President Bush laid out his case Wednesday for why Americans should support a proposed $700 billion financial rescue package, saying that failure to act could trigger a "long and painful recession."
In a primetime address from the White House, Bush said failure to intervene could wipe out retirement savings and lead to more mortgage foreclosures, increased unemployment, and business and bank failures.
"Without immediate action by Congress, America could slip into a financial panic, and a distressing scenario would unfold," he said.
The president spent the first half of his speech listing the causes of the crisis, most of which have been discussed for weeks by administration officials and the media.
The Bush administration is seeking to overcome obstacles in Congress to speedy enactment of the bailout plan, and in his speech, the president conceded two points that congressional leaders have demanded.
The bill, he said, should "make certain that failed executives do not receive a windfall from your tax dollars; it should establish a bipartisan board to oversee its implementation." He did not mention the demand by some lawmakers that bankruptcy judges be allowed to give some relief to homeowners facing foreclosure.
The president agreed that additional regulation would be needed in the future, but cautioned lawmakers that he would balk at regulations he felt would hinder economic growth. He also said he had invited presidential hopefuls John McCain and Barack Obama to a meeting at the White House on Thursday to help hash out the details.
McCain had announced earlier that he wants to delay Friday's scheduled debate with his Democratic opponent because of the fiscal crisis. But the University of Mississippi, which is hosting the event, said on their Web site that they expect the debate to continue as scheduled.
Paulson Agrees To Limits On Executive Pay
Hours before Bush's address, Treasury Secretary Henry Paulson reversed his opposition to limits on executive compensation in the proposed $700 billion economic recovery plan. The reversal came the same day that Paulson and Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson testified before two more congressional committees and reinforced their recommendation for speedy approval of the Treasury's bailout plan.
Unless Congress acts quickly, Bernanke said to a morning Joint Economic Committee hearing, "It could severely affect the overall performance of the U.S. economy, perhaps over a period of years."
"The intensification of financial stress in recent weeks, which will make lenders still more cautious about extending credit to households and business, could prove a significant drag on growth," he said.
He warned that would likely mean lost jobs, higher unemployment, more foreclosures and a contraction in the overall economy.
But lawmakers appeared skeptical of the Bush administration's plan to rescue the financial system during what was Paulson's and Bernanke's second day of testimony. Critics continue to raise serious questions why taxpayers should help pay the price for Wall Street's excesses.
Rep. Paul Kanjorski (D-PA) said the administration had to make a better economic case for the bailout, so Americans can understand why it's so desperately needed.
"If our markets and capitalism itself are truly on the line, then the president must speak openly, frankly and publicly about these problems," Kanjorski said.
"Once the administration establishes the predicate for emergency action, only then should the Congress consider passing this package of truly massive proportions."
Paulson took as strong a stance to the questioning as Bernanke.
Skepticism About Bailout Grows
"I understand the view that I have heard from many of you on both sides of the aisle, urging that the taxpayer should share in the benefits of this plan to our financial system," he said. "Let me make clear: This entire proposal is about benefiting the American people, because today's fragile financial system puts their economic well-being at risk."
Congress's growing skepticism about the plan raises the possibility that lawmakers may significantly delay – and possibly kill — the current proposal.
Many lawmakers appear worried about the lack of congressional accountability and help for average homeowners in the Bush administration's proposal and are pushing for significant changes in order for any proposal to pass.
"Americans are furious," said Sen. Charles Schumer (D-NY), chairman of the Joint Economic Committee. Lawmakers were hearing "amazement, astonishment and intense anger" from their constituents, Schumer said.
Despite that, Schumer said at the start of the hearing that a deal appears closer Wednesday than it did Tuesday.
At a five-hour Senate Banking Committee hearing on Tuesday, skeptical senators pressed Bernanke and Paulson for more specifics about their proposal. The two officials didn't provide many more details than when they introduced the plan over the weekend and said regulators will need flexibility if any plan is expected to work.
On Wednesday, Bernanke did not indicate that the Fed expects to further lower interest rates soon, a move that could ease credit to businesses and consumers but could add detrimentally to the inflation rate.
In response to several questions, Bernanke and Paulson repeatedly stressed that any cost to taxpayers from the rescue plan would be much less than $700 billion, because the government would sell the distressed assets at a later date for higher expected prices than the securities could garner today.
Financial markets closed a tense but mostly quiet session Wednesday down a moderate 29 points, to 10,825.