WASHINGTON: Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson urgently pressed Congress yesterday to pass a $700 billion Wall Street bailout, warning the entire US economy was at risk.
The warnings came as President George W. Bush vowed before world leaders at the United Nations headquarters that US lawmakers would approve the country’s largest financial bailout since the 1930s Great Depression.
Bernanke told lawmakers that despite unprecedented steps already taken by the Republican administration to confront the crisis, global financial markets “remain under extraordinary stress.”
Action was “urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy,” he said.
But the proposal to give the Treasury unprecedented authority to borrow $700 billion to buy toxic mortgage-related assets from struggling financial institutions has met with stiff opposition from some lawmakers.
Nervous global markets were focused Tuesday on the grilling that Bernanke and Paulson faced from the Senate Banking Committee, as the two finance officials urgently defended their plan unveiled only days ago.
Democratic congressional leaders and some Republican colleagues have insisted the bailout, crafted by Paulson, a former Goldman Sachs president, include sweeping safeguards and oversight to protect American taxpayers.
US stocks reversed earlier modest gains, following steep falls on Asian and European equities markets amid growing doubts about the prospects for the US bailout’s swift passage or whether it would work.
“Paulson’s money giveaway to his banker friends while Ma and Pa stay bankrupt in their house ... is looking less viable. Modifications are in the air,” said Robert Brusca of FAO Economics.
Bush told worried world leaders that his administration was working to avert a financial meltdown.
But some lawmakers remained cautious. In opening remarks at yesterday hearing, Democratic Senator Chris Dodd, chairman of the Senate Banking Committee, called the government plan “stunning and unprecedented” in its scale and sweeping powers.
“What troubles me most is that we have been given no credible assurances that this plan will work. We could very well spend $700 billion or one trillion dollars and not resolve the crisis,” Dodd said.
“Before I sign off on something of this magnitude, I would want to know that we have exhausted all reasonable alternatives. ... I do not believe, however, we can solve this crisis by spending a massive amount of money on bad securities.”
Bernanke underscored the urgency of the swiftly escalating global credit squeeze. “At this juncture, in light of the fast-moving developments in financial markets, it is essential to deal with the crisis at hand,” Bernanke pleaded.
Paulson, echoing Bernanke’s comments, warned that if Congress did not act quickly, a credit crisis could threaten “all parts of our economy.”
He cautioned against losing momentum with attempts to lard the bill with add-ons.
“We need ... to enact this bill quickly and cleanly, and avoid slowing it down with other provisions that are unrelated or don’t have broad support,” he said.
Bernanke said the plan to buy up illiquid assets would create liquidity in the market and reduce uncertainty. It would also “help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth,” he said.