September 25, 2008


Wall Street bailout plan stalled by public backlash

(Buffalo News, The (NY) Via Acquire Media NewsEdge) WASHINGTON -- Stung by angry calls from constituents who don't want to spend $700 billion to bail out Wall Street, lawmakers from both parties Tuesday rebelled against the proposal -- despite a stern warning from federal officials that it's needed to prevent the American economy from tanking.

Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry M. Paulson Jr. told the Senate Banking Committee that credit will freeze up and jobs will be lost unless Congress acts quickly to address the greatest financial crisis since the Great Depression.

But senators at the committee hearing were harshly critical of the Bush administration's bailout plan. Asked if a majority of Democrats would support it, Rep. Louise M. Slaughter, D-Fairport, chairwoman of the powerful House Rules Committee, said: "Not yet."

"The phone calls into the district office are about 75 percent saying: Don't do this. They think this is about Wall Street. They don't understand this is getting to Main Street," Reynolds said.

The growing congressional concerns prompted another down day in the stock market. The Dow Jones Industrial Average fell by an additional 161.5 points. The Dow is down 534 points, or 4.69 percent, for the week.

Bernanke stressed that the stock market isn't the issue. Lenders, burdened by the meltdown in the mortgage market and the collapse of several major financial firms, are tightening lending, which threatens to starve businesses and fuel a recession.

"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 will contract, that the economy will just not be able to recover," Bernanke said. "My interest is solely for the strength and recovery of the U. S. economy."

Meanwhile, the Associated Press reported Tuesday night that the FBI is investigating the four major U. S. financial institutions whose collapse helped trigger the bailout plan.

Two law enforcement officials told the AP that the FBI is looking at potential fraud by mortgage finance giants Fannie Mae and Freddie Mac, and insurer American International Group. A senior law enforcement official said Lehman Brothers Holdings also is under investigation.

Despite Bernanke's concern for the overall economy, senators stressed during the hearing that they are interested in the U. S. taxpayer.

"If one thing is clear from this hearing, it's that significant modifications to this plan are necessary," said Sen. Charles E. Schumer, D-N. Y. "There were many good ideas put forward, and we hope Secretary Paulson will be responsive to them. We have to reduce the cost to taxpayers as significantly as possible." He suggested that this be done by initially passing only a $150 billion bailout, with more to come if necessary.

"Why couldn't you ask us for $150 billion? And on Jan. 15 or Jan. 20, we would come back, we would assess how it worked and grant more money if it's really working," Schumer said.

Paulson responded: "I think that would be a grave mistake. What this is about is market confidence and having the tools to do the job."

Phasing in the funding of the bailout would be dangerous because Congress is scheduled to be on recess from next week until early January, meaning the bailout money could run out with no easy way to replenish it, Paulson said.

Meanwhile, Slaughter stressed that House Democrats had pressed to include strict oversight of the bailout and to prevent companies that benefit from it from paying extravagant "golden parachutes" to their departing executives.

"We're making sure there are big changes, with more to come," Slaughter said.

Sen. Christopher J. Dodd, DConn., chairman of the Banking Committee, agreed that the bill would have to be restructured. "I understand speed is important, but I'm far more interested in whether or not we get this right," he said.

Sen. Hillary Rodham Clinton, D-N. Y., brought the same message to an MSNBC interview, saying, "We need to have checks and balances, not just a blank check, so that the taxpayers are having some control over the purse strings and are not left holding the bag again like always seems to happen."

Slaughter said President Bush had to rally Republicans to support the bill, but some of the most vehement opposition, nevertheless, was coming from his own party.

"This massive bailout is not a solution. It is financial socialism, and it's un-American," said Sen. Jim Bunning, R-Ky.

Even a visit from Vice President Cheney left conservative Republicans unswayed.

"Just because God created the world in seven days doesn't mean we have to pass this bill in seven days," said Rep. Joe Barton, R-Texas.

Bernanke and Paulson insisted, however, that quick action is necessary.

"The financial markets are in quite fragile condition, and I think, absent a plan, they will get worse," Bernanke said.

Under the plan, the federal government would take over the bad mortgage-backed securities that funded countless home loans to people who couldn't afford them. With many lenders weighted down by those securities gone sour, credit is becoming tight.

"I've heard from car companies that it is virtually impossible to get an auto loan right now, unless you have a credit score over 720," Schumer said. "Even though the workers in Buffalo, Detroit and St. Louis are blameless, they will suffer."

Rep. Brian Higgins, D-Buffalo, agreed. "The capital markets are frozen," he said. "Nobody's lending to each other. And that undermines every aspect of the economy. There's no question there has to be a bailout . . . but I'm here to tell you the content of the bailout matters enormously."

While taxpayers are reluctant to foot the bill, Slaughter said, they are aware that the country is facing a grave crisis.

"I've been saying to myself all day: I just keep thinking about Herbert Hoover," the president who struggled through the first years of the Great Depression, Slaughter said. "We appreciate that people are rightfully scared because of their pensions, their 401(k)s, all the money they've got saved, whatever plans they've got made."

Paulson said he understood why people are outraged. "I think it's embarrassing to the United States," he said.

". . . There is a lot of blame to go around."

The Associated Press contributed to this report.

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