News & Current Affairs

October 3, 2008

House set for fresh bail-out vote

House set for fresh bail-out vote

Pedestrians outside the New York Stock Exchange on Wall St (02/10/2008)

President Bush has said the bill is the best chance of rescuing the economy

The US House of Representatives is preparing to vote on a $700bn (£380bn) plan to rescue the US financial sector.

Party leaders are hoping the House, which stunned global markets by rejecting the initial plan, will follow the Senate and back a new version.

The House began debating the deal on Friday morning and is expected to vote later in the day.

The Senate bill added about $100bn in new tax breaks in the hope of gaining more support from House Republicans.

The New York stock exchange opened shortly after the debate began and the Dow Jones Industrial Average jumped more than 100 points in early trading.

But earlier in Japan, shares fell to a three-year low. The Nikkei index closed down more than 1.9%, its lowest level since May 2005.

In Europe, shares were relatively flat. In early afternoon trading the UK’s FTSE 100 was down just 18 points, France’s Cac 40 was down nine and Germany’s Dax up seven.

The financial volatility continued on Friday as US bank Wells Fargo announced it would buy troubled rival Wachovia in a $15.1bn (£8.5bn) deal.

The US also reported its biggest monthly job loss in more than five years.

Bush plea

In Washington, House Speaker Nancy Pelosi, a Democrat, has said no vote will be scheduled until the party feels it will pass.

NEW MEASURES IN BAIL-OUT BILL
Increased protection for saving deposits
Increased child tax credits
More aid for hurricane victims
Tax breaks for renewable energy
Higher starting limits to alternative minimum tax

“We’re not going to take a bill to the floor that doesn’t have the votes. I’m optimistic that we will take a bill to the floor,” she said.

When the House first rejected the plan on Monday – by 228 votes to 205 – legislators had concerns about both the content of the plan and the speed with which they were being asked to pass it.

President George W Bush has since urged the House to back his revised bill.

The package is aimed at buying up the bad debts of failing institutions on Wall Street.

Both the Democratic and Republican parties are pressing their members in the House to swing behind the revised bill and party leaders expect it to pass.

This thing, this issue, has gone way beyond New York and Wall Street
President George W Bush

Some members have called for more amendments, which opens up the prospect of further horse-trading up to the point at which votes are cast.

Pressure will particularly be applied to the 133 House Republicans who went against party affiliation to reject President Bush’s bill, correspondents say.

Tennessee Republican Zach Wamp, one of those who voted against the bill on Monday, said he would now vote in favor of the measure despite ordinary Americans remaining “as mad as heck” at the situation on Wall Street.

“You have got to do what you think is right. I thought the right thing Monday was to vote no. And I think the right thing to do tomorrow is to vote yes.”

The bill successfully passed through the Senate on Wednesday after it was amended to raise the government’s guarantee on savings from $100,000 to $250,000.

It also now includes tax breaks to help small businesses, expand the child tax credit and extend help to victims of recent hurricanes.

Most importantly, it extends the tax break aimed at boosting the provision of alternative energy such as wind farms.

It also includes a number of so-called “pork-barrel” measures including tax cuts for rum manufacturers in Puerto Rico and the owners of racetracks.

The additional cost of these unrelated tax breaks – which could add $100bn to the bill – have worried some fiscally conservative Democrats in the House of Representatives.

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September 28, 2008

‘Great progress’ in US bail-out

‘Great progress’ in US bail-out

US congressional leaders say they have reached the broad outline of a rescue plan for the American financial system.

Democratic House Speaker Nancy Pelosi said “great progress” had been made – but details remain to be agreed.

The Bush administration wants $700bn (£380bn) to be able to buy bad debt that is freezing up financial markets.

A vote could be held in the House of Representatives as early as Sunday, with negotiators keen to reassure the markets before they reopen on Monday.

The deal proposes that the government would spend the $700bn to buy up bad mortgage-related debts from US banks, borrowing the cash from the money markets by issuing more government debt.

A White House spokesman welcomed the announcement and praised the efforts of the negotiators.

“We’re pleased with the progress tonight and appreciate the bipartisan effort to stabilise our financial markets and protect our economy,” said Tony Fratto.

The outline deal gives the treasury secretary powers to oversee the two-year plan, but critics have insisted on the inclusion of greater oversight and reporting.

The tentative agreement that appears to have been reached is thought to include a measure to limit the pay for executives of companies which seek financial assistance, which was a key demand of the Democrats.

At the request of Republicans, who have strongly criticised some elements of the administration’s proposal, the accord is believed to include the setting up an insurance program for mortgage-backed securities.

Payoff restrictions

A statement from Nancy Pelosi’s office said the new agreement would see $250bn issued immediately, and another $100bn when the president wanted to spend it.

But the the final $350bn would only be released after review and approval by Congress.

There would also be measures to protect taxpayers, who would be given an ownership stake and profit-making opportunities in relation to any assets that were sold.

It also puts new restrictions on executive compensation for participating companies, including no “golden parachute” payoffs.

Earlier on Sunday it was announced that the two-year project would be supervised by a board of officials, including the Federal Reserve chairman, and scrutinised by Congress’s investigative arm and an independent inspector general.

Finally, the government could use its power as the owner of mortgages and mortgage-backed securities to help more struggling homeowners modify the terms of their home loans.

‘All night’

US Treasury Secretary Henry Paulson, who took part in the talks, said that Congressional leaders had been “working very hard”.

“We’ve made great progress toward a deal, which will work and will be effective in the marketplace, and effective for all Americans,” he told a news conference.

But Ms Pelosi said the deal had to be committed to paper before it could be formally agreed.

Senate Democratic leader Harry Reid said Congress hoped to be able to make an announcement on the deal later on Sunday.

“We’re committing it to paper tonight and our people will work all night long,” he said.

Congressional leaders are trying to finalise the deal in time for the opening of the Asian markets on Monday morning.

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