$700B Bank Bailout Uncertain, Despite Bernanke-Paulson Push
Congressional leaders are hesitating about whether to approve a pricey emergency plan by Federal Reserve Chairman Ben Bernanke and U.S. Treasury Secretary Henry Paulson to spend some $700 billion to shore up the nation’s severely struggling financial institutions, despite their predictions of dire consequences if the legislation isn’t immediately enacted.
Bernanke, in testimony before the Senate Banking Committee today, predicted more job losses and mortgage foreclosures, and said “the economy just will not be able to recover” unless Congress intervenes promptly, Bloomberg reports. In his testimony, Paulson reportedly painted a similarly dismal picture of the economic situation.
But legislators from both parties are concerned that they are being pressured to agree without sufficient thought to an expensive and unusual proposal that may not be the best approach to an economic crisis that includes, among other recent developments, the elimination of the nation’s investment banks as independent entities, according to the news agency. Both Democratic and Republican leaders said most legislators haven’t yet decided what position to take on the Bernanke-Paulson proposal.
It would reportedly involve, among other measures, U.S. purchases of bank debt, so that financial institutions would have more money available to lend to consumers. However, legislators are concerned about the cost to taxpayers, potential windfalls for financial executives who helped to create the current economic crisis and whether the proposal does enough for individuals suffering financially as a result of irresponsible bank lending practices.
Sen Chris Dodd, D-Conn., is the chairman of the banking committee. He said he is angry about having to deal with a crisis caused by a “a preventable, avoidable situation” that he attributed to a regulatory climate he described as “basically an eight-year coffee break,” reports Agence France-Presse.
“I’m prepared to act quickly but I’m not going to act irresponsibly,” he said. “If it takes longer, so be it.”
Meanwhile, House Speaker Nancy Pelosi says progress is being made, Bloomberg reports, on discussions between House Financial Services Committee Chairman Barney Frank and Paulson concerning what the news agency describes as “a compromise that could bolster oversight of Treasury’s expanded authority and limit compensation of executives of companies that get government aid.”
However, there’s only so much that Congress can do to try to fix the problem that caused the crisis–people bought homes they couldn’t afford, even if they didn’t have subprime financing, one expert tells the Wall Street Journal (sub. req.).
“We’re going to have falling home prices, we’re going to have rising unemployment,” Douglas Elmendorf of the Brookings Institution tells the newspaper, even if the bailout plan is enacted. “But we will have avoided a very deep recession and that’s about all we can accomplish at this point.”
Additional coverage:
On Deadline (USA Today): “Bailout: Bernanke, Paulson appear before Senate Banking Committee”
Wall Street Journal (sub. req.): “Paulson, Bernanke Tell Lawmakers Urgent Action Needed on Treasury Plan”
Updated at 6 p.m. to add information from another Wall Street Journal article.
