Bernanke - global markets under "extraordinary stress"

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WASHINGTON (Reuters) - U.S. Federal Reserve Chairman Ben Bernanke told the U.S. Congress on Tuesday that financial markets are under severe stress and urged immediate action to buy up hundreds of billions of dollars worth of tainted mortgage assets.

"Despite the efforts of the Federal Reserve, the Treasury, and other agencies, global financial markets remain under extraordinary stress," Bernanke said in remarks prepared for delivery to the Senate Banking Committee that were obtained by Reuters.

"Action by Congress is urgently required to stabilize the situation and avert what could otherwise be very serious consequences for our financial markets and our economy," he said.
http://in.reuters.com/article/busine...35612420080923

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WASHINGTON — Federal Reserve Chairman Ben Bernanke warned Congress Tuesday that global financial markets are under "extraordinary stress" and lawmakers must act urgently to stabilize conditions and "avert what otherwise could be very serious consequences for our financial markets and for our economy."

In testimony prepared for the Senate Banking Committee, where he will appear with Treasury Secretary Henry Paulson, Bernanke said Treasury's plan to have the government buy up to $700 billion in distressed mortgage-backed bonds and other assets from financial firms will create liquidity in the markets and help stabilize prices, while reducing investor uncertainty.

"At this juncture, in light of the fast-moving developments in financial markets, it is essential to deal with the crisis at hand," Bernanke told lawmakers.

In his testimony, Bernanke said the U.S. economy faces "substantial challenges," including the weak labor market and elevated inflation, in addition to financial market turmoil. "If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse," Bernanke said..

The Fed chairman acknowledeged "shortcomings and weaknesses" of U.S. financial markets and the government's regulatory system. But he said a broad regulatory overhaul - while important- must wait until after Congress acts on the Bush administration plan.

Bernanke and Paulson have been pushing Congress to vote on a plan by the end of this week. Their testimony Tuesday comes as at a crucial time. Democratic and Republican Congressional leaders have vowed to work to pass a plan that would enable the government to buy up distressed securities. But leaders in Congress face a growing backlash from rank-and-file lawmakers, whose constituents are outraged that the government is about to engineer the most dramatic bailout since the Great Depression.

Those lawmakers say they cannot ask average taxpayers to rescue Wall Street without a series of changes in the Paulson plan - such as limiting executive bonuses and other pay in firms that get government help, enusring that homeowners with bad mortgages get more help, allowing bankruptcy judges to write down mortgages in bankruptcy and adding protections for taxpayers in the plan - such as giving the government an equity position in troubled firms.

Treasury and Democrats have worked to resolve differences in areas such as home ownership assistance and greater oversight, but other issues remain unresolved.

The Fed chairman said the housing market crash has been a key factor in both the economic slowdown and financial market tumroil. "Falling home prices and rising mortgage delinquencies have led to major losses at many financial institutions, losses only partially replaced by the raising of new capital," Bernanke said.

He emphasized that he would prefer private market solutions - saying federal aid should be given with the greatest of reluctance and only when the stability of the financial system, and, consequently, the health of the broader economy, is at risk.

He noted that stressed financial firms have raised capital as they take losses from their impaired assets. But it hasn't been enough.
http://www.usatoday.com/money/econom...-hearing_N.htm