US in turnaround on $700bn rescue package

In an alarming reversal, US Treasury Secretary Henry Paulson has said the Bush administration would drop a plan to buy up troubled mortgage-related securities, central to the $700bn financial rescue package approved by Congress only last month.

He said the Bush administration planned instead to use the funds for other purposes such as further efforts to open up the nation's credit markets, the Chicago Tribune reports.

Paulson also said the government's financial rescue mission had entered a 'time out' period as Obama prepared to take office. During that period, Obama and Congress must decide the role federal officials should play in the housing market, Paulson said.

The turnaround is seen as a sign of how far US government officials were on the backfoot when trying to tackle the mounting economic crisis. 'You've had a tremendous amount of improvisation here,' said Douglas Elmendorf, a former Federal Reserve economist and informal adviser to Obama's transition team.

Further reading:

US Senate passes $700bn bailout Bill

Read the Chicago-Tribune story