Bush Says Policy Makers to Take `Appropriate Steps’ (Update7)

03/14/2008

March 14 (Bloomberg) -- President George W. Bush, seeking to calm investors, said policy makers will take ``appropriate steps'' to stabilize the financial system after a bailout of Bear Stearns Cos. sent shares down and the dollar to new lows.

``Today's events are fast moving, but the chairman of the Federal Reserve and the secretary of the Treasury are on top of them and will take the appropriate steps to promote stability in our markets,'' Bush told the Economic Club of New York today.

Bush spoke hours after Bear Stearns, the fifth-largest U.S. securities firm, said it had received funding from the Fed and JPMorgan Chase & Co. to stem worsening finances. The central bank and the Treasury Department acted ``to mitigate disruptions to our financial markets,'' Bush said.

``Our economy obviously is going through a tough time,'' Bush said. ``It's going through a tough time in the housing market and it's going through a tough time in the financial markets.''

A surge in defaults on mortgages to higher-risk borrowers spurred the collapse of the U.S. home-loan market. Defaults have continued to rise even as the Fed has cut the benchmark interest rate five times since September.

``I believe that we're a resilient economy,'' Bush said. ``In the long run, I'm confident our economy will continue to grow because the foundation is solid.''

Strain on Homeowners

Bush expressed sympathy for homeowners facing foreclosure as adjustable-rate mortgage payments rise and home prices decline in many regions. Foreclosure filings jumped 60 percent and bank seizures more than doubled in February, according to RealtyTrac Inc., an Irvine, California-based a seller of foreclosure data.

He cited steps to help troubled homeowners, including help that's refinanced $17 billion worth of mortgages so far.

``The program is beginning to work, beginning to help,'' he said. ``The number of homeowners working out their mortgages is now rising faster than the number entering foreclosure.''

Bush said he opposes proposals to spend billions of dollars to buy up empty homes, and that measures already in place should be allowed to work.

``The market is in the process of correcting itself,'' the president said. ``I believe there ought to be action, but I'm deeply concerned about law and regulation that will make it harder for the markets to recover.''

`Like Herbert Hoover'

``The president seems to be on a different economic planet than most Americans,'' Senator Charles Schumer, a New York Democrat, said after Bush's speech.

Bush ``is looking more and more like Herbert Hoover'' by failing to take the steps necessary to reverse the rise in foreclosures and stabilize credit markets, Schumer, chairman of the congressional Joint Economic Committee, told a press conference in Washington. Hoover served as U.S. president from the start of the Great Depression in 1929 until 1933.

Congressional Democrats want the government to take a more active role.

House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd, saying the U.S. is in a recession, offered a plan yesterday to let the Federal Housing Administration insure refinanced mortgages after lenders reduce principal to help struggling borrowers.

The two lawmakers are leading congressional efforts to tackle the surge in foreclosures, which reached record levels in the fourth quarter of 2007. The plan they unveiled yesterday goes beyond the Bush administration's industry-led approach that urges lenders and servicers to modify loans for borrowers who can't make their monthly payments.

Bush today called on Congress to modernize the FHA by passing legislation streamlining the agency so that it may become more competitive in the mortgage market and, through its mortgage insurance and refinancing, help stem the rising number of foreclosures.

`Strong Dollar'

Bush, in his 40-minute speech, did not mention the dollar, which is weak around the world and slumped to a record low today against the euro. In questions afterward -- and later in an interview to be aired later today the ``Kudlow & Company'' show on CNBC -- he was pressed on the issue.

In both cases he stressed his belief in ``a strong dollar.''

``It's important for us to put policy in place that sends a signal that our economy is going to be strong and open for business'' and make clear the U.S. ``supports the strong dollar policy,'' he said at the Economic Club.

Feldstein's Outlook

Harvard University economist Martin Feldstein today said a six-year economic expansion has ended and the downturn could be substantially worse than past contractions.

``I believe the U.S. economy is now in recession,'' Feldstein, president of the National Bureau of Economic Research, said in a speech at the Futures Industry Association conference in Boca Raton, Florida. ``The situation is bad, it's getting worse and the risks are that the situation could be very bad.''

After the economic speech, Bush attended a fundraiser that collected $1.4 million for a Republican National Committee, a party spokesman said. For the November elections, Bush has helped Republicans raise $10.58 million this week alone at events in Nashville, Washington and New York.