Bush weighs new plan to halt financial crisis

WASHINGTON — As international leaders gathered Saturday to deal with the global financial crisis, the Bush administration raced to overhaul its strategy for rescuing the foundering financial system.

Two weeks after persuading Congress to let it spend $700 billion to buy distressed mortgage-backed securities, the Bush administration has put its original idea on the back burner and is trying to come up with a new plan.

The new approach, which would have the government inject capital directly into the nation's banks, in effect, partially nationalizing the industry, is one that administration officials had opposed publicly until a few days ago.

While the Treasury Department still plans to buy up distressed assets, the scope of that plan is unclear. And the federal government has directed Fannie Mae and Freddie Mac, the government-controlled mortgage companies, to ramp up their purchases of troubled mortgage bonds, in what could be a speedier and less formal process than the reverse auctions proposed by the Treasury.

But the new plan, which has become the administration's primary focus, comes closer to a partial nationalization of the banking system than at any time since the Great Depression. In exchange for providing capital, the government would demand some kind of nonvoting minority stake.

The turnaround by Treasury Secretary Henry Paulson has raised questions about whether he squandered valuable time by trying to sell Congress a plan he and other administration officials had failed to think through. It also raises questions about whether the administration's hostility to government ownership in private companies aggravated the financial crisis by delaying rescue action.

Some experts said they believe the Treasury Department's decision last month not to rescue Lehman Brothers with taxpayer money exacerbated the panic that quickly metastasized into an international crisis.

Underscoring the gravity of the situation, President Bush convened a meeting at the White House on Saturday with finance ministers from the Group of Seven, or G-7, industrialized countries.

"All of us recognize that this is a serious global crisis, and, therefore, requires a serious global response, for the good of our people," Bush said afterward. The G-7 ministers — representing the United States, Japan, Germany, France, Britain, Italy and Canada — are in Washington for their annual meeting. They were joined at the White House meeting by top officials from the European Union, World Bank and International Monetary Fund (IMF).

Bush said the countries had agreed to general principles in responding to the crisis, including working to prevent the collapse of important financial institutions and protecting the deposits of savers. But he offered no details on other measures, suggesting there were differences among countries about which steps to take to shore up their respective financial systems.

Likewise, there was no concrete offer after Bush's appearance at a meeting later of the world's richest countries and fastest growing. That session was held at IMF headquarters, blocks from the White House.

The global crisis dominated discussions at the annual meetings of the IMF and World Bank this weekend.

Information from The Associated Press is included in this report.