Congress balks at Bernanke’s dire warnings

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Federal Reserve Chairman Ben S. Bernanke Tuesday warned of dire consequences for the economy and for average Americans if lawmakers do not quickly pass a $700 billion bailout for faltering banks.

But lawmakers remained deeply skeptical about the bill and warned that it will take longer than a week to pass and will include provisions that the administration opposes. Leading Democrats remained bent on including limits on bank executive compensation and an equity stake for taxpayers in the banks that benefit from the bailout.

The administration’s blueprint, which would give the Treasury sweeping authority to buy an assortment of toxic debt from banks with few strings attached, is “not acceptable,” Chairman Christopher J. Dodd told top Bush officials testifying before the Senate Banking, Housing and Urban Affairs Committee.

“A lot of reservations have been expressed this morning by Democrats and Republicans,” the Connecticut Democrat said after the five-hour hearing. “This is not going to work.”

President Bush, who attended a plenary session of the U.N. General Assembly yesterday, said other world leaders have asked him whether Democratic objections would derail the plan in Congress.

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“I’ve assured them that the plan laid out by Secretary Paulson is a robust plan to deal with a serious problem,” he said. “I’m confident that there will be a bipartisan bill … a rescue plan to make sure that there’s some stability in the markets.”

Markets were more subdued Tuesday as the tense hearing kept many traders on Wall Street riveted to TV screens. Stocks experienced moderate losses while signs of life appeared in the stricken credit markets. New funds trickled into money-market accounts that were battered by massive withdrawals last week.

Markets may be lifted Wednesday by news overnight that Warren Buffett’s Berkshire Hathaway is buying a $5 billion stake in Goldman Sachs, a leading Wall Street firm that converted itself into a bank last weekend.

House leaders said after a meeting of the Democratic caucus that the Treasury plan would be a hard sell without major changes. A spokesman for House Speaker Nancy Pelosi, California Democrat, said the administration will have to coax balking Republicans to vote for the plan.

“We don’t expect every Democrat to vote for it. Maybe our caucus will be split,” said Pelosi spokesman Nadeam Elshami. “But it’s the Republicans who are having problems.”

The White House began an effort to round up votes Tuesday with Vice President Dick Cheney, White House Chief of Staff Joshua B. Bolten and economic policy adviser Keith Hennessey meeting with Republicans in both chambers.

House Republican leaders raised serious concerns during the closed-door meeting with Mr. Cheney, challenging the necessity of the plan, its prospects for success and its size, as well as whether alternatives had been considered, an aide familiar with the meeting said.

House Minority Leader John A. Boehner, Ohio Republican, told those attending the meeting that the severity of the financial crisis warrants government intervention, but he said he won’t vote for a hastily written, “bad” Democratic bill.

Many legislators expressed doubt that the plan would resolve the long-running credit crisis and feared that a failure would leave the United States broke and without further options to deal with a sinking economy.

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