Bernanke: Recession likely if no bailout

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WASHINGTON (AP) — Federal Reserve Chairman Ben Bernanke bluntly warned Congress on Tuesday it risks a recession, with higher unemployment and increased home foreclosures, if lawmakers fail to pass the Bush administration’s $700 billion plan to bail out the financial industry.

Bernanke told the Senate Banking Committee that inaction could leave ordinary businesses unable to borrow the money they need to expand and hire additional employees, while consumers could find themselves unable to finance big-ticket purchases such as cars and homes.

But he was greeted with skepticism from some senators as the Bush administration lobbied lawmakers in private and public to act quickly. There has been strong opposition from some conservative Republicans and numerous expressions of anger from lawmakers in both parties over an election-year crisis that has pushed the economy toward the brink.

“I understand speed is important, but I’m far more interested in whether or not we get this right,” said Sen. Chris Dodd, D-Conn., presiding over a a hearing by the banking panel.

“There is no second act to this. There is no alternative idea out there with resources available if this does not work,” he added.

Bernanke’s remarks about the risk of recession came in response to a question from Dodd, who seemed eager to hear a strong rationale for lawmakers to act swiftly on the administration’s unprecedented request.

“The financial markets are in quite fragile condition and I think absent a plan they will get worse,” Bernanke said.

Ominously, he added, “I believe if the credit markets are not functioning, that jobs will be lost, that our credit rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover in a normal, healthy way.”

GDP is a measure of growth, and a decline correlates with a recession.

Across the Capitol complex, Vice President Dick Cheney and Jim Nussle, the administration’s budget director, met privately with restive House Republicans, some of whom emerged from the session unpersuaded.

“Just because God created the world in seven days doesn’t mean we have to pass this bill in seven days,” said Rep. Joe Barton, R-Texas.

Added Rep. Darrell Issa, R-Calif., “I am emphatically against it.”

Dodd and other key Democrats have been in private negotiations with the administration since the weekend on legislation designed to allow the government to buy bad debts held by banks and other financial institutions.

Despite expressions of unhappiness in both parties, the prospects for legislation seemed strong, with lawmakers eager to adjourn this week or next for the elections. The legislation that the administration is promoting would allow the government to buy bad mortgages and other troubled assets held by endangered banks and financial institutions. Getting those debts off their books should bolster their balance sheets, making them more inclined to lend and easing one of the biggest choke points in the credit crisis. If the plan works, it should help lift a major weight off the sputtering economy.

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