New York (HedgeCo.Net) – Federal Reserve Chairman Ben Bernanke joined Treasury Secretary Henry Paulson yesterday in an attempt to sway lawmakers to pass a $700 billion rescue plan that would purchase illiquid mortgage-backed assets in an attempt to restore the U.S. financial system. Reaffirming that his interest lies solely in the recovery of the U.S. economy and not in Wall Street, Bernanke proceeded to outline a plan that would attack the root cause of our current credit crisis while bring stability back to the markets.
“I believe if the credit markets are not functioning, that jobs will be lost, the unemployment rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover,” Bernanke pleaded to the Senate Banking Committee. “My interest is solely for the strength and recovery of the U.S. economy.”
Bernanke explained that the Treasury should buy the illiquid assets at their hold-to-maturity date, instead of at their discounted rates.
“I believe that under the Treasury program, auctions and other mechanisms could be designed that will give the market good information on what the hold-to-maturity price is for a large class of mortgage-related assets,” he explained. The reverse auction system would entail firms bidding to the Treasury to sell their assets. By removing these assets from our system, Bernanke believes that we can get to the root of the current financial crisis.
Reaffirming that taxpayers will get “good value,” Bernanke is hoping that the bipartisan rescue plan will be approved swiftly and not be slowed down with “other provisions that are unrelated or don’t have broad support." However, the Treasury’s plan has met resistance from both parties, who feel that taxpayers are going to bear the burden while there are no repercussions for Wall Street execs.
Republican Senator Richard Shelby of Alaska scoffed at the plan, saying that it “codifies the Treasury’s ad-hoc approach.” Democratic Representative Barney Frank of Massachusetts agreed, saying that “CEO’s put their ability to get unrestricted excessive compensation, including rewards for failure, over and above trying to cooperate in helping the economy.”
Christopher Dodd, who heads the Senate Banking Committee, opened the hearing by saying that “we must address the root cause by putting an end to the rising number of foreclosures sweeping across our nation,” while also expressing concerns about the taxpayers well-being.
As Paulson and Bernanke were making their case, Dick Cheney and other top White House advisors were sent to lobby House Republicans amidst growing discontent.
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