US president calls for speedy action over $700bn plan to shore up financial markets.
‘A preventable situation’
Dodd said he was “angry” about being faced with a crisis that was “a preventable, avoidable situation” created by a political climate he described as “basically an eight-year coffee break.”
Paulson had the same powers as his predecessors until a couple of weeks ago: oversight of the government’s taxation and fiscal policies.
But as the financial storm erupted, with some institutions crumbling, sold or bailed out, Paulson’s new job description has changed substantially.
If approved by congress, his rescue plan would give him sole control of a $700bn line of credit, and the power to use it to take on any bad mortgage-related debt he chooses.
Congress, and the two main presidential candidates, John McCain and Barack Obama, have called for greater oversight of such powers.
“You had regulators sitting back as loans were being made with no documentation … predatory lenders taking advantage of the situation – that’s how this all unfolded. It’s not a mystery,” Dodd said.
Dodd has proposed a number of amendments to the package, including a provision to allow the government to take a stake in the companies it bails out, limits on compensation for company bosses and severance packages of rescued firms and additional help for American homeowners facing repossession of their homes.
Al Jazeera’s John Terrett, reporting from New York, said: “Investors are not convinced that the plan is big enough, or that the proposal will be approved in time or will work.”
“Investors fear that the government will have to dramatically ramp up borrowing to pay for the mammoth rescue effort, an inflationary move that could further devalue the dollar and trigger another surge in commodities prices,” he said.
Congress is expected to vote in the next several days on the proposals.
“I understand speed is important,” Dodd said, “but I am far more interested in whether or not we get this right. There is no second act to this.”
Democrats, who control both chambers of congress, said that the White House had agreed to the creation of a board to monitor the bail-out, one of their key demands, but differences remain on levels of compensation for executives of rescued companies, or whether they should receive anything at all.
“We are not sending a blank cheque to Wall Street,” Nancy Pelosi, the House speaker, said after holding bipartisan talks on Monday.
Paulson has argued the bail-out will prove cheaper for taxpayers than leaving companies to suffer the cost of the crisis themselves.
Some critics have expressed concern over the unprecedented power that the plan would give Paulson and the US government in the financial markets, and whether it would find itself saddled with a gigantic debt.
George Bush, the US president, warned congress a day earlier that “failure to act would have broad consequences far beyond Wall Street”.
The Dow Jones industrial average, the Nasdaq composite, and the Standard & Poor’s 500 index all lost a few points with over three hours left in the session.
In early afternoon trading, the Dow fell 16.64, or 0.15 per cent after having risen more than 125 points in the early going.
On Monday, the Dow fell by 373 points as unease over the government rescue plan sent investors scrambling for the safety of hard assets like oil and gold.
The FTSEurofirst 300 index of top European shares ended at 1.5 per cent on Tuesday, extending Monday’s 2.1 per cent slide after a record surge on Friday when news of the plan emerged and several countries instituted short-selling
bans. Germany’s DAX fell 0.8 per cent.
This followed a decline of 2.2 per cent for Asian equities excluding Japan. Japanese financial markets were closed for holiday on Tuesday.