Bernanke, Paulson In Recession Warning

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson have urged lawmakers to swiftly pass a $700 billion bailout. They told the Senate Banking Committee that inaction on the plan posed the risk of a recession.

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MICHELE NORRIS, Host:

From NPR News, this is All Things Considered. I'm Michele Norris.

MELISSA BLOCK, Host:

And I'm Melissa Block. It was a rough day today on Capitol Hill for Henry Paulson and Ben Bernanke. The Treasury secretary and the Fed chairman went to the hill to sell their $700 billion bailout plan for banks' bad loans. Members of the Senate Banking Committee, nearly all of them, challenged the men on whether it's a good idea to hand so much authority over to the U.S. Treasury, and to do so by the end of the week. We'll talk with one of those senators in a moment. First, NPR's David Welna reports on today's proceedings.

DAVID WELNA: For almost five hours, senators on the Banking Committee from both parties expressed outrage and frustration over the three-page plan proposing the biggest financial bailout ever. The panel's Democratic chairman, Christopher Dodd, called Treasury Secretary Henry Paulson's proposal simply unacceptable.

NORRIS: It would do nothing, in my view, to help a single family save a home, at least not upfront. It would do nothing to stop even a single CEO from dumping billions of dollars of toxic assets on the backs of American taxpayers, while at the same time do nothing to stop the very authors of this calamity to walk away with bonuses and golden parachutes worth millions of dollars. And it would allow this secretary and his successors to act with utter and absolute impunity without review by any agency or a court of law.

WELNA: Dodd told Paulson, who quietly sat alongside Fed Chairman Ben Bernanke, that he can only conclude after reading the bailout plan that not just the economy is at risk, but the Constitution as well. The panels' top Republican, Richard Shelby, was equally scathing.

NORRIS: It is aimed at rescuing the same financial institutions that created this crisis with the sloppy underwriting and reckless disregard for the risk they were creating, taking, or passing on to others. Wall Street bet that the government would rescue them if they got into trouble. It appears that bet may be the one that pays off.

WELNA: And Kentucky Republican Jim Bunning said the plan does nothing to help homeowners struggling to pay mortgages.

NORRIS: The Paulson plan will not bring a stop to the slide in home prices, but the Paulson plan will spend $700 billion worth of taxpayers' money to prop up and clean up the balance sheets of Wall Street. This massive bailout is not a solution. It is a financial Socialism, and it's un-American.

WELNA: Paulson assured the senators he shared their outrage, saying the financial crisis he's trying to quell is embarrassing to America. But Paulson fiercely defended the thrust of his plan.

NORRIS: I am convinced that this bold approach will cost American families far less than the alternative: a continuing series of financial-institution failures and frozen credit markets unable to fund everyday needs and economic expansion. Again, I'm frustrated. The taxpayer is on the hook. The taxpayer is already on the hook. The taxpayer already is going to suffer the consequences if things don't work the way they should work. And so the best protection for the taxpayer, and the first protection for the taxpayer, is to have this work.

WELNA: But Paulson rejected senators' calls for putting limits on executive pay or severance packages in the institutions that take part in the bailout. He said that would discourage some institutions from participating. He also came down against allowing bankruptcy judges to rewrite mortgages to avoid foreclosures, but he did admit his plan needs more oversight. He said Congress needs to act fast to approve that plan, even as Fed Chairman Bernanke admitted many uncertainties still surround it.

NORRIS: We don't know exactly what's going to happen, but I think this is a very powerful program and that the amount of money is enormous, of course. There's a chance we may come back and say we didn't need it all, but it's very hard to know.

WELNA: But just how much urgency Congress feels for passing a bailout remains unclear. Banking Chairman Dodd suggested the Senate remain in pro-forma session through December to refine the plan. David Welna, NPR News, the Capitol.

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