Fears on Wall Street may force Bush into action.

The growing fears in the US financial markets are putting extra pressure of the Bush administration to act in order to avoid a complete meltdown of the economy.

The collapse of Bear Stearns alongside the turmoil of the credit crunch means that recession looms large.

With the increased uncertainty surrounding the future of the economy both President George W. Bush and Treasury Secretary Henry Paulson have responded by proposing a series of voluntary measures, although Democratic lawmakers believe that a progressive and pro-active approach will soon be adopted.

According to Steny Hoyer the former chairman of Goldman Sachs said that: “Paulson will tell him what to do, as Paulson gets the depth of the problems.”

So far the Bush administration has remained reluctant to intervene preferring to allow the markets resolve the trouble themselves, however Bush has said on March 15th that “delaying that correction would only prolong the problem,” and promised to avoid “bad policy decisions.”

Having initially blocked the move proposed by secondary-mortgage purchasers Fannie Mae and Freddie Mac, to play a pivotal role in alleviating the crisis is seen as the first mistake, as argued by Howard Glaser the former chief legal adviser at the Department of Housing and Urban Development said that: “the administration has kept its best players on the sideline in this Super Bowl of financial crises,”

The delay in sanctioning the move resulted in a delay in much needed liquidity being available to the market.

By allowing the two mortgage companies to increase the size and amount of loans, they would be able to inject cash into the mortgage market with the hope re-igniting the economy.

Despite the pessimisms surrounding the financial markets Bush has maintained his positive outlook, as she argued that: “our financial institutions are strong and our capital markets are functioning efficiently and effectively,” he said. “In the long run, our economy is going to be fine.”

Story link: Fears on Wall Street may force Bush into action.