U.S. & World

WASHINGTON (CBS News) ― Treasury Secretary Henry Paulson told international leaders on Sunday that isolationism and protectionism could worsen the spreading financial crisis.

With a new trading week dawning, U.S. lawmakers urged quick action by the Bush administration on measures to make direct purchases of bank stock to help unlock lending.

Sen. Chuck Schumer, chairman of the Joint Economic Committee, said an administration proposal to inject federal money directly into certain banks, in effect partially nationalizing the banking system, "is gaining steam."

"I am hopeful that tomorrow, the Treasury will announce that they're doing it. And they have to do it quickly ... markets are waiting," Schumer said.

The administration has not indicated when it would announce next steps.

Democrats also are lining up behind House Speaker Nancy Pelosi's plan to bring lawmakers back to Capitol Hill after the Nov. 4 election to work on a second economic relief plan.

The idea is "give the middle-class and the average citizen the same kind of relief that we try to give the financial sector," said Democratic Rep. Barney Frank of Massachusetts, chairman of the House Financial Services Committee.

Top Democrats are suggesting a $150 billion measure that would extend jobless benefits, provide more money for food stamps and finance and some construction projects such as rebuilding bridges and roads.

Rep. Roy Blunt of Missouri, the second-ranking House Republican, said he would help on a plan "that makes sense" but is not laden with huge public works projects or bailouts for states that overspent on social programs.

As the International Monetary Fund and World Bank held their annual meetings over the weekend, Paulson warned the bank's policy-setting committee of the dangers of "inward-looking policies."

"Although we in the United States are taking many extraordinary measures to ease the crisis, we are not pursuing policies that would limit the flow of goods, services or capital, as such measures would only intensify the risks of a prolonged crisis," Paulson said.

"Financial market developments are having an acute impact on advanced economies, and we can expect the crisis to have major ramifications for emerging markets and the poorest countries as well," Paulson said. "Isolationism and protectionism will not offer a way out."

The economic crisis is limiting the ability of the world's richest nations to help countries facing twin shocks of rising food and fuel prices, said bank president Robert Zoellick, a former U.S. diplomat, trade negotiator and business executive. "For the poor, the costs of the crisis could be lifelong," he said.

Jittery investors awaited the reopening of stock markets - the Dow Jones industrial average just completed its worst week ever, plummeting more than 18 percent - and hoped for bold, coordinated international steps to address the crisis.

At a Paris meeting of European leaders Sunday, the 15 countries that use the euro will temporarily guarantee bank refinancing to ease the credit crunch, French President Nicolas Sarkozy said.

He said the plan, to be in place through the end of 2009, was "not a gift to banks."

The United States has not yet gone that far. But President Bush met at the White House with top global financial leaders on Saturday in a display of unity and said afterward that they had agreed to general principles to combat the crisis.

Mr. Bush, who had spoken about the crisis for 22 of the past 27 days, went biking at a state park in Maryland on Sunday morning and then kept to a private schedule the rest of the day.

Paulson has indicated the administration will use part of the recent $700 billion bailout Mr. Bush signed Oct. 3 to have the government take ownership stakes in banks. The plan has wide support on Capitol Hill, although Democrats pressed for quicker action in spelling out specifics.

Sen. Arlen Specter, R-Pa., sounded a cautionary note. "That has to be very, very carefully done," he said. "We are a capitalistic system and we don't want to move away with nationalizing the banking system. So that anything that's done has to be done on a temporary basis."

This plan and other Paulson moves were supported by three former treasury secretaries.

"This is bigger than the private sector can fix by itself," said James A. Baker III, who served under President Reagan. Robert Rubin, treasury secretary under President Clinton and now an adviser to Barack Obama, said it was important "to be highly, highly proactive."

Lawrence Summers, also a Clinton treasury secretary, said, "Any time you have a problem with trust, you've got to deal with it in a very aggressive way."

Euro Nations To Temporarily Guarantee Bank Refinancing

Euro nations agreed Sunday to temporarily guarantee bank refinancing as part of a raft of emergency measures to ease the credit crunch.

The head of the region's central bank welcomed the unity - but warned there is more work to do.

"The force of unity that we showed today is a fundamental element of confidence," said European Central Bank Chief Jean-Claude Trichet. But, he warned: "there are still many things to do," both by governments and central bankers.

French President Nicolas Sarkozy said the measures - which also include help with liquidity and injections of capital to new accounting rules for banks - will be enacted "without delay" in the 15 countries using the euro - with simultaneous Cabinet meetings being held Monday in Italy, Germany, France and others.

However, there was no sum given on how much these measures would cost, and Sarkozy said each country would decide how much it would spend.

The rest of the 27-member European Union will have a chance to sign up to the measures when they meet Wednesday.

Sarkozy said he hopes to persuade the United States to agree to a broad summit involving all the world's major economies to agree on international measures.

Sarkozy chaired an emergency summit of leaders of the 15 euro zone countries in Paris on Sunday to find European solutions to the global financial crisis.

Their final declaration said the governments would guarantee "for an interim period and on appropriate commercial terms" new debt issued by banks for up to five years.

"This scheme would be limited in amount, temporary and will be applied under close scrutiny of financial authorities until Dec. 31, 2009," it said.

The statement said that one way that governments could save banks would include buying big stakes.

Sarkozy said the measure taken by the leaders is "not a gift to banks." He said it will be in place through the end of next year.

"Banks need to be loaned money," he said. "So that this confidence is restored, states will have the possibility to guarantee the loans that banks take out, guarantee them under different forms."

German Chancellor Angela Merkel said financial instruments agreed upon by euro zone countries will make the crisis "a bit more manageable."

"It will allow markets to start functioning again, that was our aim. It is a strong message to the markets."

As the financial crisis drags down the global economy, world leaders are scrabbling for way to stop the panic. But efforts to agree a coordinated global response have stumbled as leaders seek to address the unique challenges of their own countries.

"It's not easy," said Sarkozy. "We have different traditions. For some of us we don't have the same currency. We have different regulators."

But, he said, "In a situation of urgency we had to take responsibility."

(© 2009 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)