US lawmakers struggled Wednesday to find a compromise on a proposed financial rescue package, amid deep skepticism from some and fears that a lack of action could trigger a financial market calamity.
The massive proposal for a 700-billion-dollar aid plan faced a second day of fierce debate on Capitol Hill amid objections from some lawmakers on the size and scope of the package, as well as insistence on stronger government oversight and consumer protection.
Appearing before the Joint Economic Committee of Congress, Federal Reserve chairman Ben Bernanke said the economy cannot recover without a "return to more normal functioning" of the financial system to allow credit to flow and some improvement in the housing sector.
"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," he said.
President George W. Bush scheduled a televised speech later Wednesday to push for his embattled rescue plan.
Spokeswoman Dana Perino told reporters that Bush would say that his administration's 700-billion-dollar proposal "is the right decision" in order to stave off "a once in a century crisis" in US financial markets.
Perino said the country faced a "huge moment."
"If we don't take decisive and bold action, we could be facing financial calamity," she told reporters traveling with the president.
At a second day of hearings on Capitol Hill, Treasury Secretary Henry Paulson renewed his plea for approval of the package.
"We must do so in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten American families' financial well-being, the viability of businesses both small and large, and the very health of our economy," he told the House of Representatives Financial Services Committee.
But many US lawmakers were digging in their heels, refusing to provide the Republican administration with a blank check to buy up troubled assets.
Leaders of both parties scrambled to come up with a compromise that would help restore confidence in fragile financial markets, which have been in turmoil since the bankruptcy of Lehman Brothers and an 85-billion-dollar aid package for insurance and financial giant AIG last week.
House Financial Services Committee chairman Barney Frank said he believed it was possible to craft a plan that would pass.
"There are some people who I think are trying to derail it, but there are a lot of people who honestly want to make this work," he said.
House Republican leader John Boehner said, "It's the size of the solution that causes great concern, and (lawmakers are) trying to gauge the risk-to-reward ratio."
"We've got to get this right," Senate Banking Committee chairman Christopher Dodd said after chairing a hearing Tuesday with Bernanke and Treasury Secretary Henry Paulson. "There is no second act."
But some lawmakers argued the plan involves too much government intervention in the economy.
The Republican Study Committee said the Treasury plan "fundamentally alters the nation's free-market system in that it broadly socializes ... money-losing mortgage assets and places the US on a slippery slope whereby profits will also be nationalized."
Democratic Senator Charles Schumer suggested the package be cut to 150 billion dollars and gradually increased if needed.
Senator John McCain, the Republican presidential candidate, said he was suspending his White House campaign to return to Washington to help tackle the financial crisis.
"Now is our chance to come together to prove that Washington is once again capable of leading this country," he said.
Mark Zandi at Economy.com said swift passage of the legislation is needed "to avoid a renewal of the panic that roiled the financial system last week."
"The US is already in recession, and without this legislation and other government steps to quell the financial panic, the downturn could be deep and long," he said.
Robert Eisenbeis at Cumberland Advisors said that Paulson "is using scare tactics to gain essentially a blank check in dealing with the crisis, which would pass on to his as yet unknown successor."
But he said the administration must follow through because "they've created the expectation" for action.
"If they don't do something, then chaos could break out," he said. "They don't have the option of not doing anything."
Copyright 2008  AFP American Edition
