, the investment bank lehman brothers, and the insurance company american international group ( aig ). the federal reserve believes that, whenever possible, the difficulties experienced by firms in financial distress should be addressed through private - sector arrangements – for example, by raising new equity capital, as many firms have done ; by negotiations leading to a merger or acquisition ; or by an orderly wind - down. government assistance should be provided with the greatest reluctance and only when the stability of the financial system, and thus the health of the broader economy, is at risk. in those cases when financial stability is broadly threatened, however, intervention to protect the public interest is not only justified but must be undertaken forcefully and without hesitation. fannie mae and freddie mac present cases in point. to avoid unacceptably large dislocations in the mortgage markets, the financial sector, and the economy as a whole, the federal housing finance agency put fannie and freddie into conservatorship, and the treasury, drawing on authorities recently granted by the congress, made financial support available. the government's actions appear to have stabilized the gses, although, like virtually all other firms, they are experiencing effects of the current crisis. we have already seen benefits of their stabilization in the form of lower mortgage rates, which will help the housing market. the difficulties at lehman and aig raised different issues. like the gses, both companies were large, complex, and deeply embedded in our financial system. in both cases, the treasury and the federal reserve sought private - sector solutions, but none was forthcoming. a public - sector solution for lehman proved infeasible, as the firm could not post sufficient collateral to provide reasonable assurance that a loan from the federal reserve would be repaid, and the treasury did not have the authority to absorb billions of dollars of expected losses to facilitate lehman's acquisition by another firm. consequently, little could be done except to attempt to ameliorate the effects of lehman's failure on the financial system. importantly, the financial rescue legislation, which i will discuss later, will give us better choices. in the future, the treasury will have greater resources available to prevent the failure of a financial institution when such a failure would pose unacceptable risks to the financial system as a whole. the federal reserve will work closely and actively with the treasury and other authorities to minimize systemic risk. in the case of aig, the federal reserve and the treasury judged that a disorderly failure would

use some of the resources provided under the bill to purchase troubled assets from banks and other financial institutions, in most cases using market - based mechanisms. mortgage - related assets, including mortgage - backed securities and whole loans, will be the focus of the program, although the law permits flexibility in the types of assets purchased as needed to promote financial stability. removing these assets from private balance sheets should increase liquidity and promote price discovery in the markets for these assets, thereby reducing investor uncertainty about the current value and prospects of financial institutions. unclogging the markets for mortgage - related assets should put banks and other institutions in a better position to raise capital from the private sector and increase the willingness of counterparties to engage. with time, the provision of equity capital to the banking system and the purchase of troubled assets will help credit flow more freely, thus supporting economic growth. these measures will lead to a much stronger financial system over time, but steps are also necessary to address the immediate problem of lack of trust and confidence. accordingly, also announced yesterday was a plan by the federal deposit insurance corporation ( fdic ) to provide a broad range of guarantees of the liabilities of fdic - insured depository institutions, including their associated holding companies. the guarantee covers all newly issued senior unsecured debt, including commercial paper and interbank funding, and it will also cover all funds held in non - interest - bearing transactions accounts, such as payroll accounts. this broad guarantee will be effectively immediately, and fees for coverage will be waived for 30 days. after the 30 - day grace period, banks may continue to participate in the guarantee program by paying reasonable fees. i would like to stress once again that the taxpayers'interests were very much in our minds and those of the congress when these programs were designed. the costs of the fdic guarantee are expected to be covered by fees and assessments on the banking system, not by the taxpayer. in the case of the tarp program, the funds allocated are not simple expenditures, but rather acquisitions of assets or equity positions, which the treasury will be able to sell or redeem down the road. indeed, it is possible that taxpayers could turn a profit from the program, although, given the great uncertainties, no assurances can be provided. moreover, the program is subject to extensive controls and to oversight by several bodies. the larger point, though, is that the economic benefit of these programs to taxpayers will not be determined primarily by the financial return to tar