Congress balks at huge US financial bailout
Thursday, 25 September 2008

AFP, WASHINGTON - US lawmakers were digging their heels in Wednesday against the government's 700-billion-dollar financial rescue package, setting the scene for a fierce showdown on Capitol Hill watched anxiously by markets around the globe.

Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson were facing another day of testimony, after Tuesday's cold-shoulder reception by senators balking at a swift passage of the bailout.
The duo argued that failure to pass the emergency measure quickly would put the entire US economy at risk, but lawmakers appeared unwilling to let Wall Street off the hook at the massive expense of US taxpayers, while the FBI reportedly launched a probe of failed banks and mortgage giants.
"What they have sent to us -- this is not acceptable," Senator Christopher Dodd, chairman of the Senate Banking Committee, told reporters after Bernanke and Paulson testified.
"A lot of reservations have been expressed this morning by Democrats and Republicans on this matter," said Dodd, a Democrat. "This is not going to work."
"They're going to have to come back and work with us," he said.
The two finance chiefs were to face a second round of grilling Wednesday at a hearing of the House of Representatives Financial Services Committee amid rising opposition to what would be the largest government financial intervention since the 1930s Great Depression.
The debate over the proposed bailout was sure to heat up further on news that the Federal Bureau of Investigation is probing allegations of fraud by 26 Wall Street firms, including several investment giants whose collapse sent world markets reeling.
CNN said the FBI has set its sights on investment titan Lehman Brothers, mortgage giants Fannie Mae and Freddie Mac and insurer AIG, in order to determine whether company executives had any responsibility for the institutions' financial woes.
Democratic congressional leaders and some Republican colleagues have insisted the bailout crafted by Paulson, a former president of investment bank Goldman Sachs, should include sweeping safeguards and oversight to protect US taxpayers.
Bernanke told the Senate banking panel that despite unprecedented steps already taken by the Republican administration to confront the crisis, global financial markets "remain under extraordinary stress" and that action was "urgently required to stabilize the situation."
"I believe if the credit markets are not functioning, that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP (gross domestic product) will contract, that the economy will just not be able to recover in a normal, healthy way, no matter what other policies are taken," he testified.
Paulson warned that if Congress did not act quickly, a credit crisis could threaten "all parts of our economy."
The warnings came as President George W. Bush vowed before world leaders at the United Nations that US lawmakers would approve the bailout and avert a financial meltdown.
"I can assure you that my administration and our Congress are working together," he said in his farewell address to the UN General Assembly in New York. "I'm confident we will act in the urgent time frame required."
But the proposal to give the Treasury unprecedented authority to borrow 700 billion dollars to buy toxic mortgage-related assets from struggling financial institutions faced stiff opposition in Congress.
"This massive bailout is not a solution. It is financial socialism and it's un-American," said Republican Senator Jim Bunning.
Another Republican, Representative Jeb Hensarling, said other options must be explored: "We are concerned that the plan will put the taxpayer on the hook for a trillion dollars and still might not solve the problem."
The ranking Republican on the Senate Banking Committee, Richard Shelby, seemed to agree with Dodd.
"I have a lot of concern with the proposal," said Shelby. "Seven hundred billion dollars is a lot of money to me; it's a lot of money for taxpayers."
New York Democratic Senator Chuck Schumer told CNBC television during a break in the hearing: "There are a whole lot of questions and a good deal of skepticism, certainly about a blank check, on both sides of the aisle."
In opening remarks at the Senate hearing, Dodd called the government plan "stunning and unprecedented" in its scale and sweeping powers.
"Before I sign off on something of this magnitude, I would want to know that we have exhausted all reasonable alternatives," he said.
World stocks were mostly higher Wednesday, after a vote of confidence in Wall Street from tycoon Warren Buffett, whose company Berkshire Hathaway agreed to buy five billion dollars of stock in Goldman Sachs.

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