Bernanke: Recession likely without bailout

September 23, 2008 7:28:18 PM PDT
The party's over on Wall Street. Democrats insisting there will be no blank check if and when Congress agrees to a $700 billion bailout.

Congress is at loggerheads over the bailout -- democrats want less aid to CEO'S and more for homeowners. Republicans want something passed quickly, although one GOP congressman today called the plan un-American.

Pitching their plan on Capitol Hill, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke warned what could happen without a bailout: Nobody will be able to borrow money, and the U.S. economy will grind to a halt.

With that in mind, Wall Street sent stock prices down again today. the Dow Jones average sank another 161 points.

Most experts are saying the plan will pass. But during Tuesday's Senate Committee hearing, you could feel the concern among lawmakers, who are being asked to saddle taxpayers with a monstrous bill and a plan so lacking in detail that at this point, it's really more of a concept.

Dire warnings on Tuesday from the Bush Administration's two top money men.

"I believe if the credit markets are not functioning, that jobs will be lost, the unemployment rate will rise and more houses will be foreclosed upon," said Federal Reserve Chairman Ben Bernake.

Treasury Secretary Paulson said he shares the outrage of the American people.

"It's embarrassing to look at this. I think it's embarrassing for the United States of America, there is a lot of blame to go around," said Paulson.

But when asked about limiting compensation for Wall Street executives, the former chairman of Goldman Sachs said Congress should approve the plan without limits.

"By far, the most important thing is to have something that works well and works effectively," said Paulson.

But Committee Chair Christopher Dodd said compensation limits are coming.

"Almost any plan we talk about will deal with executive compensation, count on it," said Sen. Christopher Dodd (D) Connecticut.

And Speaker of the House Nancy Pelosi was even more direct.

"The party is over for financial institutions taking risks, but at the same time privatizing any gain they might have while they nationalize the risk," said Speaker of the House Nancy Pelosi.

The other big area of disagreement between the Bush Administration's proposal and Congress is the issue of foreclosure protection for homeowners who are struggling with their mortgages.

Members of the Banking Committee asked why can't the plan include more protection for homeowners since home foreclosures are at the root of the problem.

Secretary Paulson replied that adding on protections might cause lenders to back away.

"We all believe the very best thing we can do is make sure the capital markets are open and lenders are able to lend," said Paulson.

But on Capitol Hill, Senator Dianne Feinstein told ABC7 News the legislation does need homeowner protection.

"It would be in my view, that if you accept the bailout, you have a primary responsibility to renegotiate the loan to keep the present owner in the house," said Sen. Dianne Feinstein (D) California.

Feinstein says she's talked with lenders who say it's the right thing to do.

"They say it is far preferable to do it, they say it is more cost effective to do it, and of course it's much more humane to do it," said Feinstein.

Tuesday's hearing on Capitol Hill was over the government's $700 billion bailout known as TARP or Trouble Asset Relief Program. But the total bailout bill counting Freddie and Fannie and AIG and Bear Stearns is over $1 trillion and counting.

Barack Obama and John McCain both said they want to see limits on executive compensation for companies that take the bailout. McCain has been particularly critical of the proposal and there are a couple of reasons he might not back it.

One it separates him from an unpopular administration, it reinforces his maverick image and if the plan fails, he can blame Democrats for going along with it.


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