By Lori Montgomery and Paul Kane
Washington Post Staff Writers
Thursday, September 25, 2008
President Bush said yesterday that the credit crisis that has seized world markets could devastate the U.S. economy unless Congress acts quickly to approve a $700 billion bailout plan for the nation's financial system, a message aimed at reluctant lawmakers as much as a deeply skeptical public.
"Our entire economy is in danger," Bush said in an address from the White House, emphasizing that the massive bailout was not targeted at "any individual company or industry. It is aimed at preserving America's overall economy."
Warning that "America could slip into a financial panic," Bush blamed the crisis on "easy credit" in the housing market and "the faulty assumption that home values would continue to rise." As mortgage loans went bad and borrowers defaulted, he said, investors have succumbed to a "widespread loss of confidence" that threatens to shut down consumer lending, decimate the stock market, cause businesses and banks to fail -- and cost millions of Americans their jobs.
"Ultimately, our country could experience a long and painful recession," Bush said. "Fellow citizens, we must not let this happen."
Bush delivered the prime-time speech, his first in over a year, after a clamor on Capitol Hill for him to acknowledge the most serious financial crisis in decades and to personally make the case for the government intervention his administration has proposed.
Five days after unveiling the bailout plan, which seeks to purchase troubled assets from faltering financial institutions, administration officials were still struggling to line up support among lawmakers appalled by its cost, doubtful of its methods and outraged by the speed with which they were being pushed to act. While the usually fractious Senate seemed to be coming together behind a version of the proposal, the administration had big trouble in the House, particularly among mistrustful Republicans who said the White House had failed to make a case for the bailout in terms ordinary people could understand.
"I'm seeking answers to two fundamental questions: Why this? And why now?" Rep. Deborah Pryce (R-Ohio) said before Bush delivered his remarks. "You can't make a move this large without the approval of the American people. And we don't have it, yet."
Despite such skepticism, top members of the House Financial Services and Senate Banking committees are slated to sit down this morning in an effort to draft the final details of a bipartisan bill. Bush also invited congressional leaders as well as presidential candidates John McCain and Barack Obama to meet with him at the White House today.
The president's top economic advisers were lobbying hard yesterday for passage of the bill. In testimony before the House Financial Services Committee, Treasury Secretary Henry M. Paulson Jr. said the White House would drop its resistance to lawmakers' demands for limits on executive compensation at companies that accept taxpayer money. Rep. Barney Frank (D-Mass.), the committee's chairman, called that a "big step forward" and said he would push next year to apply those limits more broadly.
Frank said Democrats in the House and Senate had reached agreement on a bill that would include an oversight board to monitor the bailout program, requirements that taxpayers share in future profits of companies that seek assistance and new powers for bankruptcy judges to modify home mortgages for distressed borrowers. Lawmakers also discussed doling out the money in segments, Frank said, adding, "It's not going to be a straight $700 billion."
Democrats will present that bill this morning to Republican lawmakers in hopes of reaching a final agreement, Frank said. He said the biggest sticking points are likely to be the bankruptcy provision and a proposal by Senate Democrats to dedicate to affordable housing some of the proceeds from the eventual sale of the assets.
Hours before Bush's speech, House Speaker Nancy Pelosi (D-Calif.) and House Minority Leader John A. Boehner (R-Ohio) issued a joint statement saying they were "working in a bipartisan manner" and had "made progress" on a bill. But even as the substance of a deal began to take shape, the politics were in turmoil. McCain declared that he did "not believe that the plan on the table will pass" and announced he was leaving the campaign trail to return to Capitol Hill to lead negotiations, a move panned by Democrats as a political stunt. Meanwhile, with less than six weeks until the November election, Democratic leaders said they would approve the plan only if a majority of Republicans in both chambers endorsed it as well.
House Republicans have emerged as the most difficult bloc of votes, with moderates fearful of the price tag and conservatives opposed to the rejection of free-market principles implicit in the plan. A meeting Tuesday morning with Vice President Cheney only increased their defiance.
"The Paulson proposal has not gotten the traction required to complete this process by the end of the week," said Rep. Adam H. Putnam (R-Fla.), the third-ranking Republican in the House.
Paulson and Federal Reserve Chairman Ben S. Bernanke tried to change that yesterday during appearances before two congressional committees. But the former Wall Street dealmaker and the former economics professor struggled to paint a vivid picture of the harm that would befall the economy if the bailout was not approved.
At one point, Rep. Steven C. LaTourette (R-Ohio) pleaded with them to explain the crisis in terms a factory worker relaxing on his couch could understand.
"In order to accept this plan, he needs to be more scared," LaTourette said. If Congress doesn't act, "I need you to tell this guy on the couch what happens to him. Is he going to be out of a job? Is his credit card going to work? Can he buy a car? Is his daughter going to go to college?"
Paulson replied that the guy on the couch should be scared. "But I think right now he's angrier than he is scared.
"It puts us in a difficult position," Paulson continued, "because no one likes to be painting an overly dire picture and scaring people. But the fact is, the financial markets are not stable, and the situation can be very severe as it relates not just to his current situation, but to keeping his job" and preserving his retirement accounts.
By midday, it became clear that Paulson and Bernanke were not getting the job done; the president would have to deliver the message in person.
In his national address, Bush used the sort of everyday terms that lawmakers had been seeking to describe the potential collapse.
He warned that community "banks could fail," that another stock market plunge would "reduce the value of your retirement account," that farmers would not get credit and that parents would not be able to "send your children to college."
In addition to easy credit, the president blamed mortgage-finance giants Fannie Mae and Freddie Mac for contributing to the crisis by borrowing "enormous sums of money" and fueling the market for questionable investments.
"With the situation becoming more precarious by the day, I faced a choice: to step in with dramatic government action or to stand back and allow the irresponsible actions of some to undermine the financial security of all," Bush said, noting that under usual circumstances his conservative ideology would have allowed markets to work their will.
"These are not normal circumstances," he said.
Staff writers Michael Abramowitz and Neil Irwin contributed to this report.