[Weekly Compilation of Presidential Documents Volume 44, Number 38 (Monday, September 29, 2008)]
[Pages 1251-1254]
[Online from the Government Publishing Office, www.gpo.gov]

<R04>
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

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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 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.

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    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 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

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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 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 Republican Presidential nominee 
John McCain; and Democratic Presidential nominee Barack Obama. The 
Office of the Press Secretary also released a Spanish language 
transcript of these remarks.