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Bush warns economy in danger; candidates will join bailout talks

The country risks 'financial panic' unless his proposed $700- billion rescue plan is approved, Bush says.

September 25, 2008|Peter G. Gosselin, Richard Simon and Maura Reynolds | Times Staff Writers

WASHINGTON — As negotiators raced the clock in search of a compromise, President Bush used a rare prime-time address to the nation Wednesday night to try to convince a skeptical public and rebellious Republicans that the government must put $700 billion of taxpayers' money at risk to bail out the financial system.

Putting his battered prestige on the line, Bush painted a stark picture of the country's financial condition: "We're in the midst of a serious financial crisis. . . . Our entire economy is in danger," he said. "America could slip into a financial panic."

"This rescue effort is not aimed at preserving any individual company or industry. It is aimed at preserving America's overall economy," Bush said. "It will help American consumers and businesses get credit to meet their daily needs and create jobs. And it will help send a signal to markets around the world that America's financial system is back on track."

With financial markets still jittery and credit for day-to-day economic activity apparently freezing up, Bush said he would convene a White House meeting today with leading Democrats and Republicans, including the two parties' presidential nominees, to seek agreement on a plan.

In the wake of Bush's speech, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, who had represented congressional Democrats in negotiations with the administration on the bailout, struck an optimistic note. "We are well on track to get an agreement, he said, adding, "I believe the votes will be there."

Frank explained the political logic of the situation this way: "Whatever you think about whether or not there was a need [for a bailout] . . . once the president, secretary of the Treasury and chairman of the Federal Reserve have announced that if you don't do this, there will be a collapse, there's probably going to be a collapse if you don't do it."

Key Democrats and Republicans from the House and Senate are scheduled to sit down today to draft a final bipartisan version of the plan.

Democrats had been waiting for Bush to speak out more prominently for the bailout plan and to demand that GOP lawmakers support it. They have argued that they should not have to take the political risk of passing the wildly unpopular measure without Republicans joining in, especially since they blame lax oversight by the administration and GOP advocacy of deregulation for causing the crisis.

In addition, a number of Democrats said they would support the measure only with certain changes -- chief among them a provision to keep Wall Street executives from personally profiting from their firms' participation in the bailout, and a way for the government to share in the profits of Wall Street firms that benefit.

Treasury Secretary Henry M. Paulson initially opposed capping executive compensation in participating firms because he said those provisions could reduce the plan's chances of success. But he told the House Financial Services Committee on Wednesday: "The American people are angry about executive compensation and rightfully so. We must find a way to address this in the legislation."

At issue is a plan devised by Paulson to borrow as much as $700 billion to buy up troubled mortgage-backed securities to get them off the books of financial institutions, allowing those firms to resume their normal roles in the economy.

Paulson, Federal Reserve Chairman Ben S. Bernanke and now the president contend that only by taking such an audacious step can the country put a quick end to the 14-month-old financial crisis and save the economy from a serious recession. Moreover, they say, if all goes as planned and the financial system stabilizes, the government would get back all or most of its money, although the $700 billion would be in addition to potentially hundreds of billions that Washington committed earlier in the crisis.

Wholehearted endorsement of massive government intervention represents a startling about-face for a president who has insisted throughout his career that such meddling creates problems instead of fixing them. In his address, Bush acknowledged the turnabout.

"I'm a strong believer in free enterprise, so my natural instinct is to oppose government intervention," he told viewers. "I believe companies that make bad decisions should be allowed to go out of business. . . . But these are not normal times."

Paulson, who underwent a second day of rough treatment defending the plan on Capitol Hill, found himself in the awkward position of finding Democratic leaders more receptive to working out an agreement than members of his own Republican Party.

The secretary indicated that he was ready to give ground on some facets of the plan, so long as it preserved the core principle of federal action to soak up the loss-ridden mortgage-backed securities that threaten to paralyze the financial system and thus damage the whole economy.

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