Bernanke implores rescue action

By Patrick M. Fitzgibbons WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke implored Congress to move quickly as Congress launched another marathon day of hearings into the Bush Administration's $700 billion financial bailout plan and the state of the U.S. economy. Bernanke warned on Wednesday that downside risks to the U.S. economy remain "a significant concern" and the Fed was monitoring developments carefully and would act as needed to promote growth. "Action by Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy," Bernanke said in comments to the Joint Economic Committee. Bernanke and Treasury Secretary Henry Paulson will both be on Capitol Hill for most of the day Wednesday after more than five hours of testimony on Tuesday. "Despite the efforts of the Federal Reserve, the Treasury and other agencies, global financial markets remain under extraordinary stress," Bernanke said. The most severe U.S. housing slump since the Great Depression has sent foreclosures soaring, saddling the global financial system with a mountain of bad debt that has threatened to choke off the supply of credit. The Bush administration, supported by the Fed, want to use $700 billion of taxpayer money to purchase bad mortgage debt and other securities from financial institutions. Bernanke listed areas of the economy hit by financial turmoil that were areas of concern. "More recently, economic activity appears to have decelerated broadly," he said. Labor markets are weak and unemployment is high. Despite an easing of oil and gas prices since the summer, consumer spending is likely to be sluggish in the near term, he added. BAILOUT CRITICISM While it is still anticipated that the bailout will be approved, some lawmakers have strong concerns. "I think there are a lot of unanswered questions here. We've got to look at this closely and possibly reconfigure it," said Alabama Senator Richard Shelby on CNN. "There's stress and strain in our financial markets. But do we want to reward some of the same people who caused this problem and bail them out and let our children pay for it over years, I say no." Shelby, the top Republican on the Senate Banking Committee, said the plan "merely codifies (the Treasury Department's) ad hoc approach" taken so far to tackling the worst U.S. financial crisis since the Great Depression. Lawmakers' aides said Bernanke and Paulson attended a closed-door meeting of House Republicans this morning, many of whom have expressed misgivings about the plan. On the Democratic side, Sen. Charles Schumer affirmed the commitment of Congressional Democrats to pass some sort of emergency measure to address the credit crisis before lawmakers adjourn in the next few days. But the New York Democrat also repeated that the Treasury Department's proposal would have to change before winning congressional approval. "The consensus is: A, people don't like it; B, it will have to change; and C, we have to do something," Schumer said on CNBC. "I certainly think we'll get it done before we adjourn." Bernanke is scheduled to appear twice on Wednesday. After the solo testimony before the Joint Economic Committee, he pairs with Paulson to go before the House Financial Services Committee on the bailout. Financial markets remained under stress amid uncertainty about the legislation's prospects. Stocks were little changed, but demand for U.S. Treasury bills soared on concern that banks were still reluctant to lend to one another. That helped drive the interest rate on one-month bills below zero. The 3-month London interbank offered rate, a benchmark measure of interest rates banks charge each other, shot above 3.47 percent, its highest since January. "There's a tremendous amount of anxiety whether this (bailout) bill will get passed," said Thomas di Galoma, head of U.S. government bonds at Jefferies & Co. in New York. BUFFETT, GOLDMAN AND THE FBI Despite investors' skittishness, billionaire Warren Buffett bet that Wall Street would bounce back from its current crisis by buying a $5 billion stake in Goldman Sachs Group. "I am to some effect betting on the fact that the government will do the rational thing and act properly," Buffett, one of the world's richest men and preeminent stock-pickers, told CNBC. Buffett, though, said financial markets remained in a "dangerous situation." Buffett's Berkshire Hathaway will buy $5 billion of Goldman perpetual preferred stock. It also will receive warrants to buy $5 billion of common stock, or 43.5 million shares, at $115 per share, within five years, which could give him roughly 9 percent of Goldman. Lawmakers mulling the bailout will also be facing reports that the FBI is investigating potential mortgage fraud involving firms and senior executives at the heart of the crisis. The FBI was said to be trying to determine if anyone was responsible for providing misinformation at Fannie Mae, Freddie Mac, Lehman Brothers and American International Group Inc. Wednesday's House hearings come one day after Paulson and Bernanke both warned the financial market turmoil was an urgent threat to the broader economy. "I feel a great urgency. I believe it's got to be done this week or before you leave," Paulson told the Senate Banking Committee, referring to Congress' hoped-for adjournment on Friday. In a mark of the urgency the Bush administration attaches to the bailout, Vice President Dick Cheney went to Capitol Hill on Tuesday to urge Republican lawmakers to back the plan. (Reporting by Kevin Drawbaugh, Glenn Somerville, Mark Felsenthal and John Poirier; Editing by Tim Dobbyn) ʘ