretary Henry Paulson on Friday urged Congress to back a bold plan to attack financial market weakness by buying up risky loans and said this was the best long-run hope to save taxpayer's money.

KEY POINTS: * "We must now take further, decisive action to fundamentally and comprehensively address the root cause of our financial system's stresses," Paulson said in a statement. * "The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," he said in prepared remarks. * "This troubled asset relief program must be properly designed and sufficiently large to have maximum impact, while including features that protect the taxpayer to the maximum extent possible," he said.

COMMENTS:

CARY LEAHEY, ECONOMIST AND MANAGING DIRECTOR, DECISION ECONOMICS, NEW YORK:

"This plan, to say the least, is an incredibly difficult undertaking, especially in a politically highly charged election year. Even if we don't waste a lot of time pointing fingers at one another, the challenge of an RTC-type solution in this situation dwarfs the challenge that the Resolution Trust Corp. faced during the S&L crisis 25 years ago.

"It is important to remember that the RTC was dealing with failed institutions that had little or no bargaining power and their assets were disposed of over time. It's not too hard to get your arms around a wide variety of residential and office properties by putting them on the block the way the RTC did.

"The U.S. government has had a lot of experience dealing with bank failures, but now the Fed will have to deal with both the lambs and the lions on Wall Street: living, breathing entities that have to be negotiated with. You're also dealing with complex securities this time, not just 30-year fixed mortgages. We're dealing with the alphabet soup of modern day finance, be it ABS, CDS and the list goes on forever. These are not easy items to price.

"What is happening now is what people have worried about for decades, that when the financial system blows up, the average American taxpayer has to foot the bill, socializing the losses, but privatizing the gains. Wall Street has discovered a great business where the upside is potentially unlimited, but the downside is ultimately put on the taxpayers' tab."

JOSEPH BATTIPAGLIA, MARKET STRATEGIST, STIFEL NICOLAUS, YARDLEY, PENNSYLVANIA:

"You certainly reduced the probabilities of a financial collapse in the United States... Not knowing the details of the plan but recognizing how the government works, it's probably neutral for the real economy.

"Even if you keep the credit market alive with a heartbeat with these measures, it doesn't necessarily solve the economic malaise that you've entered.

"I'm trying to figure out whether or not we have actually destroyed a big part of the credit creation mechanism, and whether or not... will (lenders) still be very risk adverse so that credit conditions remain relatively tight in 2009 and 2010. My analysis leads me to believe its going to stay tight.

"You can't tell me that (Congress is) going to put together a piece of comprehensive legislation that doesn't have about 15 or 16 trap doors in it for all their friends to make a bundle on this.

"I am fearful that what you'll see there is the ability for the automotive industry, the airline industry to come in the back door to use this facility to unload their garbage.

"All (Paulson) did today was to blow air into the market and say look, 'We're going to formulate a plan to bring safety and security to America. Apple pie for everyone, etc. And everyone said 'Yahoo!'