23 September 2008 16:54 [Source: ICIS news]
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Treasury Secretary Henry Paulson urged Congress to quickly pass the massive financial rescue measure that his department drafted over the weekend, saying prompt implementation of the plan is necessary “to avoid a continuing series of financial institution failures and frozen credit markets”.
“The market turmoil we are experiencing today poses a great risk to US taxpayers,” Paulson said.
The threat of a systemic financial collapse threatens “Americans’ personal savings, and the ability of consumers and businesses to finance spending, investment and job creation”, he said.
In testimony before the Senate Banking Committee on Tuesday, Paulson was joined by Federal Reserve Board Chairman Ben Bernanke, who echoed Paulson’s call for urgent action to avoid a major economic calamity.
“Action by the Congress is urgently required to stabilise the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy,” Bernanke said.
“Stresses in financial markets have been high and have recently intensified significantly,” Bernanke said. “If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse.”
Like Paulson, Bernanke said that while broader measures are needed to correct shortcomings in US financial policies and controls that helped create the subprime mortgage collapse, that legislative work should be put off to a later day in favour of prompt action to approve the $700bn bailout package.
“At this juncture, in light of the fast-moving developments in financial markets, it is essential to deal with the crisis at hand,” Bernanke said.
The bailout package proposed by Paulson would allow the Treasury Department to buy nonperforming mortgage loans and related mortgage-based securities from banks, freeing them from the burden and uncertainty created by those bad debts.
“Purchasing impaired assets will create liquidity and promote price discovery in the markets for these assets, while reducing investor uncertainty about the current value and prospects of financial institutions,” Bernanke said.
“More generally, removing these assets from institutions’ balance sheets will help to restore confidence in our financial markets and enable banks and other institutions to raise capital and to expand credit to support economic growth,” he added.
However, Paulson and Bernanke faced sharp questioning from Banking Committee members, many of whom want greater accountability, income limits for private sector executives at rescued banks and some sort of relief for homeowners facing foreclosure.
The Bush administration wants Congress to approve the bailout plan before it adjourns at the end of this week in advance of the
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