Treasury Secretary Henry M. Paulson, Jr. on Friday morning announced a series of steps the federal government will take to stabilize financial markets and said he would work over the weekend with members of Congress on the possible creation of a federal agency that would buy troubled mortgage securities.

In a prepared statement, Paulson said, "The underlying weakness in our financial system today is the illiquid mortgage assets that have lost value as the housing correction has proceeded." He also repeated his assertion that the root cause of the financial crisis is the sagging housing market.

"The federal government must implement a program to remove these illiquid assets that are weighing down our financial institutions and threatening our economy," said Paulson "This troubled asset relief program must be properly designed and sufficiently large to have maximum impact, while including features that protect the taxpayer to the maximum extent possible. The ultimate taxpayer protection will be the stability this troubled asset relief program provides to our financial system, even as it will involve a significant investment of taxpayer dollars."

He also announced two steps the administration will take to help calm the financial markets. First, Fannie Mae and Freddie Mac, now under federal control, will increase their purchases of mortgage-backed securities (MBS). Second, the Treasury Department will expand the MBS purchase program announced earlier this month.

However, Congressional action would be necessary for the creation of an entity similar to the Resolution Trust Corp. of the late 1980s/early 1990s that could buy a wider range of mortgage backed securities that do not meet the stadards of the GSEs.

President Bush added his voice to Paulson's call for quick action. "This is no time for partisanship," said Bush. "We must join to move urgently needed legislation as quickly as possible, without adding controversial provisions that could delay action."

The president also outlined several other steps the government has taken to help calm markets, including the creation of a temporary insurance program for money market mutal funds and an infusion of liquidity into that market by the Federal Reserve.

Paulson also called for a revamp of the financial regulatory apparatus once the immediate crisis is calmed. "When we get through this difficult period, which we will, our next task must be to improve the financial regulatory structure so that these past excesses do not recur. This crisis demonstrates in vivid terms that our financial regulatory structure is sub-optimal, duplicative and outdated," he said.