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Federal Reserve Chairman Ben Bernanke bluntly warned Congress today (Sept. 23) it risks a recession, with higher unemployment and increased home foreclosures, if lawmakers fail to pass the Bush administration’s $700 billion plan to bail out the financial industry.
Bernanke told the Senate Banking Committee that inaction could leave ordinary businesses unable to borrow the money they need to expand and hire additional employees, while consumers could find themselves unable to finance big-ticket purchases such as cars and homes, according to the Associated Press.
Bernanke’s remarks came in response to a question from Sen. Chris Dodd, D-Conn., the committee’s chairman, who seemed eager to hear a strong rationale for lawmakers to act swiftly on the administration’s unprecedented request.
“The financial markets are in quite fragile condition and I think absent a plan they will get worse,” Bernanke said.
Ominously, he added, “I believe if the credit markets are not functioning, that jobs will be lost, that our credit rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover in a normal, healthy way.”
GDP is a measure of growth, and a decline correlates with a recession.
Bernanke outlined his grim scenario as committee members sat in silence, and as the Bush administration pressed lawmakers publicly and privately to act speedily.
Vice President Dick Cheney and Jim Nussle, the Bush administration’s budget director, met privately with restive House Republicans, some of whom emerged from the session unpersuaded.
“Just because God created the world in seven days doesn’t mean we have to pass this bill in seven days,” said Rep. Joe Barton, R-Texas.
Added Rep. Darrell Issa, R-Calif., “I am emphatically against it.”
Dodd and other key Democrats have been in private negotiations with the administration since the weekend on legislation designed to allow the government to buy bad debts held by banks and other financial institutions.
Despite expressions of unhappiness in both parties, the prospects for legislation seemed strong, with lawmakers eager to adjourn this week or next for the elections.
Differences remained, though, including a demand from many Democrats and some Republicans to strip executives at failing financial firms of lucrative “golden parachutes” on their way out the door.
The administration balked at another key Democratic demand: allowing judges to rewrite bankrupt homeowners’ mortgages so they could avoid foreclosure.
Despite the unresolved issues, President Bush predicted the Democratic-controlled Congress would soon pass a “a robust plan to deal with serious problems.” He was speaking to the United Nations General assembly.