Bush warns of ‘long and painful recession’

By Andrew Ward in Washington
Published: September 25 2008 03:43 Last updated: September 25 2008 05:26

George W. Bush said the US was facing a “serious financial crisis” and risked a “long and painful recession” if Congress failed to pass his administration’s proposed $700bn bail-out of Wall Street.
In a televised address on Wednesday evening, the president said he had invited congressional leaders and both presidential candidates to the White House on Thursday in a bid to break the deadlock.
Barack Obama and John McCain, the rival presidential contenders, issued a joint statement urging Democrats and Republicans to work together to prevent “an economic catastrophe”. They said the Bush administration’s proposal was “flawed”, but agreed action was necessary. “This is a time to rise above politics for the good of the country,” they said.
Mr McCain sprung a surprise earlier on Wednesday by vowing to suspend campaigning and return to Washington to help broker an agreement, amid deep unease on Capitol Hill over the rescue package.
Democrats and Republicans alike have so far resisted the administration’s demands for runner-stamp approval of the deal and are pushing for amendments. The Democratic aide to a senior congressional leader told the Financial Times that legislators were inching closer to a compromise, with key House and Senate members scheduled to meet on Thursday morning to put the finishing touches on a bipartisan bill.
Nancy Pelosi, the Democratic House Speaker, said Congress was “committed to passing bipartisan legislation that will stabilise the markets, protect taxpayers, establish tough oversight, and curb excessive CEO compensation. And we will pass it soon”.
Mr Bush signalled willingness to accept changes to his proposal, including the creation of a bipartisan board to oversee implementation of the bail-out and measures to prevent “failed executives” profiting from public funds.
In his most lengthy and detailed remarks since the crisis struck, Mr Bush said the US risked slipping into “financial panic” if Congress failed to act and warned that the consequences would spread from Wall Street to Main Street. “Ultimately, our country could experience a long and painful recession,” he said.
Mr Bush voiced sympathy for those who resent the prospect of taxpayers’ money being used to prop up Wall Street and said his natural instinct was to allow bad investments to be punished. But he argued that circumstances were so serious that aggressive intervention was unavoidable. “Major sectors of America’s financial system are at risk of shutting down,” he said.
The proposals would help consumers and businesses by unfreezing the credit market and send “a signal to markets around the world that America’s financial system is back on track”, he added.
He argued that much, and perhaps all, of the $700bn committed to the bail out could be recouped by the government as the financial system returned to health. “The government is the one institution with the patience and resources to buy these assets at their current low prices and hold them until markets return to normal,” he said. “And when that happens, money will flow back to the Treasury as these assets are sold.”
Despite the recent “corrections” and “instances of abuse”, Mr Bush said “democratic capitalism” remained “the best system ever devised”.
The 15-minute address followed criticism of Mr Bush’s low-key role in his administration’s response to the crisis, having previously made only two, brief statements since the collapse of Lehman Brothers last week.
Hank Paulson, the Treasury secretary, has been the public face of the administration’s bail-out plans and many Democrats and Republicans are uneasy about the unchecked power granted to him by the original proposal. Congress wants tougher oversight and accountability of how public funds will be used.
Many Republicans on Capitol Hill have been waiting for Mr McCain to take a clear position on the rescue package before giving it their blessing – with some keen for him to oppose a deal that conservatives have condemned as “economic socialism”.
But the joint statement by the presidential candidates suggested Mr McCain was likely to support a compromise bill. “Now is a time to come together – Democrats and Republicans – in a spirit of cooperation for the sake of the American people,” they said. “The plan that has been submitted to Congress by the Bush Administration is flawed, but the effort to protect the American economy must not fail.”
Copyright The Financial Times Limited 2008