Bush raises spectre of painful recession without rescue plan

September 25th, 2008 - 1:08 pm ICT by IANS  

Barack ObamaWashington, Sep 25 (DPA) A sombre US President George W. Bush painted a frightening picture of soaring job losses, rising home foreclosures and closed businesses unless Congress approves a $700-billion rescue plan for the financial industry.In his 15-minute live broadcast speech Wednesday night, Bush warned that the country faced a “long and painful recession” as he tried to persuade a skeptical Congress that the plan would not reward Wall Street’s high wire walkers and leave taxpayers holding a worthless bag.

“Without immediate action by Congress, America could slip into financial panic,” Bush said. “We cannot let this happen.”

The hastily arranged speech was an answer to mounting pressure from Congress and US taxpayers, who have demanded to hear Bush explain why taxpayers should foot such a huge bill to bail out failures in the financial industry.

But his efforts were nearly overshadowed by a juggernaut of election politics as Bush’s fellow Republican, presidential nominee and Senator John McCain, 72, prepared to suspend his campaign and rush to Washington to help break the logjam in Congress.

McCain also challenged his Democratic rival, Senator Barack Obama, 44, to cancel the first debate of the campaign Friday unless the mammoth rescue plan cleared Congress.

The move was seen as an attempt by the Arizona senator to overcome his perceived disadvantage on economic issues.

Obama, who said he had initiated contact with McCain in the morning to produce a joint statement on the financial crisis and appeared surprised by McCain’s sudden move, said he did not intend to come to Washington and “confuse” Capitol Hill with presidential politics unless asked to do so by his party’s leadership.

He insisted he would go forward with Friday’s debate.

Amid the campaign standoff, Bush interjected an invitation to the two men as well as congressional leaders to meet Thursday at the White House to discuss the crisis.

Bush is pushing Congress to adopt the plan before it recesses Friday to prepare for the Nov 4 elections.

The $700-billion plan, equivalent to about one-quarter of the US federal budget, would require Congress to raise the federal debt ceiling.

The money would buy up soured mortgage assets and related unregulated mortgage-backed securities to unclog blockages in the flow of credit. Millions of homeowners who have lost their houses because of their inability to meet their mortgages, and Democrats were also demanding that added help be given to them.

The emergency plan was rushed late last week to Congress after tumult in the US and global financial markets following the bankruptcy, sale and government takeover of three separate financial giants: investment banks Lehman Brothers Holdings Inc and Merrill Lynch and Co and the insurance firm American International Group (AIG) Inc.

After introducing the plan Sep 19, Bush had made only brief remarks about the need for congressional approval and the coming credit crunch until his speech Wednesday night.

A Los Angeles Times/Bloomberg financial news agency poll put the approval rate of the plan at 31 percent - about the same popularity level as Bush now enjoys.

During hearings on the plan Tuesday and Wednesday, legislators sharply questioned the wisdom of putting so much money and power into the hands of the Treasury Department without oversight. They also demanded limits on compensation for executives in the companies being helped and government share-holding in the firms selling their bad assets to the government.

Mindful of the effect the US crisis has had abroad, Bush said approval of the plan would “help send a signal to markets around the world that America’s financial system is back on track.”

As the subprime mortgage crisis unfolded over the past year, Bush regularly reassured the public that the financial system was solid, even as the Federal Reserve pumped billions of dollars into the system, intervened to help with the sale of Bear Stearns and propped up the quasi-governmental mortgage giants Freddie Mac and Fannie Mae.

Bush conceded Wednesday night that his strong belief in free enterprise made him believe that “companies that make bad decisions should be allowed to go out of business.”

“But these are not normal circumstances,” he said. “The market is not functioning properly. There has been a widespread loss of confidence, and major sectors of America’s financial system are at risk of shutting down.”

He described how the situation became “more precarious every day,” forcing him to choose between “dramatic government action” and standing back and allowing “the irresponsible actions of some to undermine the financial security of all.”

The intervention would represent the largest government intrusion into capital markets since the Great Depression.

Bush blamed the crisis on events starting with the massive inflow of foreign capital over the past decade and the lowering of interest rates. He said mortgage lenders were careless and borrowers took out “larger loans than they could afford.”

He did not address charges by critics that under his eight-year watch, faulty regulation allowed financial firms to package the mortgage debts into complex and unregulated securities, which were given strong credit ratings by private rating companies.

He conceded, however, that many investors “asked few questions” and that the rush to buy such securities by the congressionally chartered Fannie Mae and Freddie Mac fuelled “the market for questionable investments and put our financial system at risk.”

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