The Bush administration's proposed $700 billion plan to bailout US financial companies faced harsh questioning as the Treasury secretary Henry Paulson and the Federal Reserve chairman Ben Bernanke were grilled by the Senate banking committee for five hours. The FBI has launched a fraud investigation into four of the biggest firms that were involved in the Wall Street collapse. Fears of an extended economic downturn have boosted the Democratic presidential candidate Barack Obama's popularity by 52 per cent to Republican candidate John McCain's 43 per cent, according to a new poll.
Bush economic bailout plan faces harsh questions
The Bush administration's proposed $700 billion plan to bailout US financial companies faced harsh questioning on Tuesday as the Treasury secretary Henry Paulson and the Federal Reserve chairman Ben Bernanke were grilled by the Senate Banking Committee for five hours. Several senators have objected to the flimsiness of the plan, and to the fact that so much power would be put into the hands of Mr Paulson, reported the New York Times. "The lawmakers objected strenuously to the broad authority Mr Paulson was requesting, the lack of additional steps to help homeowners avoid foreclosure and the absence of any demands for ownership stakes in the banks that would be helped," wrote the Times. "To help win some votes, Mr Paulson agreed to speak to House Republicans on Wednesday morning, after which he and Mr Bernanke must give a repeat performance before the House Financial Services Committee, an audience that could prove even more hostile than the Senate banking panel. "....lawmakers were waiting to see a final version of the plan. Democrats were pushing hardest for provisions that would require the Treasury to obtain warrants that would convert into equity in the companies helped and limits on the salaries of executives whose firms participate in the bailout. "Reflecting their frustration, and perhaps the narrowness of their options, the lawmakers peppered Mr Paulson and Mr Bernanke with questions ranging from whether the rescue would work to whether it would end up bailing out Wall Street on the backs of taxpayers. "'I get some sense that we're flying by the seat of our pants,' said Senator Robert Menendez, Democrat of New Jersey. 'You want to come in strong and have the cavalry be there, but you're not quite sure what the cavalry does once it arrives. And that's part of my concern.' "Senator Charles E. Schumer, Democrat of New York, proposed limiting financing to $150bn, and budgeting more in three months, after its progress could be assessed." A few senators proposed that the government should be given stakes in various financial companies that it agrees to help as a way to protect the interests of taxpayers. "Several senators said they thought the best way to protect taxpayers was by requiring the Treasury Department to take warrants, which are instruments that are convertible into shares, as it did in its rescue of Fannie Mae, Freddie Mac and the American International Group," reported the Times. "But Mr Paulson said that could limit participation in the program, especially if companies decided to hold onto their troubled assets rather than cede some control to the Treasury Department. If that happened, Mr Paulson said, the programme would not do enough to get the market moving again. "But he and Mr Bernanke did not do much to clear up confusion about how the bailout plan would work in practice. Mr Bernanke, an economist, gave a tutorial on valuation of assets, distinguishing between those sold at fire-sale prices ? what a portfolio would sell for if the cash were needed immediately ? and those at hold-to-maturity prices, or what the same portfolio would fetch on the assumption that the underlying debt would be repaid. "To unclog the market, he said, the government would have to determine the hold-to-maturity price for assets with no other buyers. "Just as you sell a painting at Sotheby's, until you sell it, nobody knows what it is worth," Mr Bernanke said. "He described a system of reverse auctions, in which the Treasury would name a price it was willing to pay, and the banks would decide whether to sell. Mr Paulson said the government would also use other methods, depending on the assets involved, and was open to experimentation. Both officials pleaded with Congress not to tie the government's hands by writing any particular sales method into the bailout legislation." The Washington Post reported on alternative solutions to the $700 bn bailout plan, quoting leading economists who said that there were a host of alternatives that could reduce the liability of taxpayers and address the crisis more rapidly. "One approach seeks to reduce taxpayers' liability by offering collateral-backed loans to troubled banks, leaving them to work out their own solutions. Another idea is to have the government set up a profit-driven investment fund with the aim of infusing the financial system with cash without taking on bad debt. Still others suggest radically different tactics of directly helping homeowners by reducing mortgage principal or bolstering banks by suspending capital gains taxes," said the Post. Meanwhile, the New York Times says the Federal Bureau of Investigation has opened fraud investigations of four of the largest corporations at the center of the financial turmoil, namely Fannie Mae and Freddie Mac, Lehman Brothers and the American International Group. "A government official, speaking on condition of anonymity because he was not authorized to discuss the issue publicly, said it was 'logical to assume' that those four companies would come under investigation because of the many questions surrounding their recent collapse," reported the Times. "FBI officials said Tuesday that the total number of corporate fraud investigations at the bureau was 26, an increase from the 24 open cases cited just a week ago by Robert S. Mueller III, director of the FBI. That number stood at 21 as recently as July, but the bureau has not named most of the targets. "Mr Mueller told members of the Senate Judiciary Committee that the major corporate investigations are aimed at companies that 'may have engaged in misstatements in the course of what transpired during this financial crisis.' "He added that 'the FBI will pursue these cases as far up the corporate chain as is necessary to ensure that those responsible receive the justice they deserve.'"
A new Washington Post-ABC News national poll finds that Democratic presidential candidate Barack Obama leading Republican candidate John McCain by 52 per cent to 43 per cent because of the recent turmoil in the financial sector and uncertainty about the future of the US economy. "Just nine per cent of those surveyed rated the economy as good or excellent, the first time that number has been in single digits since the days just before the 1992 election. Just 14 per cent said the country is heading in the right direction, equalling the record low on that question in polls dating back to 1973," reported the Post. "More voters trust Obama to deal with the economy, and he currently has a big edge as the candidate who is more in tune with the economic problems Americans now face. He also has a double-digit advantage on handling the current problems on Wall Street, and as a result, there has been a rise in his overall support. The poll found that, among likely voters, Obama now leads McCain by 52 per cent to 43 per cent. Two weeks ago, in the days immediately following the Republican National Convention, the race was essentially even, with McCain at 49 per cent and Obama at 47 per cent." But Obama better get on the same page as his vice presidential candidate Sen Joe Biden, who according to the New York Daily News has been told to shut up after publicly contradicting Obama on the AIG bailout. "Barack Obama slapped his loose-lipped running mate on Tuesday, chastising Joe Biden for speaking too fast and contradicting him on one of the massive financial bailouts," said the Daily News. "Biden, a Delaware senator, declared last week the federal government should not have floated the American International Group an $85bn lifeline. "Obama said the feds had no choice and hit John McCain for opposing the AIG rescue one day, then backing it the next. "Tuesday, Obama had to deal with fallout from Biden doing a similar dipsy-doodle, first denouncing then agreeing with McCain. "'I think that, in that situation, I think Joe should have waited as well,' Obama said on NBC's Today show." Meanwhile, the two presidential candidates are undergoing intensive preparations for their first televised debate on Friday, which analysts predict will be one of the most watched debates in US history. "Obama has abandoned all but a handful of campaign events to devote almost four days to training for the clash, setting up a debates camp in Tampa, Florida. His performances on a mock-up of the debate stage are being videoed and scrutinised for his answers and facial expressions. McCain is fitting rehearsals in between an almost full campaign programme," reported The Guardian. "The Obama-McCain clash, which is expected to attract the biggest-ever US television audience for a political debate, is to be held at the symbolically resonant University of Mississippi, once a bastion of racism and scene of violent clashes during the civil rights campaign of the 1960s. "Neil Newhouse, a Republican pollster, said: 'I do not think any debate has ever been more important ... There is a huge amount at stake in this.' "Stan Greenberg, a pollster for the Democrats, said presidential debates had a big impact, with the potential for all the campaign work and poll leads of the preceding months to be 'wiped out in seconds'."