The U.S. House of Representatives on Friday passed a revised bill to rescue ailing financial institutions following the Senate's approval Thursday. (The House had defeated the original bill Monday.) U.S. President George W. Bush quickly signed the bill into law. It allows the U.S. government to spend up to $700 billion to buy up toxic mortgage-related securities and other devalued assets held by financial institutions. It is expected to ameliorate the current financial crisis and prevent a calamitous blow to the U.S. economic system.
Still, central banks and governments of the United States and other major economies need to coordinate their actions to prevent the financial crisis from triggering simultaneous recessions worldwide. The International Monetary Fund said in its biannual World Economic Outlook, "The financial turmoil that began in the summer of 2007 has mutated into a full-blown crisis."
Financial institutions have grown suspicious of each other's creditworthiness and have struggled to borrow funds in money markets. If more of them refuse to extend new loans to businesses or start demanding payment of outstanding loans, the resulting credit crunch could bankrupt even good-performing firms.