WASHINGTON (Reuters) - Top U.S. officials pressed Congress on Tuesday to swiftly erect a $700 billion bulwark against the worst financial crisis since the Great Depression but hit opposition from senators who cautioned against a rush to judgment.
“What they have sent us is not acceptable,” said Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat.
U.S. Treasury Secretary Henry Paulson last week called for the creation of a massive government war chest to take illiquid assets off the books of banks and other firms in the hope of unclogging credit markets choking on mortgage-related debt.
Republicans also criticized the plan, with Sen. Richard Shelby of Alabama pledging not to “rubber-stamp” the proposal.
The tough talk came after a nearly five-hour hearing at which lawmakers demanded that Paulson and Federal Reserve Chairman Ben Bernanke spell out more details about what would be an unprecedented market intervention.
While key senators indicated they planned to carefully examined the Treasury plan and make modification, House of Representatives Speaker Nancy Pelosi, who has vowed to move quickly, said progress was being made.
“We are moving forward,” the California Democrat said.
In a rare nod to concerns that had been expressed primarily by Democrats, President George W. Bush said there were many ideas that deserved to be heard on how to structure a taxpayer-funded program to buy up distressed assets from financial firms.
But he told other world leaders at the United Nations that he expected swift action.
“I’m confident we will act in the urgent time frame required,” Bush said.
Paulson and Bernanke both stressed the need to move urgently to prevent financial market distress from widening and taking down the entire U.S. economy.
“I feel a great urgency. I believe it’s got to be done this week or before you leave,” Paulson told members of the Senate Banking Committee, who are scrambling to get legislation together before their hoped-for adjournment at week’s end.
Stock markets worldwide plunged early last week after Lehman Brothers Holdings Inc LEH.N, the parent of a major U.S. investment bank, declared bankruptcy. While news of a massive bailout of the financial system gave stocks a big lift at the end of last week, major indexes have fallen sharply this week on renewed worries about the plan. Near the close of the regular U.S. stock trading session on Tuesday, all three major indexes were down 1 percent or more.
“Financial markets are in a quite fragile condition and I think absent a plan, they will certainly get worse,” Bernanke said.
Vice President Dick Cheney also went to Capitol Hill to urge Republican members of the House to pass bailout legislation quickly, a sign of the administration’s worry about risks posed by shaky markets.
After a series of emergency actions aimed at bolstering individual financial firms weighed down by a rising tide of U.S. home loan defaults, U.S. authorities say they must now try to save the system as a whole.
Many lawmakers have said they want to move quickly, but they also are insisting on changes to the proposal that the Treasury Department sent to Capitol Hill over the weekend.
Democrats want more taxpayer protections, help for home owners facing foreclosure, limits on compensation for executives of firms offloading bad assets and greater oversight of the program, which would give the Treasury secretary nearly unfettered powers.
Paulson, who was the chairman and CEO of Goldman Sachs before becoming Treasury secretary, indicated he was open to calls for outside oversight.
“We need to have transparency here. We clearly need protections. There has to be oversight and we’re going to work with you on that,” Paulson said, but added: “We can’t get slowed down to the point we can’t do the job.”
However, he rejected the idea of the government claiming equity stakes as a condition for companies being able to submit their bad assets to the government as a means of protecting taxpayers from the program’s high cost.
“If we have companies grant equity stakes, grant options, that would render this ineffective” because it would discourage companies from participating, he said.
Both Paulson and Bernanke stressed that the final cost of the program was likely to be much lower than its initial $700 billion price tag, since the government would be able to hold the assets until markets recovered.
Shelby said the plan “only codifies Treasury’s ad hoc approach” to long-festering issues that have beset financial markets. He said he feared it would waste taxpayers’ money.
But Paulson said the economy was under threat.
“We saw market turmoil reach a new level last week, and spill over into the rest of the economy,” he said. “We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil.”
Additional reporting by Mark Felsenthal, Patrick Rucker, David Lawder and Tom Ferraro; Editing by Jan Paschal