WASHINGTON — In its first formal presentation to Congress, the Bush administration's $700-billion plan to rescue the financial system was strafed from left, right and center Tuesday, with critics demanding to know why overburdened taxpayers should bail out the Wall Street firms that created the crisis.
But the storm of indignation left unanswered the question of whether Congress would dare to kill or seriously delay the only plan on the table -- and, if it did, would an economic debacle ensue?
The administration and congressional leaders are struggling to craft a bailout for the moribund financial system that is politically acceptable as well as capable of succeeding -- a plan, in other words, that takes into account both public outrage and economic reality.
Despite the torrent of criticism, much of it from Republicans, Treasury Secretary Henry M. Paulson and Federal Reserve Chairman Ben S. Bernanke steadfastly defended their proposal, contending that voters would ultimately accept it because nothing less would work.
"I share the outrage that people have. I think this is embarrassing and . . . there is a lot of blame to go around," Paulson told the Senate Banking Committee. "But what we're focused on right now and what I think your constituents want to hear is, 'Let's fix the problem in the way that is the least damaging to them.' "
Bernanke, rejecting assertions that the plan was tilted to benefit Wall Street, said, "My interest is solely for the strength and the recovery of the U.S. economy. I believe if the credit markets are not functioning that jobs will be lost, the unemployment 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, no matter what other policies are taken."
The financial system is so traumatized, Paulson and Bernanke warned, that it was no longer able to perform its most basic function: bringing together buyers and sellers. Only massive intervention in the form of a government program to buy up billions of dollars in loss-ridden mortgage-backed securities can end the paralysis, they said.
Paulson described the plan as akin to a line of credit that the Treasury Department could use to invest in mortgage-related debt. The entire $700 billion would not necessarily be used, he said, and over time the assets would gain value.
