By Jennifer Yousfi
U.S. Treasury Secretary Henry Paulson and U.S. Federal Reserve Chairman Ben S. Bernanke both testified before Congress today (Tuesday) to urge lawmakers to quickly approve the proposed $700 billion government banking bailout plan.
The two financial pointmen of the bailout plan testified in favor of the proposed legislation before the Senate Banking Committee. Paulson's $700 billion bailout plan, unveiled over the weekend, has been criticized for the sweeping new powers it affords the Treasury department with little congressional or judiciary oversight.
Speaking of his plan to stabilize the financial markets, Paulson said, "that threaten American families' financial well-being, the viability of businesses both small and large, and the very health of our economy."
Paulson went on to say that while the roots of the current financial crisis go back many years, the government must act now to save not only Wall Street, but Main Street as well. If left unchecked, the current financial crisis "would threaten all parts of our economy," the Treasury Secretary said.
Alluding to the tumultuous events of last week that included the collapse of investment bank Lehman Brothers Holdings Inc. (OTC: LEHMQ) and the government bailout of global insurance firm American International Group Inc. (AIG), Paulson called for federal intervention.
"More is needed. We saw market turmoil reach a new level last week, and spill over into the rest of the economy," said Paulson. "We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil."
Democrats have called for changes to the plan to include an independent financial oversight committee, a cap on executive pay for companies affected and more help for troubled homeowners. But both Bernanke and Paulson remain staunchly in favor of the plan as it now stands and contend that such changes will only slow down the passage of the bill.
In his testimony, the Fed chair acknowledged that the $700 billion government bailout is the option of last resort, but ultimately necessary due to the current financial turmoil.
"Government assistance should be given with the greatest of reluctance and only when the stability of the financial system, and, consequently, the health of the broader economy, is at risk," Bernanke said in his prepared remarks.
Bernanke outlined the various measures the Federal Reserve has taken to boost liquidity in the markets and encourage banks to return to lending.
"Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress," Bernanke said. "Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy. In this regard, the Federal Reserve supports the Treasury's proposal to buy illiquid assets from financial institutions."
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