Congress balks at huge US financial bailout (AFP)
24.09.2008 12:55 Finance
Federal Reserve chairman Ben Bernanke and Treasury Secretary Henry Paulson, testifying on Capitol Hill after proposing the 700-billion-dollar bailout just days ago, argued that lawmakers must pass the emergency measure quickly or put the entire US economy at risk.
"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 more 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.
And 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, 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."
Action was "urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy," he testified at a Senate Banking Committee hearing.
Paulson, echoing Bernanke's comments, 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.
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."
Bush told worried world leaders that his administration was working to 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."
US stocks closed sharply lower Tuesday, but Asian stock markets 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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