Senators balk at quick bailout bid for markets

By John Poirier and Glenn Somerville

WASHINGTON (Reuters) - The Bush administration's push for quick congressional approval of a $700 billion bailout for financial firms hit a wall of opposition on Tuesday among senators who said the plan puts taxpayers at excessive risk.

"What they have sent us is not acceptable," Senate Banking Committee Chairman Christopher Dodd said after a five-hour hearing on the plan. His Republican counterpart, Sen. Richard Shelby, also vowed not to "rubberstamp" the proposal.

U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke both warned that financial market turmoil has grown in severity and posed a threat to the broader economy that won't ease until confidence is restored.

"I feel a great urgency. I believe it's got to be done this week or before you leave," Paulson told the committee, referring to Congress' hoped-for adjournment on Friday, that increasingly looked to be slipping.

Bernanke warned that a failure to act could doom the economy to a recession. "This is a precondition for a good, healthy recovery by our economy," he said.

U.S. stock markets held up well through most of the day, but sank in the afternoon on investor worry that the bailout bid might be in jeopardy. The blue-chip Dow Jones industrial average fell nearly 1.5 percent, after shedding 3.3 percent on Monday.

"Financial markets are in a quite fragile condition and I think absent a plan, they will certainly get worse," Bernanke said.

The most severe U.S. housing slump since the Great Depression has sent home foreclosures soaring, saddling the global financial system with a mountain of bad debt that has threatened to choke off the economy's needed supply of credit.

WHO'S IN CHARGE?

But Republican Sen. George Voinovich of Ohio said Congress won't rush to judgment and needs to ask more questions before approving legislation that would give the Treasury secretary nearly unfettered authority to buy up bad debts from financial firms.

"Are we going to let the stock market, going up and down, control what we do here?" Voinovich told reporters.

On Capitol Hill, Democrats and Republicans alike are worried Americans are going to get saddled with a huge bill for bad mortgage-related debts and have called for more taxpayer protections, as well as greater oversight for the program.

In addition, Democrats want any plan to include measures to slow the pace of home foreclosures and to limit executive pay at companies that offload bad assets.

Senate Majority Leader Harry Reid said Democrats were working hard to come up with acceptable alternatives, but said a bill was not likely to move without more Republican support.

"This is a Republican proposal," Reid said. "We need some Republican votes and they've got to start lining those up."