[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.