    [Public Papers of the Presidents of the United States: George W. Bush (2008, Book II)]
    [September 24, 2008]
    [Pages 1237-1240]
    [From the U.S. Government Publishing Office www.gpo.gov]

    Address to the Nation on the National Economy
    September 24, 2008

        Good evening. This is an extraordinary period for America's economy.
    Over the past few weeks, many Americans have felt anxiety about their
    finances and their future. I understand their worry and their
    frustration. We've seen triple-digit swings in the stock market. Major
    financial institutions have teetered on the edge of collapse, and some
    have failed. As uncertainty has grown, many banks have restricted
    lending. Credit markets have frozen, and families and businesses have
    found it harder to borrow money.
        We're in the midst of a serious financial crisis, and the Federal
    Government is responding with decisive action. We boosted confidence in
    money market mutual funds and acted to prevent major investors from
    intentionally driving down stocks for their own personal gain.
        Most importantly, my administration is working with Congress to
    address the root cause behind much of the instability in our markets.
    Financial assets related to home mortgages have lost value during the
    housing decline, and the banks holding these assets have restricted
    credit. As a result, our entire economy is in danger. So I proposed that
    the Federal Government reduce the risk posed by these troubled assets
    and supply urgently needed money so banks and other financial
    institutions can avoid collapse and resume lending.
        This rescue effort is not aimed at preserving any individual company
    or industry; it is aimed at preserving America's overall economy. It
    will help American consumers and businesses get credit to meet their
    daily needs and create jobs. And it will help send a signal to markets
    around the world that America's financial system is back on track.
        I know many Americans have questions tonight: How did we reach this
    point in our economy? How will the solution I've proposed work? And what
    does this mean for your financial future? These are good questions, and
    they deserve clear answers.
        First, how did our economy reach this point? Well, most economists
    agree that the problems we are witnessing today developed over a long
    period of time. For more than a decade, a massive amount of money flowed
    into the United States from investors abroad because our country is an
    attractive and secure place to do business. This large influx of money
    to U.S. banks and financial institutions, along with low interest rates,
    made it easier for Americans to get credit. These developments allowed
    more families to borrow money for cars and homes and college tuition,
    some for the first time. They allowed more entrepreneurs to get loans to
    start new businesses and create jobs.
        Unfortunately, there were also some serious negative consequences,
    particularly in the housing market. Easy credit combined with the faulty
    assumption that home values would continue to rise led to excesses and
    bad decisions. Many mortgage lenders approved loans for borrowers
    without carefully examining their ability to pay. Many borrowers took
    out loans larger than they

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    could afford, assuming that they could sell or refinance their homes at
    a higher price later on.
        Optimism about housing values also led to a boom in home
    construction. Eventually, the number of new houses exceeded the number
    of people willing to buy them. And with supply exceeding demand, housing
    prices fell, and this created a problem. Borrowers with adjustable rate
    mortgages who had been planning to sell or refinance their homes at a
    higher price were stuck with homes worth less than expected, along with
    mortgage payments they could not afford. As a result, many mortgage
    holders began to default.
        These widespread defaults had effects far beyond the housing market.
    See, in today's mortgage industry, home loans are often packaged
    together and converted into financial products called mortgage-backed
    securities. These securities were sold to investors around the world.
    Many investors assumed these securities were trustworthy and asked few
    questions about their actual value. Two of the leading purchasers of
    mortgage-backed securities were Fannie Mae and Freddie Mac. Because
    these companies were chartered by Congress, many believed they were
    guaranteed by the Federal Government. This allowed them to borrow
    enormous sums of money, fuel the market for questionable investments,
    and put our financial system at risk.
        The decline in the housing market set off a domino effect across our
    economy. When home values declined, borrowers defaulted on their
    mortgages, and investors holding mortgage-backed securities began to
    incur serious losses. Before long, these securities became so unreliable
    that they were not being bought or sold. Investments banks such as Bear
    Stearns and Lehman Brothers found themselves saddled with large amounts
    of assets they could not sell. They ran out of the money needed to meet
    their immediate obligations, and they faced imminent collapse. Other
    banks found themselves in severe financial trouble. These banks began
    holding on to their money and lending dried up and the gears of the
    American financial system began grinding to a halt.
        With the situation becoming more precarious by the day, I faced a
    choice: to step in with dramatic Government action or to stand back and
    allow the irresponsible actions of some to undermine the financial
    security of all.
        I'm a strong believer in free enterprise, so my natural instinct is
    to oppose Government intervention. I believe companies that make bad
    decisions should be allowed to go out of business. Under normal
    circumstances, I would have followed this course. But these are not
    normal circumstances. The market is not functioning properly. There's
    been a widespread loss of confidence, and major sectors of America's
    financial system are at risk of shutting down.
        The Government's top economic experts warn that without immediate
    action by Congress, America could slip into a financial panic and a
    distressing scenario would unfold.
        More banks could fail, including some in your community. The stock
    market would drop even more, which would reduce the value of your
    retirement account. The value of your home could plummet. Foreclosures
    would rise dramatically. And if you own a business or a farm, you would
    find it harder and more expensive to get credit. More businesses would
    close their doors, and millions of Americans could lose their jobs. Even
    if you have good credit history, it would be more difficult for you to
    get the loans you need to buy a car or send your children to college.
    And ultimately, our country could experience a long and painful
    recession.
        Fellow citizens, we must not let this happen. I appreciate the work
    of leaders from both parties in both houses of Congress

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    to address this problem and to make improvements to the proposal my
    administration sent to them. There is a spirit of cooperation between
    Democrats and Republicans and between Congress and this administration.
    In that spirit, I've invited Senators McCain and
    Obama to join congressional leaders of both
    parties at the White House tomorrow to help speed our discussions toward
    a bipartisan bill.
        I know that an economic rescue package will present a tough vote for
    many Members of Congress. It is difficult to pass a bill that commits so
    much of the taxpayers' hard-earned money. I also understand the
    frustration of responsible Americans who pay their mortgages on time,
    file their tax returns every April 15th, and are reluctant to pay the
    cost of excesses on Wall Street. But given the situation we are facing,
    not passing a bill now would cost these Americans much more later.
        Many Americans are asking, how would a rescue plan work? After much
    discussion, there is now widespread agreement on the principles such a
    plan would include. It would remove the risk posed by the troubled
    assets, including mortgage-backed securities, now clogging the financial
    system. This would free banks to resume the flow of credit to American
    families and businesses. Any rescue plan should also be designed to
    ensure that taxpayers are protected. It should welcome the participation
    of financial institutions large and small. It should make certain that
    failed executives do not receive a windfall from your tax dollars. It
    should establish a bipartisan board to oversee the plan's
    implementation, and it should be enacted as soon as possible.
        In close consultation with Treasury Secretary Hank Paulson, Federal Reserve Chairman Ben
    Bernanke, and SEC Chairman Chris Cox, I announced a plan on Friday. First, the plan is
    big enough to solve a serious problem. Under our proposal, the Federal
    Government would put up to $700 billion taxpayer dollars on the line to
    purchase troubled assets that are clogging the financial system. In the
    short term, this will free up banks to resume the flow of credit to
    American families and businesses, and this will help our economy grow.
        Second, as markets have lost confidence in mortgage-backed
    securities, their prices have dropped sharply. Yet the value of many of
    these assets will likely be higher than their current price, because the
    vast majority of Americans will ultimately pay off their mortgages. The
    Government is the one institution with the patience and resources to buy
    these assets at their current low prices and hold them until markets
    return to normal. And when that happens, money will flow back to the
    Treasury as these assets are sold. And we expect that much, if not all,
    of the tax dollars we invest will be paid back.
        A final question is, what does this mean for your economic future?
    Well, the primary steps--purpose of the steps I have outlined tonight is
    to safeguard the financial security of American workers and families and
    small businesses. The Federal Government also continues to enforce laws
    and regulations protecting your money. The Treasury Department recently
    offered Government insurance for money market mutual funds. And through
    the FDIC, every savings account, checking account, and certificate of
    deposit is insured by the Federal Government for up to $100,000. The
    FDIC has been in existence for 75 years, and no one has ever lost a
    penny on an insured deposit, and this will not change.
        Once this crisis is resolved, there will be time to update our
    financial regulatory structures. Our 21st-century global economy remains
    regulated largely by outdated 20th-century laws. Recently, we've seen
    how one company can grow so large that its failure jeopardizes the
    entire financial system.
        Earlier this year, Secretary Paulson proposed a blueprint that would modernize our financial
    regulations. For example, the

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    Federal Reserve would be authorized to take a closer look at the
    operations of companies across the financial spectrum and ensure that
    their practices do not threaten overall financial stability. There are
    other good ideas, and Members of Congress should consider them. As they
    do, they must ensure that efforts to regulate Wall Street do not end up
    hampering our economy's ability to grow.
        In the long run, Americans have good reason to be confident in our
    economic strength. Despite corrections in the marketplace and instances
    of abuse, democratic capitalism is the best system ever devised. It has
    unleashed the talents and the productivity and entrepreneurial spirit of
    our citizens. It has made this country the best place in the world to
    invest and do business, and it gives our economy the flexibility and
    resilience to absorb shocks, adjust, and bounce back.
        Our economy is facing a moment of great challenge. But we've
    overcome tough challenges before, and we will overcome this one. I know
    that Americans sometimes get discouraged by the tone in Washington and
    the seemingly endless partisan struggles. Yet history has shown that in
    times of real trial, elected officials rise to the occasion. And
    together, we will show the world once again what kind of country America
    is: a nation that tackles problems head on, where leaders come together
    to meet great tests, and where people of every background can work hard,
    develop their talents, and realize their dreams.
        Thank you for listening. May God bless you.

    Note: The President spoke at 9:01 p.m. on the State Floor at the White
    House. In his remarks, he referred to Sen. John McCain, Republican
    Presidential nominee; and Sen. Barack Obama, Democratic Presidential
    nominee. The Office of the Press Secretary also released a Spanish
    language transcript of this address.