Bernanke: Recession more likely without bailout

WASHINGTON — Federal Reserve Chairman Ben Bernanke bluntly warned reluctant lawmakers Tuesday they risk a recession with higher unemployment and increased home foreclosures if they fail to pass the Bush administration's $700 billion plan to bail out the financial industry.

Bernanke sketched a scenario in which neither businesses nor consumers could borrow money as President Bush and top lawmakers leaders in both parties voiced hope for agreement within days on a plan to ease the crisis.

"Nobody is happy" about the bailout request, said House Majority Leader Steny Hoyer, D-Md., although he spoke of possible passage of legislation by the weekend.

"Nobody wants to have to do this," agreed Rep. John Boehner of Ohio, the Republican leader. He said he was hopeful of a quick agreement, despite withering criticism from conservative GOP lawmakers, some of whom likened the plan to socialism.

With the stock market headed lower in early afternoon, the stakes were unmistakable. Treasury Secretary Henry Paulson said Congress must pass the legislation this week.

"I understand speed is important, but I'm far more interested in whether or not we get this right," said Sen. Chris Dodd, D-Conn., presiding over a a hearing by the Senate Banking Committee banking panel where Bernanke joined Paulson in appealing for quick legislation.

"There is no second act to this. There is no alternative idea out there with resources available if this does not work," he added.

Bernanke's remarks about the risk of recession came in response to a question from Dodd, who seemed eager to hear a strong rationale for lawmakers to act swiftly on the administration's unprecedented request.

"The financial markets are in quite fragile condition and I think absent a plan they will get worse," Bernanke said.

Ominously, he added, "I believe if the credit markets are not functioning, that jobs will be lost, that our credit rate will rise, more houses will be foreclosed upon, GDP will contract, that the economy will just not be able to recover in a normal, healthy way."

GDP is a measure of growth, and a decline correlates with a recession.

Across the Capitol complex, Vice President Dick Cheney and Jim Nussle, the administration's budget director, met privately with restive House Republicans, some of whom emerged from the session unpersuaded.