Bernanke, Paulson Defend Implementation Of $700 Bailout Before Congress

Washington, D.C. (AHN) - Testifying before the House Financial Services Committee on Tuesday, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson defended their implementation of the government's $700 billion financial bailout.

In his prepared opening remarks, Bernanke said the ability of the Treasury department to use the bailout, or known as the Troubled Asset Relief Program (TARP), "to inject capital into financial institutions and to take other steps to stabilize the financial system - including any actions that might be needed to prevent the disorderly failure of a systemically important financial institution - will be critical for restoring confidence and promoting the return of credit markets to more normal functioning."

Paulson, testifying less than a week after announcing that he was shifting the focus of the bailout from purchasing bad mortgages to investing in banks, said he "exercised the authority granted by Congress in this legislation to develop and quickly deploy a $250 billion capital injection program."

"There is no playbook for responding to turmoil we have never faced. We adjusted our strategy to reflect the facts of a severe market crisis always keeping focused on Congress's goal and our goal - to stabilize the financial system that is integral to the everyday lives of all Americans," Paulson added. "By mid-October, our actions... helped us to accomplish the first major priority, which was to immediately stabilize the financial system."

Paulson said in a speech last Wednesday, "As credit markets froze in mid-September, the Administration asked Congress for broad tools and flexibility to rescue the financial system. We asked for $700 billion to purchase troubled assets from financial institutions. At the time, we believed that would be the most effective means of getting credit flowing again."

He said that as lawmakers and the administration debated the bailout for two weeks, market conditions worsened and by the time the bill was passed on Oct. 3 "it was clear to him" that buying up toxic mortgages would "take time to implement and would not be sufficient given the severity of the problem." He said he plans to instead buy capital and shore up banks.

Senate Banking Committee Chris Dodd (D-CT) had responded by saying in a statement that while the Treasury took "the appropriate course of action," the delay in solving the nation's foreclosures was a cause for concern. "It is becoming increasingly apparent that a robust and aggressive program to stem the tide of foreclosures sweeping across the nation is critical to any policy to put our economy back on track," Dodd had said.

Paulson's testimony on Tuesday comes a day after he and Bernanke met with House Speaker Nancy Pelosi (D-CA) and other House Democratic leaders about the progress of the bailout. Pelosi issued a statement after the meeting saying, Democrats "made clear" to the two officials that "immediate action" should be taken to stop home foreclosures, and that "further delay in implementing" the bailout is "unacceptable."