(Agencies)
Updated: 2008-09-25 08:01

Scarce credit forced overnight lending rates for companies to 6.50 percent. The US dollar fell against the euro and global stocks seesawed as unease over the rescue plan -- which could cost every man, woman and child in America $2,300 -- kept investors on edge. The Dow industrials and the S&P 500 index both closed lower.

Paulson, himself a former Goldman Sachs boss who built a $700 million fortune on Wall Street, tried to downplay the cost of the rescue.

"(This) is not a spending program," he told lawmakers. "It is an asset purchase program, and the assets which are bought and held will ultimately be resold with the proceeds coming back to the government."

A new report showed existing US home prices fell a record 9.5 percent in August, and up to 40 percent of homes on the market were in foreclosure or being sold at a loss.

Washington Mutual Inc's stock fell almost 30 percent after Standard & Poor's slashed its credit rating to junk status on expectations that any sale of the largest US savings and loan would be done in pieces, and that its assets were worth less than its debts.

Other nations braced for fallout from the crisis. Business confidence weakened in Germany, France and Italy in September, surveys showed, stoking fears that the euro zone is sinking into recession as the turmoil spreads.

In the second day of congressional hearings, US Rep. Baron Hill, a Democrat from Indiana, told Bernanke, "There is great angst in Congress over whether we should do this," and asked how to explain the need for an expense greater than the cost of the Iraq war since 2003 to regular Americans.

Bernanke bluntly warned, "Choking up of credit is like taking the lifeblood away from the economy."

Asked if the crisis would match the Great Depression of the 1930s, Bernanke said, "I think this is the most significant financial crisis of the postwar period of the United States, and has in fact a global reach."

With many members of Congress up for re-election, lawmakers are reluctant to merely rubber-stamp the rescue plan.

"I suspect it's true of every one of my colleagues. (They) are not just against this bailout, they're very angry," Rep. Lloyd Doggett, a Texas Democrat, told Bernanke.

The crisis comes after a month of turbulence marked by the government's takeover of mortgage companies Fannie Mae and Freddie Mac, the bailout of insurer American International Group Inc, and the bankruptcy filing of investment bank Lehman Brothers Holdings Inc.

The head of the Congressional Budget Office, Peter Orszag, warned lawmakers of possible "chaos" if Congress does nothing resulting in a meltdown, "maybe on the magnitude of the Great Depression," he said.

That type of rhetoric left many investors jittery.

"The resistance we're seeing in Washington is understandable but frightening at the same time. The longer this drags on and the more bickering we see, the more frightening it is," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

Sources said Japan's third-largest bank, Sumitomo Mitsui Financial Group Inc, would not invest in Goldman as has been touted in recent days. This week, Japanese financial firms have bought Lehman assets and a stake in Morgan Stanley as they take advantage of the upheaval.

As US lawmakers mull the size and content of the bailout, the FBI said it is investigating potential mortgage fraud involving senior executives at Fannie Mae, Freddie Mac, Lehman and AIG.

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