Congress needs to act quickly on the Bush administration’s proposed bank bailout in order to avoid “serious consequences” for the economy, Federal Reserve Chairman Ben Bernanke told lawmakers Tuesday morning.

Admitting that the extraordinary government measures taken so far — bailout of Freddie and Fannie Mac, for example — have failed to stabilize global financial markets, Bernanke told the Senate Banking Committee that “global financial markets remain under extraordinary stress."  

Action by Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy,” he said.

Treasury Secretary Henry Paulson said “the very health of our economy” is at risk.

“We saw market turmoil reach a new level last week, and spill over into the rest of the economy,” he added. “We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil.”

That root cause, he said, is the housing “correction” which has resulted in illiquid mortgage-related assets choking off the flow of credit.

Main Street: Why Should We Pay for Sins of Others?

Although the dirty details of the financial crisis are still hard for many people to follow, the central fact of the matter is clear to many: The taxpayers are on the hook for the bad judgment of others — those who bought houses they couldn’t really afford, the banks that urged them on and the people and institutions who spent more than they made.

"I’ve been financially responsible with my own money. Why should I now be responsible for the fact that you were not?" Ed Merkle, a 58-year-old defense contractor in Virginia who lives within his means and didn’t take on a huge loan even when his bank encouraged him to, told The Washington Post.

Many on Main Street are telling their representatives in Congress they don’t want taxpayer money to be used on the $700 bailout for those who should have known better.

The Post also reports that many lawmakers, after spending the weekend in their districts, are angry that average Americans are being forced to pay for the excesses of Wall Street and that Congress was being prodded to rubber-stamp the biggest federal intervention in the private market since the Great Depression.

"I walked down LaSalle Street on Friday, a great street in Chicago lined with banks and big office buildings," said Sen. Dick Durbin, D-IL. "A lot of people came up and said, ‘Hi.’ But a lot of them came up and said: ‘Are you really going to do this? Seven hundred billion dollars bailing out the banks?’ And I said: ‘I don’t know. At the end of the day, I just don’t know.’"

A growing minority of lawmakers — including some Republicans — were starting to question the very premise of the Treasury Department’s proposal.

"In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted, and may actually cause the government to revert to an inadequate strategy of ad hoc bailouts," said Sen. Richard Shelby of Alabama, the ranking Republican on the Senate banking committee. He urged Congress to "immediately undertake a comprehensive, public examination of the problem and alternative solutions rather than swiftly pass the current plan with minimal changes or discussion."

But Bernanke — and some other Republican leaders — tried to stress that there’s no time for broader regulatory changes now; they can be looked at later, after the crisis has been dealt with.

“When there’s a fire in your kitchen threatening to burn down your home, you don’t want someone stopping the firefighters on the way and demanding they hand out smoke detectors first or lecturing you about the hazards of keeping paint in the basement,” said Sen. Mitch McConnell, R-KY. “You want them to put out the fire before it burns down your home and everything you’ve saved for your whole life.”

Acknowledging that the GOP has "many serious questions," McConnell — who is trying to recast the bailout as a "Main Street Rescue Plan" — said the plan would give Americans "the security of knowing that the problems on Wall Street are not going to spread to Main Street."

In other financial news:

-The New York Times reports that congressional leaders and Treasury officials are close to an agreement over a proposal by some Democrats in which taxpayers could receive an ownership stake, in the form of warrants to buy stock, from firms seeking to sell distressed debt as part of the $700 bailout package. One Treasury official said lawmakers want to require an equity stake, while the administration wants flexibility on that matter.

-The turmoil on Wall Street is also hitting the $2.5 trillion hedge-fund industry, threatening the viability of some of the massive investment pools that have become increasingly critical for pension funds and endowments and a source of financing for consumer loans. Industry groups say they are responsible for more than a third of stock trades, while some analysts worry that a collapse of a major fund could shake confidence in the fragile system.

-A sale of Lehman Brothers’ European arm may be in the works, reports Reuters, while Japanese firms are leading the rush to acquire U.S. investment banking assets after top bank Mitsubishi UFJ Financial Group said on Monday it would buy up to 20 percent of Morgan Stanley for as much as $8.5 billion and Nomura Holdings bought Lehman’s franchise in Japan and Australia and 3,000 staff.