Pressure mounts for Congress to pass financial deal
Markets retreat amid growing concerns about an economic slowdown
Members of the U.S. House of Representatives will get another chance to examine a $700-billion US financial bailout package this week after it was approved by the Senate on Wednesday night.
The Senate gave the thumb's up to the controversial proposed legislation in a 74-25 vote after adding a provision to raise the cap on federal deposit insurance to $250,000 per bank account, and $110 billion in tax breaks for businesses and the middle class.
A similar piece of legislation was narrowly defeated in the House of Representatives on Monday.
On Thursday, House leaders were pressing members, especially the 133 Republicans who rejected the bill, to vote in favour of the revised bill.
President George W. Bush, speaking with more urgency than previously, lobbied furiously for the measure. Bush told reporters that legislators "must listen" to those arguing for passage of the bill, derided by many on Capitol Hill and within the general public as a handout to a risk-taking Wall Street.
The House of Representatives is expected to vote by Friday, but the bailout plan will only be put to the test if legislators are sure it has enough support to pass, Rep. Steny Hoyer, the second-ranking House Democrat, said Thursday.
What won't happen, Hoyer said, is a repeat of the kind of crushing scene that played out earlier this week when an earlier incarnation of the bill went down on the House floor, triggering the largest stock selloff in history.
"I'm going to be pretty confident that we have sufficient votes to pass this before we put it on the floor," Hoyer said.
California Republican David Dreier said he plans to vote for the rewritten financial industry bailout bill when it comes to the House, even though he "hated" the previous version.
But Ohio Democrat Marcy Kaptur said she still plans to vote against the proposed legislation.
"I will not support this legislation because it's the wrong medicine," Kaptur said.
The problem should be solved by the market itself not through governmental intervention, she added.
Slowdown concerns grow
Despite the passage of the bailout package in the Senate, many stock markets retreated on Thursday as concerns grew about a global slowdown.
Stocks declined on Wall Street on Thursday after the number of people seeking unemployment benefits rose last week to a seven-year high. The Dow Jones industrial average closed down 348.22 points or 3.2 per cent, at 10,482.85.
Toronto's S&P/TSX composite closed down 813.97 points, or nearly seven per cent at 10,900.54.
Japan's benchmark Nikkei 225 average fell 1.9 per cent to 11,154.76, and benchmarks in Australia, South Korea and Taiwan also dropped.
Hong Kong's market managed a late-day rally, lifted by gains by insurer Ping An and expectations that China will introduce supportive market measures, raising the Hang Seng index by 1.1 per cent to 18,211.11.
But European stocks tumbled, with Britain's FTSE 100 closing down 1.80 per cent at 4,870.34, while Germany's DAX was 2.51 per cent lower at 5,660.63.
If the plan is rejected again by the House "it will be a big problem," said Tsuyoshi Nomaguchi, a strategist at Daiwa Securities in Tokyo. "But even if it passes, the focus will be on the economy."
The rescue package would let the government spend billions of dollars to buy bad mortgage-related securities and other devalued assets held by troubled financial institutions. If successful, advocates say, that would allow frozen credit to begin flowing again and prevent a serious recession.
"We've sent a clear message to Americans all over that we will not let this economy fail," said Senate majority leader Harry Reid, a Democrat from Nevada.
Opposition to the bailout plan comes from a motley bunch.
Conservatives who denounce the measures, such as Republican Representative Jeb Hensarling of Texas, say the government stands to inherit an albatross of debt that will overburden the U.S. Treasury.
Progressives say the plan focuses too much on Wall Street firms, and too little on the average American worker and wider society. They say president Franklin Roosevelt’s New Deal, a massive intervention during a time of financial crisis, spent 30 per cent less money overall in the 1930s after adjusting for inflation, but built 72,000 schools, 80,000 bridges and 8,000 parks.
Protesters denouncing the proposed bailout took to the streets Tuesday and Wednesday in New York, holding up signs pleading to "Stop Wall Street from bankrupting our future."
Cap interest rates: consumer group
Alternative plans discussed in Washington include having the government provide mortgage relief directly to homeowners, as well as loan guarantees for people at risk of losing their houses so they can stave off or even reverse a foreclosure.
"Here's what the average American could use, Right now public money — taxpayer money — is being loaned to the banks and Wall Street institutions at a rate of two per cent," Harvey Rosenfield of the advocacy group Consumer Watchdog said, referring to the interest rate that the U.S. Federal Reserve is charging financial firms to access billions in emergency loans.
"Yet those firms are turning around and loaning our own money back to us at between six and 20 per cent, from mortgages to credit cards. Why doesn't the bailout have a cap on how much money Wall Street can charge us to borrow our own money — a cap on interest rates?"
The U.S. government has already provided $900 billion US in relief as part of the financial crisis, including $85 billion US to buy out troubled insurer AIG, and $200 billion US to take over mortgage lenders Fannie Mae and Freddie Mac.
European leaders meet
The crisis, which was sparked by bad bank debts tied to subprime U.S. home mortgages, has spread to Europe where governments are also pumping money into troubled banks.
European leaders are preparing for a financial summit on Saturday in Paris.
The meeting will bring together officials from Germany, Britain and Italy as well as representatives from the European Commission and the European Central Bank.
"Investors are still concerned about the efficiency of this rescue plan and how it can help the global economy," said Aric Au, marketing manager for institutional sales at Phillip Securities in Hong Kong. "But at this moment, nobody is sure about this. They need to have more information about the finalized plan."
With files from the Associated Press