Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson urged Congress on Tuesday to quickly pass a $700 billion financial bailout, warning that letting problems persist would have dire consequences for the national economy. The nation's top two economic leaders made the assertions in prepared remarks to be given later Tuesday to the Senate Banking Committee. Their latest take on the financial crisis came as the Bush administration and lawmakers scrambled to forge an agreement on a plan that could be the biggest such bailout in US history. “If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse,” Bernanke said in his prepared for the panel. Paulson's written testimony struck a similarly grave note. “We must do so in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten the well-being of American families' financial well-being, the viability of businesses both small and large and the very health of our economy,” Paulson said. The plan would enable the government to buy bad mortgages and other troubled assets held by endangered banks and financial institutions. Getting those debts off their books should bolster their balance sheets, making them more inclined to lend and easing one of the biggest choke points in the credit crisis. If the plan works, it should help lift a major weight off the sputtering economy. The US has taken extraordinary measures in recent weeks to prevent a financial calamity, which would have devastating implications for the broader economy. It has, among other things, taken control of mortgage giants Fannie Mae and Freddie Mac, provided an $85 billion emergency loan to insurance colossus American International Group Inc. and temporarily banned short selling of hundreds of financial stocks. Wall Street has been dramatically reshaped amid all the fallout. The Fed agreed to let Goldman Sachs and Morgan Stanley - the country's last two investment banks - become bank holding companies so that they can take deposits, like commercial banks, in a bid to survive. Merrill Lynch agreed to be bought by Bank of America. Lehman Brothers sought bankruptcy protection, and Bear Stearns was taken over by JPMorgan Chase. Bernanke warned Tuesday that despite unprecedented steps already taken to bail out troubled banks, global financial markets “remain under extraordinary stress”. In remarks prepared for delivery to Congress later Tuesday, Bernanke said action by the legislature was “urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy.” “Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress,” he said.
