WASHINGTON - Federal Reserve Chairman Ben Bernanke has given Congress a grim assessment of the state of the economy, saying business growth hinges on stabilizing the troubled financial markets.
Bernanke made the statement as part of a review of economic prospects that the Fed chief occasionally gives to the Joint Economic Committee of Congress. He says in remarks prepared for Wednesday's appearance that the Fed stands ready to "act as needed" to keep things on an even keel.
Bernanke and his Fed associates are fighting the biggest financial debacle since the Great Depression.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
WASHINGTON (AP) — Executives whose companies get a piece of the $700 billion government bailout will have their pay packages strictly limited under proposals that are broadly supported by both Republicans and Democrats in Congress.
The Bush administration was resisting the move as it scrambled to overcome widespread misgivings on Capitol Hill and swiftly push through its plan to rescue tottering financial firms by buying up their rotten assets.
Lawmakers in both parties are demanding changes to the administration's rescue proposal despite dire warnings from top economic officials of recessions, layoffs and lost homes if Congress doesn't approve it quickly. Both parties' presidential candidates also insist on alterations to the drastic prescription.
"We have got to look at some alternatives," said Sen. Richard Shelby of Alabama, the top Republican on the Senate Banking Committee.
Sen. Chris Dodd, D-Conn., the panel's chairman, said the Bush administration's position was "not acceptable."
Meanwhile, world stock markets were mixed Wednesday amid reports of a plan by Warren Buffett to invest at least $5 billion in the embattled Wall Street firm Goldman Sachs. That development helped allay some fears about the world's troubled financial sector, but uncertainty in many quarters internationally about the massive U.S. economic rescue plan persisted.
Congressional leaders say they are working to approve the rescue by week's end, but the chances of a quick deal were dwindling.
"Just because God created the world in seven days doesn't mean we have to pass this bill in seven days," said Rep. Joe Barton, R-Texas.
In New York where he is concluding a series of meetings relating to the U.N. General Assembly session, President Bush said, "I am confident when it's all said and done, that there will be a robust plan." The president spoke Wednesday before a meeting to discuss free trade with leaders of other Western Hemisphere nations.
Rep. Barney Frank, D-Mass., the House Financial Services Committee chairman, was in intense negotiations with Treasury Secretary Henry Paulson on key elements of the plan.
"As long as it looks as if we are seriously engaged, it's not too late" to act, Frank said.
Sen. Charles Schumer, told CNN Wednesday: "We proposed some kind of FDIC for all financial services companies. They would pay a fee every month and that would go into helping pay for this plan. It won't pay for all of it."
Law enforcement officials, meanwhile, said Tuesday that the FBI was investigating four major U.S. financial institutions whose collapse helped trigger the bailout plan.
Two law enforcement officials said the FBI was looking at potential fraud by mortgage finance giants Fannie Mae and Freddie Mac, and insurer American International Group Inc. Additionally, a senior law enforcement official said Lehman Brothers Holdings Inc. also is under investigation. The inquiries will focus on the financial institutions and the individuals who ran them, the senior law enforcement official said.
The law enforcement officials spoke on condition of anonymity because the investigations are ongoing and are in the very early stages.
Frank has proposed adding substantial congressional oversight over the bailout and a requirement that the government make an effort to renegotiate as many of the mortgages it purchases in the rescue as possible to help strapped borrowers stay in their homes. Paulson was said to be willing to accept those revisions.
Schumer, D-N.Y., said earlier Wednesday he believes Congress must act quickly to rebuild the crumbling financial system but that lawmakers must have a strong supervisory role.
If there are provisions for a return of money in connection with the absorption of bad debt at various financial institutions, he said on NBC's "Today" show, "it should go to taxpayers before bondholders, shareholders and executives."
Sen. Jim DeMint, a South Carolina Republican, differed with Schumer, saying Congress should resist the Bush administration's pleas for the legislation. He said, "The government broke it. I don't trust them to fix it."
The administration was still battling calls from virtually every quarter of Congress to slap tight limits on compensation for executives whose firms get a federal rescue. Frank wants the government to restrict the bailout to firms that deny their top people golden parachutes on their way out the door and institute a "clawback" rule to revoke bonuses paid for bogus gains.
Another influential Democrat, Sen. Max Baucus of Montana, proposed tax penalties on the compensation of top executives who earn more than the U.S. president; their pay would only be tax-deductible up to $400,000. Large golden parachutes also would be taxed heavily under the plan by Baucus, the Finance Committee chairman.
Paulson says such limits would discourage participation in the program.
But the curbs appear to have widespread bipartisan support.
"Clipping executive compensation is easy right now — everybody wants it," said Rep. Jack Kingston, R-Ga.
Frank also has been pushing to allow the government to buy equity — rather than just bad debt — in companies it helps so taxpayers can benefit from future profits. That idea is also gaining bipartisan support, but Paulson argues it would hamstring the very companies the government is trying to help.
He also is strongly opposed to another key Democratic priority: letting judges rewrite mortgages to lower bankrupt homeowners' monthly payments. Democrats view that measure as the heaviest lift and the most likely to be dropped as part of a final deal.
"I share the outrage that people have," Paulson told the Senate Banking Committee on Tuesday. "It's embarrassing to look at this. I think it's embarrassing to the United States of America. There is a lot of blame to go around."
Without the bailout plan, Paulson and Federal Reserve Chairman Ben Bernanke have sketched out a grave scenario for lawmakers: Neither businesses nor consumers would be able to borrow money, and the world's largest economy would grind to a virtual halt.