How the financial rescue plan would work

The details:

RESCUE PLAN:

The Bush administration is working on a plan to buy bad mortgages and other problem assets held by ailing banks and other financial institutions. Financial companies have suffered billions of dollars in losses as certain mortgage-backed securities soured when the housing market's collapse forced many people into foreclosure and dragged down home prices. Those dodgy debts are at the heart of the financial crisis.

Removing those shunned assets from financial companies' balance sheets should eliminate a choke point and help get credit moving more freely again to consumers and businesses. That would improve the health of financial companies, making it easier for them to raise capital and more inclined to lend money. It also should ease investor anxiety about the stability of financial companies, which are viewed as Wall Street's backbone.

The free flow of credit is like the economy's oxygen. Choke it off and the economy suffers as people cut back on big-ticket purchases and companies reduce hiring.

Congress would have to approve the plan, which is still being crafted. It is expected to cost hundreds of billions of dollars.

PROTECTING MUTUAL FUNDS:

Treasury will tap up to $50 billion from a Depression-era fund to protect the holdings of eligible money market mutual funds held by millions of Americans. The plan is aimed at covering $2 trillion mutual fund assets, and the funds that participate will pay a fee. The Federal Reserve announced it will expand its emergency lending program to bolster the huge money market mutual fund industry, which has come under stress in recent days as the financial crisis has spread. The Fed will provide loans to commercial banks to finance purchases of asset-backed commercial paper from money market funds, which should help the funds meet demands for redemptions. The Fed also will buy short-term notes issued by Fannie Mae and Freddie Mac to help improve market functioning.

SHORT SELLING:

The Securities and Exchange Commission took the unprecedented step of temporarily banning "short selling" _ a practice of betting against stocks. Short selling has contributed to the collapse of stock values of investment and commercial banks, intensifying the financial crisis.

The SEC's temporary ban covers 799 financial stocks.

Short selling involves borrowing a company's shares, selling them, and pocketing the difference when the stock falls. It is a method of trading that can make markets more efficient and bring in more capital, but the government argues that it has widened the scope of the recent financial crisis.

The SEC also eased restrictions on the ability of companies to buy back their own shares, a move aimed at easing market turmoil.