OREM Under typical circumstances, the market governs itself better than the government can. But Congress wasn't facing typical circumstances when it approved a $700 billion bailout for failing financial firms.
That's what Sen. Bob Bennett, R-Utah, told nearly 100 Utah Valley University students who gathered Wednesday to hear him speak about the state of the U.S. economy. During discussions on the financial bailout plan, Bennett worked as a negotiator between the House and Senate.
Had Congress not approved the bailout at the beginning of October, banks would not be able to make loans, small-business owners wouldn't be able to access money, college students wouldn't be able to secure aid for their education and the economy would have come to a screeching halt, Bennett said.
"The damage to the U.S. economy would have been substantially more" if the bailout was not approved, he said. The current recession would deepen "and maybe turn into a replay of the Great Depression.
"Nobody wanted to run the risk of having something like that happen again," Bennett said.
The bailout plan gives the Treasury Department $700 billion to purchase bad mortgage-related securities that are weighing down the balance sheets of institutions that hold them, he said. The flow of credit in the U.S. economy has slowed, in some cases drying up, threatening the ability of businesses to conduct routine operations or to expand and adversely affecting consumers seeking financing for mortgages, cars and student loans. Some state governments also have experienced difficulty borrowing money.
Bennett said he spoke to one car dealer who lived in a small Utah town. The man told Bennett his business is the largest employer in town, and he could not pay his employees because the bank was unwilling to give him his normal short-term loans to cover such costs amid the current economic turmoil.
Bennett said the crisis was to a point where Federal Reserve Chairman Ben Bernanke told him and other members of Congress, "I have run out of tools," and, "We have four days before the whole system freezes up."
"That gets your attention," Bennett said.8 comments on this story
In the short term, Bennett said, the government hopes the bailout will free up the system so banks can start making loans again. In the long term, experts say the move could return as much as $1 trillion.
Some audience members had questions about the bailout's language. Brian Bucklein, a UVU professor of astronomy, said he was worried about the amount of power the plan appears to give the Treasury Secretary.
But Bennett said Congress has created a board to regulate him.
"We have hedged this one around with enough specifics that I don't feel concerned about that," he said.
Bucklein said Bennett answered many of his questions, but he still has his doubts."When has the U.S. government run a program that made money?" he asked.