THE United States tottered closer to the edge of a massive credit crisis last night as Ben Bernanke, the chairman of the Federal Reserve, bluntly warned the US Congress that failure to pass the $700 billion (£380bn) bank bail-out would condemn the country to recession, unemployment and rising home repossessions.
He warned of a nationwide credit freeze in which neither businesses nor consumers could borrow money.
The administration is now in a stand-off with Congress as the mammoth rescue plan has left both Democrat and Republican politicians deeply uneasy
about the implications. And financial markets are anxious to see agreement before the House of Representatives adjourns on Friday and the Senate a week later for election campaigns.
House Democratic leader Steny Hoyer said "nobody is happy" about the bail-out request. And his Republican, counterpart, John Boehner, agreed: "Nobody wants to have to do this." He said he was hopeful of a quick agreement, despite withering criticism from conservative members of his party, some of whom likened the plan to socialism.
Wall Street continued to sag yesterday on the back of a 372-point plunge on Monday. Traders are fearful that the crisis on Wall Street is about to spread to retail banks across the US, forcing thousands of businesses to close because of non-availability of credit.
David Dietze, the chief investment officer of a New Jersey-based financial services group, said: "I just don't think the American public is sold. I think they are sceptical of the need and they are fearful of the cost. The scepticism is that this is going to help the Wall Street financiers and do nothing for the little guy, other than saddle them with a big tax bill."
While politicians are deeply uneasy over the speed at which this epochal deal is being pushed through and concern that any money from the Troubled Assets Relief Plan (TARP) is used for yet more bonuses for Wall Street's banking barons, there are deeper problems over how the bail-out will work. How will prices be set for a baffling range of hard-to-shift assets?
Amid such a hectic legislative rush, the veteran Wall Street commentator Ed Yardeni last night quoted the 19th-century German chancellor Otto von Bismarck: "Laws are like sausages. It is better not to see them being made."
Growing apprehension over the prospects of a worldwide recession sent shares plunging again across Asia, Europe and London. By the close the FTSE100 was down a further 100.14 or almost 2 per cent to 5136.12. But the dollar recovered a little, while oil prices fell back.
