Leaders scramble to quell bailout rebellion

By Emily Kaiser - Analysis

WASHINGTON (Reuters) - With Main Street up in arms over a proposed $700 billion financial bailout of Wall Street, lawmakers turned to top U.S. officials to make the case for them that failure to act would unleash a financial armageddon.

While most congressional leaders have conceded something must be done to avert an economic crisis, they have had little success so far in explaining to the electorate why Wall Street's misfortune could soon spread far and wide.

Grim economic outlooks from Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and Congressional Budget Office Director Peter Orszag drew a clear link between financial market turmoil and real-world pain. The White House announced that President George W. Bush would give an economic address to the nation on Wednesday evening.

Less than six weeks away from elections, with the entire House of Representatives and one-third of the Senate up for grabs, congressional leaders were fielding angry phone calls from voters who felt they were essentially being asked to pay for Wall Street's mistakes.

"The problem is, the people asked to clean up all the broken furniture, they didn't even get invited to the party," said Rep. Lloyd Doggett, a Texas Democrat. "That's why so many of the people that are contacting me ... are not just against this bailout, they're very angry."

The Treasury Department has asked for the extra funding so it can buy hard-to-value and nearly impossible-to-trade debts off of banks' books in the hope that they will then resume normal lending and boost the broader economy.

Bernanke and Paulson have repeatedly stressed that the cost to taxpayers would probably be far less than $700 billion because the government would intend to resell the assets -- perhaps even at a profit -- once market conditions improve.

Sen. Charles Schumer, the New York Democrat who chairs the Joint Economic Committee, said he agreed Congress should act and act soon, "but let us be clear: Americans are furious."

"I am sure that every single one of my colleagues on both sides of the aisle has heard what I have heard from my constituents -- amazement, astonishment and intense anger. And they are right to be astonished and very angry," he said.

That ire has compounded economic worries and given a boost in the polls to Democratic Sen. Barack Obama in what has been a tight presidential race against Republican Sen. John McCain. McCain said on Wednesday that the bailout plan was unlikely to pass in its current form and he was suspending his campaign to return to Washington to help with negotiations.

SELLING IT TO MAIN STREET

Rep. Steven LaTourette, an Ohio Republican, drove home the problem facing lawmakers in selling the massive bailout plan, in an exchange with Fed chief Bernanke at Wednesday's hearing.

"Over the weekend, all the leadership left the White House. They were all ashen faced. They were using words like 'Armageddon,'" LaTourette said.

"I need you to tell that guy on his couch, when he watches the 6 o'clock news, what happens if we don't do this -- to him, not to the markets, not to the guys on Wall Street," he added.

Bernanke was blunt in his reply: "It's all esoteric Wall Street stuff. It doesn't have any meaning to people on Main Street, but it connects very directly to their lives.