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Bernanke, Paulson press Congress

By Jeannine Aversa

Associated Press

WASHINGTON — Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson urged Congress today to quickly pass a $700 billion financial bailout, warning that letting problems persist would have dire consequences for the national economy.

The nation’s top two economic leaders made the assertions in prepared remarks to be given later today to the Senate Banking Committee. Their latest take on the financial crisis came as the Bush administration and lawmakers scramble to forge an agreement on a plan that could be the biggest such bailout in U.S. history.

"If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse," Bernanke said in his statement prepared for the panel.

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Paulson’s written testimony struck a similarly grave note.

"We must do so in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten the well-being of American families’ … the viability of businesses both small and large and the very health of our economy," Paulson said.

The plan would enable the government to buy bad mortgages and other troubled assets held by endangered banks and financial institutions. Getting those debts off their books should bolster their balance sheets, making them more inclined to lend and easing one of the biggest choke points in the credit crisis. If the plan works, it should help lift a major weight off the sputtering economy.

The U.S. has taken extraordinary measures in recent weeks to prevent a financial calamity, which would have devastating implications for the broader economy. It has, among other things, taken control of mortgage giants Fannie Mae and Freddie Mac, provided an $85 billion emergency loan to insurance colossus American International Group Inc. and temporarily banned short selling of hundreds of financial stocks.

Wall Street has been dramatically reshaped amid all the fallout. The Fed agreed to let Goldman Sachs and Morgan Stanley — the country’s last two investment banks — become bank holding companies so that they can take deposits, like a commercial bank, in a bid to survive. Merrill Lynch agreed to be bought by Bank of America. Lehman Brothers sought bankruptcy protection, and Bear Stearns was taken over by JPMorgan Chase.

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