Tuesday September 23, 06:32 PM
US in dire peril if Congress dithers on debt rescue, Paulson warns
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NEW YORK (AFP) - Top US finance chiefs pressed Congress Tuesday to back a sweeping rescue package for troubled banks, warning of damaging consequences if it failed to act quickly, but markets were again assailed by doubt and stock prices under pressure.
President George W. Bush assured world leaders at the UN General Assembly that US lawmakers would move rapidly to approve a 700-billion-dollar scheme for the government to absorb shaky mortgage-backed debt weighing on banks.
Bush, in his farewell UN address, said that after talking to both sides in Congress that "there is the desire to get something done quickly."
Treasury Secretary Henry Paulson meanwhile warned the Senate banking committee that the US economy would be at risk if Congress delayed approving the rescue, a message also delivered by Federal Reserve Chairman Ben Bernanke.
The dollar rallied and gold rose during the day but stocks fell in Asia and Europe although they made modest gains in opening deals on Wall Street.
Paulson, the architect of the enormous scheme to transfer bad debt from the banks to the government, said the economy was being hit by a subprime home loan "chain reaction" and that if Congress did not move fast, the consequences "would threaten all parts of our economy."
"We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil.
"And that root cause is the housing correction which has resulted in illiquid mortgage-related assets that are choking off the flow of credit which is so vitally important to our economy."
Bernanke said global markets "remain under extraordinary stress" despite action by many agencies and that Congressional action was "urgently required."
But Democratic Congressional leaders insisted that the bailout include sweeping safeguards, even as they acknowledged the urgency of the deal.
"I'm prepared to act quickly but I'm not going to act irresponsibly. If it takes longer, so be it," said Senator Chris Dodd, Democratic chair of the Senate banking committee.
"I won't give a check for 700 billion dollars for 41 days to this secretary or any secretary without safeguards built in, accountability, transparency, oversight. That's just not going to happen," Dodd told CNN, apparently referring to the number of days left before US presidential elections on November (Frankfurt: A0S9N7 - news) 4.
Democrats are seeking greater oversight of the Treasury Department and the financial services markets, together with limits on executive compensation, among other safeguards on the bailout.
"Right now, it appears that the odds for creation of the legislation before the end of the week when Congress adjourns are high but the process will be a nail-biter," said Fred Dickson, analyst at DA Davidson & Co.
"We don't see big downside risk to the stock market unless Congress adjourns without passing the rescue plan legislation. On the flip side, passage of the rescue legislation doesn't solve the problem of a slowing economy or more home foreclosures."
Dealers said there were concerns that financing the bailout might be unexpectedly difficult, putting pressure on the dollar, and the Fed might even have to consider a rate rise to support the currency.
Amid these signals of gathering unease, the dollar rallied after a sharp fall Monday. In London the euro was at 1.4704 dollars, down from 1.4796 dollars in New York Monday.
London shares fell 2.11 percent in late-afternoon trade, Paris shed 1.55 percent and Frankfurt was down 0.37 percent.
As the wait for Congressional approval sapped confidence on financial markets, the OECD group of 30 leading countries said Paulson's "systemic rescue plan" would "end the deleveraging of financial institutions, which was occurring at alarming speed" and would "stabilise the US and world economies". OECD Secretary General Angel Gurria welcomed the debt plan the day after Group of Seven leading finance ministers and central bankers had said they would back it with measures if needed.
On the markets, investors were growing impatient and deeply unsure of what impact the plan would have on the crisis now widely compared to the slide towards the 1930s Great Depression.
Merrill Lynch Chief North American Economist David Rosenberg said the US rescue package would provide only limited relief for markets.
"We do not think it seriously changes the endgame -- the US economy is in recession and likely to remain so," he said.
"At best (it) merely removes what was looking like the worst case scenario: the entire collapse of the global financial system and a deep global depression."
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