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Doubts rising over plan to fix banks

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•Mr. Obama provided in his proposed budget for as much as $750 billion in additional financial bailout money, on top of the $700 billion that Congress has already committed. Obama has not yet formally asked for any of that added money.

•The Senate is considering a bill, backed by the administration and the Federal Reserve, that would provide a $100 billion line of credit to the Federal Deposit Insurance Corp., the agency tasked with handling failed banks. The funds would help ensure that the FDIC has adequate money at a time when more small and mid-size banks are expected to become insolvent.

Members of Congress are getting complaints from voters, who, in a recent poll, mostly disapproved of bailouts for financial firms, and in turn the lawmakers expressed frustration in hearings last week.

Fed turns critical

One implication: In this political climate, getting approval for more money to help banks won’t be easy.
Some of the criticism is coming from within the Fed itself.

“We have been slow to face up to the fundamental problems in our financial system, and reluctant to take decisive action with respect to failing institutions,” said Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, in a speech Friday. Despite trillions of dollars in public resources committed to the crisis by the central bank and the Treasury, “we have yet to restore confidence and transparency to the financial markets, leaving lenders and investors wary of making new commitments,” he said.

The credit breakdown has direct consequences for the economy.

The unemployment rate has jumped from 5 percent to 8 percent in the past year, with the breakdown in the banking system playing a big role, shaking consumer confidence and fraying business access to credit.

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