Bernanke, Paulson Again Make Case For Bailout

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson have tried to persuade skeptical lawmakers on a House panel to quickly approve the proposed $700 billion bailout of Wall Street. Separately, there were closed-door meetings at the Capitol with Paulson on the issue.

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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. The Wall Street bailout plan gripped the Capitol today. At this hour, President Bush is addressing the nation. Congressional negotiators met behind closed doors today. And John McCain said he was putting his presidential campaign on hold to return to Washington and work on a resolution to the financial crisis. More on that later this hour.

NORRIS: And Henry Paulson and Ben Bernanke were back on the congressional barbecue. This time, the Treasury secretary and Fed chairman took a seat on the House side to try to convince skeptical lawmakers to quickly approve the Bush administration's $700 billion bailout plan. NPR's Brian Naylor joins us now from Capitol Hill. Hello, Brian.

BRIAN NAYLOR: Hi, Michele.

NORRIS: So, we'll get to the hearing in a moment. But first, what do you know about these closed-door negotiations?

NAYLOR: Well, there's been a lot of activity. Speaker Nancy Pelosi met this morning with Treasury Secretary Paulson and House Majority Leader John Boehner. Paulson briefed members of the House Republican Caucus, who've been very vocal in their opposition to the bailout plan. Barney Frank, the chairman of the House Financial Services Committee, and Chris Dodd, chairman of the Senate Banking Committee, and their staffs have been meeting. And there's word that there has been some progress on a couple of key issues.

NORRIS: One of the key issues, I understand, is this question of whether there will be a cap on executive compensation.

NAYLOR: Exactly. You know, there's a growing sense on both sides of the aisle that the Wall Street CEOs who've been making these multimillion dollar salaries and bonuses shouldn't continue to reap the rewards while taxpayers are asked to foot the bill for their mistakes. And today, for the first time, the administration agreed. Here's what Treasury Secretary Paulson said this afternoon.

Secretary HENRY PAULSON (Treasury Department): The American people are angry about executive compensation, and rightfully so. Many of you cite this as a serious problem, and I agree. We must find a way to address this in the legislation, but without undermining the effectiveness of this program.

NAYLOR: You'll notice that Paulson left things kind of vague on that point. It's not clear exactly what they're going to do. There has also been a lot of lawmakers who were worried that Paulson or his successor will get too much power under this bailout. And so there's been an agreement there will be some kind of an oversight board, along with regular reports to Congress and audits, and that sort of thing.

NORRIS: As they add these things to the bill - the oversight, the compensation, perhaps other things - are lawmakers more likely to come on board?

NAYLOR: Well, yes, but there's still a lot of skepticism that taxpayers are being asked to pay for this bailout. Here's Ohio Republican Deborah Pryce, who pointed out, you know, she doesn't have to face voters this fall. She is retiring. But she still says she needs convincing to vote for the package.

Representative DEBORAH PRYCE (Republican, Ohio): We have all read by now why Paulson is wrong. What we need to hear today is why Paulson is right. One thing we as politicians know: You can't make a move this large without the consent of the American people, and we don't have it yet.

NORRIS: Well, there you heard Republican Deborah Pryce talk about how she needed to hear from Paulson how he's right. What did Paulson say? How did he respond to the skepticism that he heard today?

NAYLOR: Well, you know, he admitted at the hearing today that he still has a bit of a sales job to do.

Secretary PAULSON: To make the case to the average American, if we don't do something like this, what are the implications for them? What's the implication for their retirement savings? What's the implication for the small business, not only to be able to expand, but to just sustain their existing operations? What is the case, you know, for the small farmer who needs a loan, the small businessman, all of that?

NAYLOR: But still, Michele, there's - you know, lawmakers are saying that it's Main Street that's bearing the brunt of the bailout. And they're concerned about how this is going to play with the voters who they'll be facing in just about five weeks from now.

NORRIS: Very quickly, before we let you go. Any sense of how this is going to play out?

NAYLOR: Well, there seems to be a better mood here than there was yesterday that this will get done. The president's speech tonight is seen as a key. Barney Frank told reporters earlier that people need to understand the seriousness of this, and a presidential address conveys that. Now, with the news that McCain is suspending his campaign, and he and Barack Obama may somehow weigh in, you know, may or may not complicate the picture. But, I think there's a consensus that there will be a deal, if not by week's end, maybe over the weekend or early next week.

NORRIS: Thank you, Brian.

NAYLOR: Thanks, Michele.

NORRIS: That was NPR's Brian Naylor on Capitol Hill.

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Bush Issues Warning, Calls For Action On Economy

Ben Bernanke testifies before the Joint Economic Committee. i i

On Wednesday, Federal Reserve Chairman Ben Bernanke reiterated his recommendation that Congress quickly approve the Treasury's $700 billion rescue plan. Alex Wong/Getty Images hide caption

itoggle caption Alex Wong/Getty Images
Ben Bernanke testifies before the Joint Economic Committee.

On Wednesday, Federal Reserve Chairman Ben Bernanke reiterated his recommendation that Congress quickly approve the Treasury's $700 billion rescue plan.

Alex Wong/Getty Images

Audio is not available

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.

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