US Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke today urged Congress to act swiftly to put in place a $700 billion financial system bailout, warning delay would put the economy at risk.
Testifying before the Senate Banking Committee, they said financial markets were in serious stress and needed to be stabilised quickly by cleansing them of illiquid assets.
Mr Paulson wants Congress to approve a massive war chest, funded by taxpayers, to buy distressed debt from financial institutions to try to keep credit markets from choking up.
While Congress has vowed to move without delay, some members are insisting on changes. These include more protections for taxpayers and limits on compensation for executives of firms that would be offloading their bad assets onto the government.
"Action by Congress is urgently required to stabilise the situation and avert what could otherwise be very serious consequences for our financial markets and our economy," Mr Bernanke said.
A rising tide of US home foreclosures and loan defaults has spawned the greatest financial crisis since the Great Depression and, after a series of emergency actions to bolster individual financial firms, US authorities say they must now try to save the system as a whole.
While congressional leaders have made clear they intend to move quickly, the Treasury's proposed plan drew some stiff criticism from some in Congress.
Senator Richard Shelby of Alabama, the top Republican on the committee, said the plan "only codifies Treasury's ad hoc approach" to long-festering issues that have beset financial markets and said he feared it would waste taxpayers' money.
Committee chairman Christopher Dodd of Connecticut called the Treasury proposal "stunning and unprecedented in its scope and lack of detail." Like many of his fellow Democrats, Mr Dodd said it needed work, like more protections for taxpayers.
In a highly charged atmosphere at the hearing, there were occasional catcalls and clapping from spectators that led Mr Dodd to warn the room would be cleared if it did not stop.
Mr Bernanke said financial market stress was worsening and said that heightened the urgency of a bailout plan. "If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse," he said. "At this juncture, in light of the fast-moving developments, it is essential to deal with the crisis at hand."
Mr Paulson said the broader economy was under threat and said it was essential to move decisively beyond the case-by-case approach followed in the government takeover of mortgage finance companies Fannie Mae and Freddie Mac and the bailout of insurer AIG.
"We saw market turmoil reach a new level last week, and spill over into the rest of the economy," Mr Paulson said. "We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil."
President George W. Bush tried to lend a hand to a hard-pressed Mr Paulson and Mr Bernanke, saying he understood senator had questions but that speed was needed. "There are good ideas that need to be listened to in order to get a good bill out that will address the situation," Mr Bush said in a relatively rare nod to Democratic concerns.
White House spokesman Tony Fratto, asked what would happen if the bailout plan cannot be put in place this week, replied: "You should think of that as unthinkable."
Mr Paulson said there was "bipartisan consensus" for a quick legislative solution to the crisis and he urged Congress to "avoid slowing it down with other provisions that are unrelated or don't have broad support."
Last night, US stocks fell sharply over concern a plan might stall as Democrats sought changes.
In addition to curbing executive pay and adding more safeguards for taxpayers, Democrats also want to add assistance for mortgage-holders facing foreclosure.
Senate Democrats, seeking to limit potential losses for taxpayers, have proposed that the government take equity stakes in firms selling bad debts to the US Treasury, but the Treasury opposes that step.
Reuters