Paulson says economy’s future depends on bailout

Treasury Secretary Henry Paulson warned a Senate panel Tuesday morning that the future health of the American economy depends on swift passage of the Bush administration’s $700 billion bailout for Wall Street. 

"I am convinced that this bold approach will cost American families far less than the alternative — a continuing series of financial institution failures and frozen credit markets unable to fund everyday needs and economic expansion," Paulson told the Senate Banking, Housing and Urban Affairs Committee.

{mosads}Panel members received Paulson's plan coolly. Lawmakers raised concerns about the size of the Treasury-proposed package and the paucity of details about it. Nevertheless, most said they recognized that a broad government intervention is necessary.

Paulson said the "case-by-case" actions taken by the Treasury Department to save Fannie Mae and Freddie Mac and the insurance giant American International Group have been insufficient.

Paulson said the most effective action Congress could take to prevent a broadening of the economic crisis would be to buy distressed assets. He noted that those assets have driven two of the nation's pre-eminent investment banks into bankruptcy, forced a third to merge with Bank of America and drove the remaining two, Goldman Sachs and Morgan Stanley, to abandon their status as independent investment houses.

"This troubled asset purchase program on its own is the single most effective thing we can do to help homeowners, the American people and stimulate our economy," said Paulson.

Paulson urged lawmakers to pass the bill quickly and "avoid slowing it down with other provisions that are unrelated or don't have broad support."
Bush administration officials and congressional Republicans have resisted Democratic efforts to limit the compensation of Wall Street executives who participate in the bailout program. The administration and Republican allies also oppose a proposal to give bankruptcy judges the power to readjust mortgages to more affordable rates.

Banking Committee Chairman Chris Dodd (D-Conn.) said Paulson's plan did not do enough to help American families facing foreclosure and has few safeguards against Wall Street executives profiting from the bailout.

"It would do nothing to help even a single family save a home," Dodd said in his opening statement. "It would do nothing to stop even a single CEO from dumping billions of dollars of toxic assets on the backs of taxpayers — and walking away with a bonus and a golden parachute."

Despite Dodd's concerns, he is working with House Financial Services Committee Chairman Barney Frank (D-Mass.) to reach an agreement on a bailout package by the end of the week.

Sen. Richard Shelby (Ala.), the ranking Republican on the Senate Banking panel, who has emerged as a leading critic of the bailout, urged his colleagues to take a slower approach and explore alternative solutions.

"What troubles me the most is that we have been given no credible assurances that this plan will work," said Shelby. "We could very well spend $700 billion and not resolve the crisis.

"Before I sign off on something of this magnitude, I want to know that we have exhausted all reasonable alternatives," said Shelby. "I don't believe that can be done this weekend."