Fund to deal with illiquid assets

A US fund to deal with bad mortgage-related assets would be similar to the Resolution Trust, set up to clean up bad debts from the S&L crisis in the late 1980s. "We talked about a comprehensive approach that will require legislation to deal with illiquid assets on financial institutions' balance sheets," US Treasury Secretary Henry Paulson told reporters.

According to two Congressional aides, the Treasury head has been shopping around his plan to create the fund. Republican Barney Frank, chairman of the House Financial Services Committee, said there was concern establishing a formal entity to buy the assets would take too long. "I think it will start to provide a floor to asset values and allow institutions to work through this in a systematic manner," said Haag Sherman, Co-Founder and Managing Director of Salient Partners in Houston.

The financial crisis spilled into the US presidential race as Republican Senator John McCain said the Federal Reserve should "get out of the business of bailouts", while Democratic Senator Barack Obama said he supported efforts to shore up the financial markets' confidence and would hold off from presenting his economic recovery plan.

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