US Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke have urged the US Congress to act swiftly to put in place a $700 billion bail-out of the financial system. They warned that delay would put the US economy at risk.
Testifying before the Senate Banking Committee, they said financial markets were in serious stress and needed to be stabilised quickly.
Paulson wants lawmakers to approve a massive war chest, funded by US taxpayers, to buy distressed debt from financial institutions to try to keep credit markets from choking up.
Lawmakers have vowed to move without delay, but also are insisting on changes. These include more protections for taxpayers and limits on pay packages 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,' 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.
Senator Richard Shelby of Alabama, the top Republican on the committee, said the plan 'only codifies Treasury's ad hoc approach' and said he feared it would waste taxpayers' money.
Committee chairman, Democrat Christopher Dodd, called the Treasury proposal 'stunning and unprecedented in its scope and lack of detail'.
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 bail-out of insurer AIG.
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.
