U.S. markets sank yesterday (Tuesday) as a quick turnaround on the proposed bailout legislation seemed less and less likely as criticism for Paulson’s plan in its current form became more widespread.

At the New York close, all three major U.S. indices had reversed early morning gains to head into the red. The blue-chip Dow Jones Industrial Average Index posted a loss of 161.52 points (-1.47%), closing at 10,854.17. The tech-laden Nasdaq Composite Index dropped 25.64 points (-1.18%), to 2,153.34. And the broader Standard & Poor’s 500 Index lost 18.87 points (-1.56%), to settle at 1,188.22.

U.S. Treasury Secretary Henry Paulson and U.S. Federal Reserve Chairman Ben S. Bernanke both testified before Congress yesterday to urge lawmakers to quickly approve the proposed $700 billion government banking bailout plan.

The two financial pointmen of the bailout plan both testified in favor of the proposed legislation before the Senate Banking Committee. Paulson’s $700 billion bailout plan, unveiled over the weekend, has been criticized for the sweeping new powers it affords the Treasury department with little congressional or judiciary oversight.

Speaking of his plan to stabilize the financial markets, Paulson said, “We must do so in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten American families’ financial well-being, the viability of businesses both small and large, and the very health of our economy.”

Paulson went on to say that while the roots of the current financial crisis go back many years, the government must act now to save not only Wall Street, but Main Street as well. If left unchecked, the current financial crisis “would threaten all parts of our economy,” the Treasury Secretary said. In a rare departure from his prepared remarks, Bernanke urged Congress to not only pass the proposed bailout legislation in its current form, but to pay above market value for distressed financial assets.

“Accounting rules require banks to value many assets at something close to a very low fire-sale price rather than the hold-to-maturity price,” Bernanke said in his unscripted testimony before the Senate Banking Committee, Bloomberg News reported. “If the Treasury bids for and then buys assets at a price close to the hold-to-maturity price, there will be substantial benefits.”

Bernanke said paying a premium for the bad assets that could no longer be sold on the open market would help “unfreeze” the credit markets and boost the U.S. economy.

Congressional Critics

But legislators seemed reluctant to rubber stamp Paulson’s barebones $700 billion bailout plan.

Many Democrats balked at granting such far-reaching powers to the Treasury Department without further Congressional or Judiciary oversight.

Senate Banking Committee Chairman Christopher Dodd, a Democrat from Connecticut, on Tuesday called the language in the plan “so troubling” and said it “cannot last” as part of the legislation, NPR reported.

One outspoken critic of the plan went so far as to take out a full-page ad in The New York Times likening Paulson’s plan to communism.

The ad shows Paulson, Bernanke and President George Bush raising a flag with the familiar communist symbols of a hammer and sickle with tombstones reading “private enterprise” and “capitalism” in the background.

“They are raising the new flag,” said Bill Perkins, the Houston-based venture capitalist who paid for the ad in a telephone interview with Reuters. “We’ve become a socialist-communist country in the form of trickle-down communism.”

Even some Republicans are voicing their opposition, calling for executive compensation caps for firms that benefit from the proposed plan. But the administration, along with Paulson and Bernanke are urging a speedy passage to the bill in its current form.

“I fully feel the urgency. But the truth is, we have to be given the time to do this right, or you’ll be up here in a year or two asking for another $100 billion or more,” Democratic Sen. Jon Tester of Montana told Paulson on Tuesday.

Wall Street Bargain Bonanza

While politicians and pundits debate the merits and flaws of the government’s proposed bailout, one foreign firm was taking decisive action to capitalize on the credit crisis.

Nomura Holdings Inc. (ADR: NMR), Japan’s second-largest bank, continued its buying spree of Lehman Brothers Holdings Inc. assets (OTC: LEHMQ) at rock-bottom prices. Nomura picked up Lehman’s Asia holdings on Monday and now can add Lehman’s Europe and Middle East operations to its list of acquisitions from the bankrupt Wall Street investment bank.

Nomura did not disclose the purchase price for Lehman’s equity and security operations, saying only the figure was “nominal.” After having paid just $225 million for Lehman’s Asia-Pacific holdings, it is all but certain Japan’s largest securities firm got a good deal in Europe as well.

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