A day after a five-hour grilling by unhappy lawmakers over the proposed $700 billion Wall Street rescue plan, Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry M. Paulson Jr. are feeling the heat again as the Bush administration resumed its sales pitch for congressional approval.
With President Bush announcing plans to deliver his own, nationally-televised speech in support of the plan Wednesday evening, Mr. Bernanke and Treasury Secretary Henry Paulson were back on Capitol Hill, a day after receiving a rude reception on the first day of public lobbying for the bailout.
Raising the stakes, the White House announced that President Bush would give a rare nationwide address Wednesday evening to defend the Wall Street rescue package and urge quick congressional passage.
“I think everyone will tune in tonight because we are facing a once-in-a-century crisis in our financial markets,” said White House press secretary Dana Perino.
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Mr. Bernanke went first today, appearing before the congressional Joint Economic Committee. He and Mr. Paulson will again tag-team it with an afternoon hearing of the House Financial Services Committee.
Mr. Paulson, in prepared remarks for the House hearing, took a strong stand against the idea that the government should demand an ownership stake in the companies that accept the bailout.
The idea, backed by private economists and a growing number of lawmakers, would give taxpayers a bigger payback if the shares of companies that are rescued rise over time.
But Mr. Paulson was set to tell the panel the idea would undercut the purpose of the bailout by limiting the number of banks and other financial firms that would want to participate.
“I understand the view that I have heard from many of you on both sides of the aisle, urging that the taxpayer should share in the benefits of this plan,” Mr. Paulson said in his statement. “Let me make clear: This entire proposal is about benefiting the American people, because today’s fragile financial system puts their economic well-being are risk.”
But it was reported that Mr. Paulson has dropped his opposition on another major issue, agreeing to limits on pay and other compensation for executives of companies that receive federal help.
Mr. Bernanke served up a bleak assessment of state of the U.S. and global markets, warning what he called the nation’s financial “plumbing” was “under extraordinary stress.”
“The intensification of financial stress in recent weeks, which will make lenders still more cautious about extending credit to households and business, could prove a significant further drag on growth,” he said.
Financial markets, which have fallen sharply earlier this week, were in a waiting mode, with the Dow Jones Index of leading stocks up a modest 42 points in early afternoon trading.
Rep. Baron Hill, Indiana Democrat, told Mr. Bernanke he had received hundreds of calls from constituents opposed the plan, with most saying they were outraged that small businesses and taxpayers were being called upon to bail out giant Wall Street firms.
“Quite frankly, if I held a town hall meeting and told my constituents we needed to do this so they could get car loans and business loans, they’d laugh me out of the building.”
But Mr. Bernanke argued that the rescue plan was designed to get banks lending again and restore confidence in the markets generally.
Asked if pension plans and individual 401-K savings plans would be hurt if Congress failed to act, the Fed chairman replied, “Very likely.”
Other major sticking points in the debate include the amount of congressional and public oversight of the Treasury rescue operation; limits on executive pay; and the possible inclusion of troubled credit card, auto and other types of loans in the government asset buyout.
Senate Majority Leader Harry Reid said today that it was imperative to slow down and consider all the implications of the plan.
“The main thing is not to do it fast but to do it right. If that takes to election time, that’s how long it’s going to have to take,” Mr. Reid told reporters.
Joint Economic Committee Chairman Sen. Charles Schumer, New York Democrat, challenged Mr. Bernanke over the administration’s stand.
He noted that billionaire investor Warren Buffett get a major ownership stake in troubled Wall Street investment bank Goldman Sachs after agreeing to invest $5 billion in the firm.
“This morning Warren Buffet got an equity share in Goldman Sachs and that didn’t stop Goldman Sachs from making the deal,” he said.
But Mr. Bernanke countered that Mr. Buffett himself said he made the investment in part because he was confident Congress would address the market crisis.
Rep. Lloyd Doggett, Texas Democrat, pressed Mr. Bernanke over the administration’s plan to raise the federal debt ceiling — essentially borrow the money — to pay for the bailout. He noted President Bush rejected a five-year $50 billion program to boost health insurance coverage for children because it was “too expensive.”
“This is the same solution the administration used to finance the Iraq war, the same solution it uses in every crisis: borrow the money,” Mr. Doggett said.
Mr. Bernanke acknowledged the plan will raise the federal debt.
“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.
Raised in Northern Virginia, David R. Sands received an undergraduate degree from the University of Virginia and a master’s degree from the Fletcher School of Law and Diplomacy at Tufts University. He worked as a reporter for several Washington-area business publications before joining The Washington Times.
At The Times, Mr. Sands has covered numerous beats, including international trade, banking, politics ...
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