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Massive Financial Rescue Faces Skepticism in Congress

Fed chief Ben Bernanke and Treasury head Henry Paulson answered questions from skeptical members of Congress Tuesday as they pushed their $700 billion bailout plan. Analysts discuss the details of the proposal.

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  • JEFFREY BROWN:

    Indeed, the size of the plan and the high stakes involved have caused that debate to spread well beyond Capitol Hill, and we sample some of it now.

    Eugene Ludwig previously served as the comptroller of the currency, the chief national bank regulator. He's now CEO of the consulting firm Promontory Financial Group.

    Allan Meltzer is a professor of political economy and public policy at Carnegie Mellon University and a visiting scholar at the American Enterprise Institute.

    And Paul Krugman is professor of economics and international affairs at Princeton's Woodrow Wilson School and a columnist for the New York Times.

    Well, Eugene Ludwig, do we need a government intervention? And is this one shaping up as the right approach?

  • EUGENE LUDWIG, CEO, Promontory Financial Group:

    Yes, we definitely need government intervention. This is a very serious time for America's economy and financial system, and we must move swiftly.

    The Congress has raised legitimate issues, in terms of sharing, in terms of governance, but I'm confident the American people and the political process can pull together, which we must do now over the next several days, to come up with a good piece of legislation to end this crisis.

  • JEFFREY BROWN:

    Allan Meltzer, same question.  Is this a good idea?

  • ALLAN MELTZER, Carnegie Mellon University:

    It's a terrible idea. It's undemocratic. It's bad economic policy, and it's bad social policy. And it has a very little chance of solving the problem in a meaningful way.

  • JEFFREY BROWN:

    Well, flesh that out a bit. Is it that we are not in a crisis? Or is it that government intervention of this kind is not the right answer?

  • ALLAN MELTZER:

    Well, I've listened to governments tell me for 40 years that there was a crisis and the world was going to fall apart if we didn't do this or that. But there have been a few cases where they weren't able to do that.

    One was the commercial paper crisis in 1970. There have been several others. The world did not fall apart. Last week, we had Lehman Brothers went into bankruptcy. Within three days, most of the assets were sold.

    We had AIG turn down three offers to buy the company because they thought they would get a better deal from the government. It turned out they didn't get the better deal from the government. Now the stockholders suddenly woke up and said — the major stockholders said, "We'd like to buy the company."

    Well, that's what I think we need to do. We need to get the government's hand out of this, and let's see whether we can't get a market solution.

    The market people caused this problem. They ought to be the ones that pay the cost of having it cleaned up.