President Bush, flanked by Federal Reserve Chairman Ben Bernanke, left, and Treasury Secretary Henry Paulson, delivers a statement about the economy and government efforts to remedy the crisis, Friday, Sept. 19, 2008, in the Rose Garden of the White House in Washington. (AP Photo/Pablo Martinez Monsivais)
WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson urged Congress on Tuesday to quickly pass a $700 billion financial bailout, warning that letting problems persist would have dire consequences for the national economy.
"We all recognize the gravity of the situation," said Sen. Chris Dodd, D-Conn., presiding over a congressional hearing on the crisis and the administration's proposed remedy. He said the "economic maelstrom" was caused by a combination of "private greed and public regulatory neglect."
Dodd and other key lawmakers have been in private negotiations with the administration since the weekend on legislation designed to allow the government to buy bad debts held by banks and other financial institutions. Key details remain unresolved, although the Democratic-controlled Congress is expected to vote in the next several days on a far-reaching measure.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
WASHINGTON (AP) - Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson urged Congress on Tuesday to quickly pass a $700 billion financial bailout, warning that letting problems persist would have dire consequences for the national economy.
The nation's top two economic leaders made the assertions in prepared remarks to be given later Tuesday to the Senate Banking Committee. Their latest take on the financial crisis came as the Bush administration and lawmakers scramble to forge an agreement on a plan that could be the biggest such bailout in U.S. history.
"If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse," Bernanke said in his prepared for the panel.
Paulson's written testimony struck a similarly grave note.
"We must do so in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten the well-being of American families' financial well-being, the viability of businesses both small and large and the very health of our economy," Paulson said.
Their appearances came as President Bush, in New York for meetings at the United Nations, sought to assure world leaders that the U.S. government has the problem under control.
He said he is confident that Congress will pass the necessary legislation to deal with the problem and said he has assured other leaders that the financial package is "a robust plan to deal with serious problems." He said there are ideas about how to change it, but that there is a desire to get a package done quickly.
The plan would enable the government to buy bad mortgages and other troubled assets held by endangered banks and financial institutions. Getting those debts off their books should bolster their balance sheets, making them more inclined to lend and easing one of the biggest choke points in the credit crisis. If the plan works, it should help lift a major weight off the sputtering economy.
The U.S. has taken extraordinary measures in recent weeks to prevent a financial calamity, which would have devastating implications for the broader economy. It has, among other things, taken control of mortgage giants Fannie Mae and Freddie Mac, provided an $85 billion emergency loan to insurance colossus American International Group Inc. and temporarily banned short selling of hundreds of financial stocks.
Bernanke and Paulson defended their unprecedented steps - many just in the past few weeks - to stem the crisis. Even so, Bernanke said that "global financial markets remain under extraordinary stress."
In promoting the massive rescue plan, Paulson said the piecemeal approach the government has taken so far was necessary but insufficient.
"We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil," the Treasury chief said. The root cause goes back to the rotten debts held by financial institutions, which are choking off the flow of lending, a crucial ingredient to the economy's health.
Wall Street has been dramatically reshaped amid all the fallout. The Fed agreed to let Goldman Sachs and Morgan Stanley - the country's last two investment banks - become bank holding companies so that they can take deposits, like a commercial bank, in a bid to survive. Merrill Lynch agreed to be bought by Bank of America. Lehman Brothers sought bankruptcy protection, and Bear Stearns was taken over by JPMorgan Chase.
Congressional leaders and the Bush administration are haggling over details of the rescue plan, including Democrats' demand that executives at failing financial firms that receive the government help can't get "golden parachutes" on their way out the door.
Paulson, however, said the bill should be enacted "cleanly" and said lawmakers should "avoid slowing it down with other provisions that are unrelated and don't have broad support."
Paulson and Bernanke, the architects of the bailout, were expected to face tough questions from lawmakers in both parties about the eye-popping cost, how the rescue would work and how taxpayers would be affected.
Paulson was in talks with Democrats about their proposal that the government be able to purchase equity in faltering companies as part of the plan, so taxpayers could benefit from future profits.
The administration is balking at another key Democratic demand: allowing judges to rewrite bankrupt homeowners' mortgages so they could avoid foreclosure.
Congressional aides said the House could act on a bill Wednesday or Thursday, with the Senate following soon thereafter.
"We have gotten closer," Rep. Barney Frank, D-Mass., the House Financial Services Committee chairman, said late Monday. "We're not there yet."
Still, lawmakers on both the right and left already were assailing the deal-in-progress.
Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee, blasted the emerging plan as "neither workable nor comprehensive."
"In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted and may actually cause the government to revert to an inadequate strategy of ad hoc bailouts," Shelby said.
Lawmakers on both extremes of the political spectrum assailed the plan as a massive, poorly conceived bailout. Conservative House Republicans and liberal House Democrats both huddled privately Monday to express their concerns, and they were drafting their own legislative alternatives.
The emergency legislation would give the government broad power to buy up devalued assets from troubled financial firms in a bid to unlock the flow of credit and stabilize badly shaken markets in the United States and around the globe.
In an expansion of its original proposal, the Bush administration is asking for broad power to buy up virtually any kind of bad asset - including credit card debt or car loans - from any financial institution in the U.S. or abroad in order to stabilize markets.
Frank said he and Paulson had agreed to create a congressional oversight board as part of the bailout and to require that the government come up with a plan to avoid foreclosures on any mortgages it acquires in the rescue. A government official with knowledge of the talks confirmed the administration backs those provisions.
There still were divisions on which tottering financial firms would be helped and what kind of assets the government could buy as part of the bailout.
Lawmakers in both parties appeared to be coalescing around the idea that executive compensation limits should be part of the bailout, although Paulson says he is concerned that such curbs would discourage companies from participating.
Investors were uncertain just how successful the administration's plan would be in unfreezing credit markets, which many businesses depend on to fund day-to-day operations, and for propping up the still-weak housing market.
AP Economics Writer Martin Crutsinger contributed to this story.
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