WASHINGTON (AFP) — Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson urged Congress Tuesday to swiftly pass a 700-billion-dollar 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 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 dollars to buy toxic mortgage-related assets from struggling financial institutions has met with stiff opposition from some lawmakers.
They have signaled they will not be hurried into approving such a massive US government financial intervention, and have called for proper oversight measures to be put in place to prevent future problems.
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.
Global equities markets sank amid growing doubts about the prospects for the US bailout's swift passage. US shares had plunged Monday but were trading modestly higher Tuesday morning as investors watched the skirmish in Congress.
"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.
"I can assure you that my administration and our Congress are working together," he said in his farewell address to the UN General Assembly. "I'm confident we will act in the urgent timeframe required."
But lawmakers remained cautious.
"I'm prepared to act quickly but I'm not going to act irresponsibly. If it takes longer, so be it," said Senator Chris Dodd, chairman of the Senate Banking Committee.
Dodd said he was "angry" about being faced with a crisis that was "a preventable, avoidable situation" created by a political climate he described as "basically an eight-year coffee break."
He has proposed amendments, including a provision to allow the government to take a stake in the companies it bails out, limits on compensation for company bosses, and additional help for American homeowners facing foreclosures.
But some of those amendments are unpalatable to Republicans, and Paulson echoed Bernanke's comments, warning if Congress did not act quickly, a credit crisis could threaten "all parts of our economy."
He warned against losing the "bipartisan consensus" on the urgency of the bailout with attempts to lard the bill with add-ons.
"We need to build upon this spirit 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 also 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.
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.
Paulson, meanwhile diverging from his prepared remarks, defended himself against critics of an earlier multibillion-dollar "bazooka" authorized by Congress to rescue private mortgage finance giants Fannie Mae and Freddie Mac.
"You can all be darn glad that you gave us the bazooka because we needed it," he said. "Thank goodness that was done and they were stabilized before we had some investment banks report their earnings."
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