The FBI has four major US financial institutions in its crosshairs for triggering the potential collapse of Wall Street and the need for a $700 billion federal bailout plan, law-enforcement officials said today.
Citing potential fraud charges, the feds are probing mortgage-finance giants Fannie Mae and Freddie Mac, Lehman Brothers Holdings Inc., and insurer American International Group Inc. – while focusing on the heads of the financial institutions, sources said.
Meanwhile, Congress today gave an icy reception to the government’s top moneymen as they warned of recession, layoffs and lost homes if the Bush administration’s emergency bailout plan isn’t immediately approved.
“Nobody is happy,” said House Majority Leader Steny Hoyer (D-Md.). Republican Minority Leader John Boehner of Ohio, said, “Nobody wants to do this.”
Even as the Republican minority expressed disdain for the bailout plan, Hoyer said some form of the plan could be passed within days, and Boehner was hopeful for a quick resolution of disagreements about the package’s details.
Also today:
* Mayor Bloomberg ordered New York agencies to slash their budgets a total of $1.5 billion over the coming 18 months to deal with fallout from the nation’s financial crisis, which will include decreased income-tax revenues for the Big Apple.
* The stock market edged lower – with the Dow Jones industrial average dropping about 1.5 percent to close at 10,854. Oil and gold prices fell moderately, and the US dollar inched up.
* On the presidential campaign trail, Democratic Barack Obama and Republican John McCain agreed there should be limits on severance packages for corporate CEOs who led troubled firms.
* President Bush, speaking at the United Nations, predicted quick passage of the “robust” bailout plan, which would “deal with serious problems.”
Urgency was the message of the day for administration officials who testified before the Senate Banking Committee about their proposal to spend $700 billion to buy troubled, mortgage-linked securities from financial firms.
Federal Reserve Chairman Ben Bernanke said failure to pass the bailout could lead to a recession with high unemployment and increased home foreclosures.
“The financial markets are in quite fragile condition, and I think absent a plan, they will get worse,” Bernanke told the senators.
“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 [gross domestic product] will contract, that the economy will just not be able to recover in a normal, healthy way.”
Market trouble was just one piece of the economic havoc that Bernanke and Treasury Secretary Henry Paulson told senators would ensue if Congress lags in acting on the proposal to rescue tottering financial institutions.
“I share the outrage that people have,” Paulson said, as senators pressed him to admit that those financial firms are largely to blame for the mess they find themselves in. “It’s embarrassing to look at this. I think it’s embarrassing to the United States of America. “
But without the bailout, Paulson and Bernanke warned senators that they would face a dire scenario – neither businesses nor consumers would be able to borrow money, and the world’s largest economy would grind to a virtual halt.
“You worry about taxpayers being on the hook?” Paulson asked. “Guess what – they’re already on the hook.”
Senate Banking Chairman Chris Dodd (D-Conn.) called Bush’s three-page bailout proposal “stunning and unprecedented in its scope and lack of detail.”
Sen. Jim Bunning (R-Ky.) said, “This massive bailout is not a solution. It is financial socialism, and it’s un-American.”
A top House Republican told ABC News that the bailout won’t pass if the GOP presidential candidate doesn’t support it. “If McCain doesn’t come out for this, it’s over,” the Republican said.
Meanwhile, an LA Times/Bloomberg poll shows 62 percent of Americans blame insufficient government regulation for the crisis, while 32 percent blame Wall Street institutions and 26 percent blame the Bush administration.