Bernanke and Paulson, back on the Hill

“This is a very bad situation,” he said. “I very much regret having to be the bearer of bad news.”

But he added that the ultimate cost to taxpayers should be far lower than $700 billion, as the government recoups some of its spending as the bad assets it acquires gain in value.

But despite their unhappiness, many congressional Democrats and Republicans conceded that the failure to do something could produce an even larger economic catastrophe.

Sen. Sam Brownback, Kansas Republican, said, “Inaction is not an option and we have to get this right.”

But the strong political momentum behind the administration plan when it was announced last week has clearly dissipated as Congress has had a few days to read the fine print and hear from unhappy constituents. Even with Congress set to adjourn at the end of the week, top lawmakers say they won’t be “stampeded” on the plan.

Mr. Bernanke told lawmakers second quarter U.S. growth was “surprisingly resilient,” but said the latest financial numbers have been significantly weaker. But he told lawmakers he did not see significant inflationary pressures arising from the bailout plan.

But even as Mr. Bernanke was outlining the threat to the economy from the home mortgage crisis, new numbers from the government were showing things getting worse.

The National Association of Realtors reported today that prices of existing homes in the United States suffered a record drop in August while the sales pace slowed and the oversupply of homes shrank.

The pace of existing home sales decreased 2.2 percent to a 4.91 million-unit annual pace while the median national home price declined 9.5 percent to $203,100.

Mr. Schumer was one of a number of lawmakers asking why the administration needed authority to spend the entire $700 billion right away, and whether Congress could approve a more modest figure and see how the program works.

But Mr. Bernanke said the financial markets are not as likely to be impressed by a program administered in “dribs and drabs,” and the smaller amount may not give private lenders the confidence to re-open frozen credit lines.