Quickly passing a $700 billion financial bailout is key to stabilizing financial markets and the economy, Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson said in prepared remarks before the Senate Banking Committee this morning, as reported by the Associated Press.

“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 said.

The bailout plan would enable the government to buy bad debt that has upset the financial industry the past couple of weeks, causing the government to take control of mortgage giants Fannie Mae and Freddie Mac, offer an $85 billion emergency loan to American International Group Inc. and temporarily ban short-selling of hundreds of financial stocks.

Though Bernanke and Paulson defended these unprecedented steps, they said this piecemeal approach isn’t sufficient to protecting the economy as a whole.

Congressional leaders and the Bush administration are still debating details of the plan, including preventing bonuses to executives leaving failing financial firms and allowing judges to rewrite bankrupt homeowners’ mortgages so they could avoid foreclosure. Congressional aides said the House is expected to act on a bill Wednesday or Thursday, with the Senate following shortly after.

An article on Bloomberg.com said the $700 billion proposal could push the national debt above 70 percent of the gross domestic product and send the annual budget gap to an all-time high of more than $1 trillion. The last time Americans owed as much was in 1954, when the United States was still paying off debt from World War II.

The plan also risks boosting interest rates as additional Treasury securities flood the market to help finance the plan and desire among international investors to buy U.S. bonds wanes. The Treasury Department announced last week the sale of $200 billion in short-term debt to fund the Federal Reserve’s efforts to inject liquidity into credit markets.

Gross U.S. debt reached about $9.6 trillion, or 68 percent of gross domestic product, this year. Paulson is now asking lawmakers to lift the legal limit for federal debt to a record $11.3 trillion from the current $10.6 trillion.