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Bailout runs into stiff resistance

“I believe if the credit markets are not functioning, that jobs will be lost … more houses will be foreclosed upon … that the economy will just not be able to recover in a normal, healthy way.”  Federal Reserve Chairman Ben Bernanke

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“I believe if the credit markets are not functioning, that jobs will be lost … more houses will be foreclosed upon … that the economy will just not be able to recover in a normal, healthy way.” Federal Reserve Chairman Ben Bernanke

WASHINGTON — The White House waged a multifront campaign Tuesday to persuade Congress to accept its vast bailout plan, with President Bush telling world leaders that the United States had taken "bold steps" to stanch the financial crisis while Vice President Dick Cheney and other top officials went to Capitol Hill to try to persuade reluctant lawmakers.

Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke faced five hours of grilling by skeptical, angry members of the Senate Banking Committee.

In blunt terms, Bernanke warned the senators that if they failed to pass the $700-billion plan, they risked causing a recession, increasing joblessness and pushing more homes into foreclosure.

"This will be a major drag on the U.S. economy and greatly impede the ability of the economy to recover," Bernanke said.

Paulson said, "I share the outrage that people have. It's embarrassing to look at this. I think it's embarrassing to the United States of America. There is a lot of blame to go around."

The lawmakers objected strenuously to the broad authority Paulson was requesting, the lack of additional steps to help home­owners avoid foreclosure, and the absence of any demands for ownership stakes in the banks that are helped.

But with Congress and the Bush administration negotiating behind the scenes to resolve these and other major sticking points in the plan, some of the drama was intended for hometown audiences, six weeks before lawmakers face an election.

Even Sen. Richard Shelby of Alabama, the senior Republican on the banking committee and one of the most vocal critics of the proposal, said he expected Congress and the White House eventually to reach a deal.

"I think Congress will react positively at the end of the day," he said. "But in what form, we're not sure yet."

House Speaker Nancy Pelosi, D-Calif., Senate Majority Leader Harry Reid, D-Nev., and other Democratic leaders met Tuesday to form a strategy for bringing the bailout legislation to the floors of both chambers this week.

Democratic leaders warned that they would not approve the biggest government intervention in the private markets since the Great Depression without significant Republican support.

House Republicans seemed the least receptive of all. Cheney led a delegation from the White House to meet with House Republicans on Tuesday morning, including chief of staff Joshua Bolten and budget director Jim Nussle. But the visit did little to quiet a rising chorus of doubts.

"My sense is that the meeting did not abate the growing discontent," said Rep. Mike Pence, R-Ind., who opposes the plan.

Rep. John Boehner of Ohio, the House GOP leader, said that swift action was needed and he remained committed to a deal.

Lawmakers were waiting to see a final version of the plan. Democrats were pushing hardest for provisions that would require the Treasury to obtain warrants that would convert into equity in the companies helped. The lawmakers also want to place limits on the salaries of executives whose firms participate in the bailout.

The White House is eager for a deal on the plan, recognizing that markets around the world are fluctuating daily. The Dow Jones industrials sank 161 points and are off more than 500 this week after initially surging on the bailout announcement last week.

The legislation the administration is promoting would allow the government to buy bad mortgages and other rotten assets held by troubled banks and financial institutions. Getting those debts off their books should bolster those companies' 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 national economy.

Information from the Associated Press and the Washington Post was used in this report.

Bailout runs into stiff resistance 09/23/08 [Last modified: Wednesday, September 24, 2008 7:18pm]
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