House set for fresh bail-out vote

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.

Viewpoint: McCain the new Sarkozy?

Rebels with a cause: McCain and Sarkozy

In France, Nicolas Sarkozy won by successfully breaking from – and even, in a sense, running against – a president of his own party, the disgraced and out-of-touch Jacques Chirac.

In a similar way, John McCain is attempting to mount a Sarkozy-style “second-stage” succession to a Republican Party that has also come to be seen as disgraced and out-of-touch.

He has a lot to run against.

When things start to go wrong for a political party – as they did for John Major and the Tories in the 1990s – everything seems to go wrong at once.

How this has happened to the Party of Lincoln, Roosevelt and Reagan is worth revisiting.

The Congressional Republicans could have opted to try to win a permanent majority by devising market-based solutions to healthcare or portable pensions that might have won the lasting allegiance of the American people.

‘Populist backlash’

Instead, the GOP leaders in the House and the Senate were content to tinker at the edges of policy.

They aped their Democratic predecessors by using earmarks and other means to reward special interests, reaping huge advantages in campaign donations as a means of holding onto power.

As a result of this change in mindset, the party of probity became the party of disgrace – with more than one leading member in prison or under investigation for various forms of graft.

That there are ample specimens of venality on the Democratic side provides no cover. Voters expect better from Republicans – especially after a series of Democratic scandals that Republicans promised to clean up.

McCain, with decades of spirited and often lonely opposition to pork, influence and back-scratching of all sorts, is the ideal candidate to pull a Sarkozy

So Republicans started with a good start under Newt Gingrich promising to bring reform and business-like efficiency. As a result, when Republicans came to resemble what they opposed, voters came down on them twice as hard when they disappointed.

The result is that Congressional Republicans have neither honour nor a majority.

Republican primary voters, disgusted by the direction their party had taken, selected John McCain in a populist backlash. McCain, with decades of spirited and often lonely opposition to pork, influence and back-scratching of all sorts, is the ideal candidate to pull a Sarkozy.

By returning to their ideals, Republicans selected the one candidate who could actually pull off such a hat-trick.

Political baggage

Two weeks ago, the race against Barack Obama was, then, following a familiar course. McCain had successfully identified himself as a reformer – shedding Republican political baggage.

Obama was set for certain loss. The reasons for this are simple to see.

For decades now, it has been virtually impossible for a liberal candidate to win an Electoral College majority.

The most liberal candidate of all, George McGovern, received 17 electoral votes against Richard Nixon’s 520 in 1972. Defeat has befallen other liberals – Adlai Stevenson, Hubert Humphrey, Walter Mondale, Michael Dukakis, Al Gore and John Kerry.

The exceptions to this rule further prove the point:

• John F Kennedy with his strident anti-communism and tax cuts, won as a conservative Democrat.
• Bill Clinton won as the candidate of the centrist Democratic Leadership Council, and won re-election after ending traditional welfare and presiding over a surplus.
• Jimmy Carter won as a budget-conscious conservative, only to lose when he governed as a liberal. Lyndon Johnson won as a successor to JFK.

Had Obama moved to the middle – and chosen a conservative, defence-minded Southern conservative like former Senator Sam Nunn, or even an independent Republican like Senator Chuck Hagel of Nebraska – he would be in a much stronger position.

Instead, Obama chose a dependable, North-Eastern liberal in Joe Biden.

Obama has eschewed “third-way” politics, and stuck to defining his brand of change in terms of simple replacement of all things Bush with liberal orthodoxy on almost every issue.

‘October surprise’

If presidents were selected by popular vote, Obama might be able to drum up enough enthusiasm in California, New York and a handful of other populous blue states to win.

Two surprises gave McCain a boost in the polls – Russia’s re-emergence as a revanchist power, and the selection of Sarah Palin

The picture is much bleaker for Obama in winning an electoral college majority in which so many states are dominated by rural issues and cultural concerns (like prayer and guns) alien to the sensibilities of an urban liberal.

This was the expected state of play. However, American elections are notorious for turning on an October surprise. This time, we have prematurely had three such surprises in August and September. And they have shaken up this race and made the result suddenly unpredictable.

Two surprises gave McCain a boost in the polls.

The first was the violent re-emergence of Russia as a revanchist power, reminding the American people that we live in dangerous times. It seemed better to trust a crusty war-veteran than the untested, sleek, metrosexual Obama.

The second surprise was an artificial one – McCain’s calculated selection of Sarah Palin. McCain’s campaign enjoyed great success in baiting Obama into several days of exchanges with his running mate – a project that diminished Obama and knocked him off message.

VIEWPOINTS Mark W Davis is a long-time Republican adviser, a former speechwriter for George Bush senior, and currently senior director of the Washington-based White House Writers Group. This is one of a series of comment and opinion pieces that the BBC News website will publish before the election.

Now the third surprise has come – the near-collapse of US credit markets and an economic crisis widely termed the most serious since 1929. This crisis upsets all that had happened before and returns Obama to his preferred field of battle – the economy.

McCain took the high-risk approach of suspending his campaign and running to Washington.

Today, McCain looks less like Sarkozy and more like Sisyphus, shouldering the burden of an economic collapse seemingly without end.

Does this game-changer open the way for an explicit liberal to make history and take the White House?

Or will McCain be able to fight and win with the economy front-and-centre? McCain might do so if he – and other Republicans – are more aggressive in pointing out how Democrats coddled and protected the private-gain, public-risk model of the mortgage giants Fanny Mae and Freddie Mac that enabled this crisis.

If he can do this, McCain might still pull a Sarkozy.

Or will some new event re-orient the race with yet another sudden, stupendous domestic or foreign challenge?

After all, it is not yet October. There is still plenty of time for more surprises.

McCain and Obama spar over taxes

The economy and oil have been key issues for both candidates

Barack Obama’s senior economic adviser Austan Goolsbee has accused John McCain of proposing huge tax cuts for rich people and large corporations.

Mr Obama’s tax cuts for “ordinary Americans” would be three times larger than Mr McCain’s, he promised.

Mr McCain’s economic adviser, Doug Holtz-Eakin, countered that Mr McCain’s tax cuts would help firms create jobs.

Speaking to the BBC World Service, both advisers clashed on how to end the US dependence on foreign oil.

In a debate between both advisers on the Business Daily program, Mr Goolsbee said: “Barack Obama’s tax cuts for ordinary Americans are three times larger than John McCain’s.””The way that John McCain’s package ends up being three to four trillion dollars more is that they give humungous tax cuts to high income people and large corporations.”

Small firms

In fact John McCain has no plans for cuts in personal income tax. But he does propose to cut the rate of corporation tax from 35% to 25% in an effort to revive the ailing US economy.

Mr Holtz-Eakin told the BBC: “In this economy in the past six months with over 400,000 jobs lost we’ve seen the small businesses – those with less than 50 employees – add 283,000 jobs.”

He underlined the importance of not damaging those small businesses: “keep them in a position where they don’t have onerous health care costs and mandates to provide expensive benefits to their employees.”

Barack Obama says he will spend $50bn immediately to jump start the economy and introduce tax credits for working families.

He is also proposing to invest $150bn in clean energy over the next decade, creating 5 million new jobs.

Energy policies

Mr Goolsbee said the US had to make a commitment to wean itself off its dependence on oil.

John McCain believes that we have a dangerous exposure to imported oil Doug Holtz-Eakin, economic adviser to John McCain

“It is the mentality of the past eight years to listen to the oil companies that got us into this mess and we have to have a different energy policy to get out of it.”

Mr Holtz-Eakin denied that John McCain would follow the same energy policy as George W Bush.

“John McCain believes that we have a dangerous exposure to imported oil,” he said.

“It is his primary objective to put the United States in a position where it is no longer strategically exposed by this dependence.

“The first and foremost objective is to change the way Americans drive,” he added.

Foreclosures

Mr Goolsbee warned that more Americans would lose their homes unless there were tighter controls on the mortgage industry.

He said failure to address the fundamental challenges of oversight of the housing market – an issue that Senator Obama identified 18 months ago – could prompt “a second wave of the foreclosure crisis in the United States.”

Mr Holtz-Eakin said that John McCain would not be afraid to speak out in favor of free trade, even at a time when American jobs were being lost.

“Globalization is an opportunity.”

However he added: “Not everyone automatically gains from globalisation, and we do have an obligation to help those workers who do not instantly benefit to get an opportunity for the future.”