(Agencies)
Updated: 2007-12-24 12:15

As for the administration and Congress, a tax cut possibly in the form of a rebate probably will be debated in the coming year. President Bush told reporters at the White House on Thursday that "we're constantly analyzing options available to us." He insisted that the economy's underlying fundamentals remained strong.

Summers, however, in a speech last week, urged bolder action. "For the last year, the economic consensus, and the policy actions that have flowed from it, has been consistently behind the curve," he said.

Gaining some currency is the idea of a government agency modeled after the Resolution Trust Corp. of the S&L days that would buy up mortgage-backed securities as a way of dealing with bad loans. About US$100 billion in such loans have surfaced and an additional US$200 billion are likely, according to market estimates.

If the government spent US$150 billion to US$200 billion to purchase mortgage-backed securities, the thinking goes, it would prevent a fire-sale that would drive prices of these securities even lower.

When the housing market stabilizes, the price of the government-held securities would begin to rise, allowing the government to sell them back to investors.

Whatever approach the government decides to take, economists said it will take time for the current problems to resolve themselves. They expect this housing downturn, which followed a five-year boom, to last through most of next year even under a best-case scenario in which the country avoids a full-blown recession.

"We have the fundamental problem that we built too many houses and we charged too high a price for them," says David Wyss, chief economist at Standard & Poor's in New York. "We have to stop building houses for a while and the prices have to come down. We are trying to make sure that process doesn't derail the rest of the economy."

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