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Date Posted: 23:27:59 03/18/08 Tue
Author: No name
In reply to: Bobby N. Harmon 's message, "THE BEAR STERNS IN THE BUSHES...CONNECTING THE DOTS TO GEORGE W. BUSH" on 03:16:44 03/18/08 Tue

March 18, 2008

Bush Backs Fed’s Actions, but Critics Quickly Find Fault


WASHINGTON — President Bush on Monday welcomed the Federal Reserve’s sweeping intervention in the nation’s financial markets as his administration faced accusations that it had supported the bailout of a prestigious investment bank while doing little to address the hardships of Americans facing foreclosures on their homes.

Meeting with his economic aides at the White House in the morning in the first of two meetings on the economy, Mr. Bush again sought to project optimism at a time of financial turbulence after the Fed’s brokering of the takeover of Bear Stearns by JPMorgan Chase.

Mr. Bush singled out Treasury Secretary Henry M. Paulson Jr. for praise, saying he had shown “the country and the world that the United States is on top of the situation,” an assertion that was broadly disputed by the president’s critics.

“I want to thank you, Mr. Secretary, for working over the weekend,” Mr. Bush said in brief remarks in the Roosevelt Room.

The president’s remarks and his schedule underscored the growing political concern about the economy on a day that would otherwise have been devoted to traditional St. Patrick’s Day meetings and events.

The issue also spilled into the presidential campaign, drawing reactions from both Democratic contenders and the presumptive Republican candidate, underscoring how much the economy has overshadowed the war in Iraq, even as the fifth anniversary of the start of that war approaches on Wednesday.

Mr. Bush, between an Irish-American lunch on Capitol Hill and a dinner at the White House, met with a group of advisers and regulators that included Ben S. Bernanke, the chairman of the Federal Reserve, who has orchestrated a series of moves intended to rescue the nation’s financial markets from what officials feared could have been a chain reaction of defaults.

Mr. Bush’s handling of the economy has vaulted to the top of the political agenda, where the White House would clearly it rather not be. He stood accused on one hand of violating his own ideological opposition to government intervention and on the other of not doing enough to protect the nation’s economy from the disarray in the markets.

“Now that the president has shown his willingness to bail out Wall Street at taxpayer expense, I hope he will drop his opposition to proposals designed to help ordinary homeowners,” Senator Harry Reid, Democrat of Nevada and the majority leader, said in a statement.

Senator Barack Obama of Illinois declared the economy “in shambles,” but he and his rival for the Democratic presidential nomination, Senator Hillary Rodham Clinton, trod carefully, expressing concern about the broader market and, in Mrs. Clinton’s case, for the employees of Bear Stearns, based in her home state, New York.

“There is no doubt that we are teetering on a potential crisis on Wall Street that could have ramifications all across the country,” Mr. Obama said at a news conference after meeting with voters during a campaign stop in Monaca, Pa., a town near the Ohio border. “We have a credit market that is locked up.”

Mrs. Clinton said that Main Street was as important as Wall Street, but like many Democrats, she did not directly criticize the government’s intervention in the sale of Bear Stearns. In a statement, she noted that she had spoken with Mr. Paulson and the president of the New York Federal Reserve Bank, Timothy F. Geithner. She urged that the administration do more.

“We have blown it,” she said at a news conference in Washington in which she linked the economic turmoil in part to Iraq. “And one of the reasons why we must end the war in Iraq is we cannot afford it. We have got to get control of our economic destiny. There are so many danger signs on the horizon.”

Senator John McCain’s campaign issued a statement expressing confidence in the Federal Reserve and Mr. Bernanke, but pointedly excluding any reference to the president.

“John McCain understands the federal government’s responsibility to ensure the stability of the U.S. financial system and is equally committed to protecting the pocketbooks of hardworking American families,” the campaign said in a statement by Doug Holtz-Eakin, a senior policy adviser.

The Fed’s intervention in the case of Bear Stearns intensified calls for the administration to reverse Mr. Bush’s well-known embrace of laissez-faire economic policies.

Mr. Bush’s aides have argued that he has acted aggressively since August to address a financial crisis that was already on the horizon, pointing to the $168 billion economic stimulus package that he had negotiated with Congress this year.

The Internal Revenue Service announced on Monday that the first of 130 million rebates — typically $600 a person or $1,200 for most married couples — would be sent electronically by the first week of May and later by mail until the end of July.

Mr. Bush’s senior aides have said that they hoped the economy can withstand any further buffeting until the effects of those rebates are felt during the spring and summer of the year. The relative stability of Wall Street on Monday raised those hopes.

But the speed of Bear Stearns’s collapse pointed to the danger that the administration and the Fed could be forced to act again soon.

A senior Treasury official, explaining Mr. Paulson’s role, said the secretary was first alerted to a potential crisis at Bear Stearns Thursday afternoon. Mr. Paulson kept Mr. Bush abreast personally on discussions about the problem, giving him a heads-up Friday morning before the president left for a speech to the Economic Club of New York, that some sort of rescue was imminent, and then speaking to him on Sunday afternoon.

By all accounts the crisis brought Mr. Paulson, Mr. Bernanke and Mr. Geithner into an unusually cooperative working relationship that, the senior official said largely excluded Mr. Bush’s team of economic advisers.

Mr. Paulson has been cautious about predicting the future of the markets and the possible necessity of further action to stabilize them. But since the beginning of the market turmoil last August, he has often mentioned that there would be failures of one or more institutions before things got better. Associates say he has taken a pragmatic approach and an attitude that the administration would do what it had to do to stabilize the broader markets.

Mr. Paulson dismissed questions of whether the administration was bailing out a financial giant while homeowners faced foreclosure, noting that Bear Stearns shareholders received only $2 a share for stocks that not long ago had been worth $170.

‘This was an easy decision,” Mr. Paulson said outside the White House after the president’s second meeting with advisers and regulators. “This is the right outcome. And again, in terms of the moral hazard, look at what happened to the Bear Stearns shareholders.”

Many Democrats have called on the administration to do more to support legislative initiatives already on the agenda.

Senator Christopher J. Dodd, the Connecticut Democrat who is chairman of the Banking Committee, said on Monday in a conference call from Brussels that Mr. Bernanke and Mr. Paulson now might be more willing to back his plan to let the Federal Housing Administration guarantee mortgages if they have been modified by lenders.

In his remarks at the White House, Mr. Bush suggested he would support additional measures. “We obviously will continue to monitor the situation and when need be, will act decisively, in a way that continues to bring order to the financial markets,” he said in the morning meeting.

One prominent Republican, Representative Adam H. Putnam of Florida, chairman of the House Republican Conference, said the administration’s response has been proper, balancing the need to react to economic uncertainty without having the government intervene excessively in the market.

“I think they appropriately hugged that line,” Mr. Putnam said in a telephone interview.

Adam Nagourney and Steven R. Weisman contributed reporting from Washington, and Jeff Zeleny from Monaca, Pa.



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