Fed chief urges quick action to avert 'serious consequences'

WASHINGTON -- Congress must act now to stabilize financial markets and ward off a steeper financial downturn, key federal officials told lawmakers Tuesday as the Bush administration pressed for passage of its financial bailout plan.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson and Securities are testifying Tuesday on Capitol Hill. They are facing lawmakers who are openly skeptical of Treasury's plan to have the government buy up to $700 billion in distressed mortgage-backed bonds and other assets from financial firms.

The plan is designed to create liquidity in markets and help stabilize prices, while reducing investor uncertainty. The White House wants congressional approval within days, but skepticism from lawmakers was clear Tuesday.

"At this juncture, in light of the fast-moving developments in financial markets, it is essential to deal with the crisis at hand," Bernanke told a Senate Banking Committee panel. "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."

But before he could speak, Sen. Richard Shelby of Alabama, the panel's senior Republican, spoke bluntly. "I have long opposed government bailouts for individuals and corporate America alike," he said, seated a few feet away from Paulson and Bernanke.

"We have been given no credible assurances that this plan will work. We could very well spend $700 billion, or a trillion, and not resolve the crisis," he said.

Sen. Jim Bunning, R-Ky., added, "This massive bailout is not a solution. It is financial socialism and it's un-American."

There were skeptics in the House as well. "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.

Bernanke said the U.S. economy faces "substantial challenges," including the weak labor market and elevated inflation, in addition to financial market turmoil. "If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse," Bernanke said.