US markets wary over rescue deal

The markets remain nervous

US shares have fallen sharply with investors cautious over whether the House of Representatives will back the revised bank rescue plan.

The House is due to discuss the scheme later, with a vote expected on Friday. The bill successfully passed through the US Senate on Wednesday.

On Wall Street, the Dow Jones index was down 263 points or 2.4% at 10,571, a slide dragging European shares lower.

The falls came as France said it would host a summit on the financial crisis.

The UK’s FTSE 100 closed was down 1.8% to 4,870.3 points while Germany’s Dax index shed 2.5% and France’s Cac 40 lost 2.3%.

Sentiment was further hit by glum economic data – showing that the number of people filing for new unemployment benefit claims rose to a seven-year high, while factory orders had seen a steeper-than-expected drop in August.

European talks

The office of French President Nicolas Sarkozy said the special meeting on Saturday would discuss a co-ordinated response to the financial turmoil amongst European members of the G8 ahead of a meeting of world finance leaders in Washington next week.

UK Prime Minister Gordon Brown is due to attend, together with German Chancellor Angela Merkel, Italian Prime Minister Silvio Berlusconi and European Central Bank President Jean-Claude Trichet.

Investors are still concerned about the efficiency of this rescue plan and how it can help the global economy Aric Au, Phillip Securities

But with just two days to go before the talks start, EU members are deeply divided, correspondent said.

France and Holland favor a European response to help banks hit by the credit crisis while Germany and Luxembourg believe a joint rescue plan is not necessary.

European leaders have denied speculation that they wanted to establish a unified 300bn euro ($418.4bn; £236bn) banking rescue deal along the same lines as the US plan.

The rescue idea was said to be being proposed by France, but Mr Sarkozy insisted that there were no such plans.

“I deny both the amount and the principle [of such a plan],” he said.

‘Essential’

In the US, a number of changes had to be made to the $700bn (£380bn) bail-out plan in order to help win approval in the Senate.

These include raising the government’s guarantee on savings from $100,000 to $250,000, tax breaks to help small businesses, expansion of child tax credit, and help for victims of recent hurricanes.

President George W Bush said that the package was “essential to the financial security of every American”.

However, economists said doubts remained about how effective the package would be.

“Investors are still concerned about the efficiency of this rescue plan and how it can help the global economy,” said Aric Au of Phillip Securities in Hong Kong.

McCain and Obama

US presidential hopefuls John McCain and Barack Obama, who both returned from the campaign trail for last night’s Senate debate, voted in favor of the rescue plan.

Senate majority leader Harry Reid, a Democrat, said he was happy with the result and praised both presidential candidates for voting.

“I think it shows that when we work together we can accomplish good things,” he said.

Mitch McConnell, leader of Republican senators, was also in jubilant mood.

“This was a measure that was much needed, to unfreeze the credit markets and get America’s economy working again,” he said.

Profile: John McCain

Profile: John McCain

McCain is a divisive figure within his own Republican party [GALLO/GETTY] A decorated Vietnam war hero who spent more than five years as a war prisoner, McCain’s successful bid for the Republican nomination had marked his second attempt to run for the White House. But his success is a remarkable turnaround for the Arizona senator, who until recently was not viewed as a serious contender. A self-proclaimed straight talker whose bluntness and at times unconventional style have both frustrated and appealed to would be voters, McCain is a divisive figure within his own party, to the extent that some have claimed they will not vote for him. And some have pointed to both this rocky relationship and his age – at 71 he will be America’s oldest ever president –  as major obstacles on the road to the Oval Office. Vietnam ordeal McCain [here with Richard Nixon] spent years in Vietnam POW camps [Getty Images] McCain comes from a family with a long military history – both his father and grandfather served as US navy admirals. McCain himself joined the navy in 1958, beginning a 22-year long naval career marked most notably by his decision to volunteer for service in the Vietnam war. It was a momentous decision. In October 1967 during a bombing mission, McCain’s plane was shot down by a missile. He ejected but was injured in the process, breaking both his arms and his leg. Captured by north Vietnamese soldiers, he was taken prisoner and held at several prisons for five and a half years, often enduring torture by his captors. He still bears physical scars from his ordeal. Most notably, though he was offered an early release by the North Vietnamese, McCain declined because he did not want to be seen as receiving preferential treatment. On his return, McCain decided to enter politics, becoming first a naval liaison for the US senate, then a congressman for Arizona before entering the senate in 1987. Hawkish policies “Tehran must understand that it cannot win a showdown with the world” John McCain On foreign policy, many prospective voters were unnerved by a comment McCain made while campaigning in which he said he believed US forces should stay in Iraq for 100 years if necessary. “I oppose a pre-emptive withdrawal strategy that has no Plan B for the aftermath of its inevitable failure and the greater problems that would ensue,” he wrote in Foreign Affairs magazine. However, McCain has criticised US military strategy in Iraq, saying that by failing to adopt a counterinsurgency strategy the US and the Iraqi people had paid a “dear price”.He is also a firm opponent of the use of torture. However, he recently voted against a senate bill which would have banned the controversial interrogation method of waterboarding widely viewed as torture. McCain also advocates building up Israel militarily and isolating Hamas, while using every resource available “to aid moderate Muslims … who are resisting the well-financed campaign of extremism that is tearing Muslim societies apart”, he added. On Iran, McCain is hawkish, describing the nation as the world’s “chief state sponsor of terrorism” and advocating all options, including possible military action, against the Islamic Republic should it continue with its nuclear program. “Tehran must understand that it cannot win a showdown with the world,” he wrote. However, an embarrassing gaffe during a visit to Jordan in March, in which he wrongly accused Iran, a predominantly Shia nation, of aiding Sunni al-Qaeda fighters, led to questions about whether his foreign affairs experience was as solid as he claimed. Polarising figure McCain was left embittered after his 2000 nomination battle with Bush[EPA] McCain remains a polarising figure within the Republican party. On domestic issues McCain is known for being willing to “cross the floor” and work with Democrats, particularly on the matters of campaign finance and on immigration – co-sponsoring a bi-partisan bill which would have offered an amnesty to illegal immigrants. This has caused suspicion amongst some of the more traditionalist members of the Republican party, who consider him too moderate on social issues such as immigration. McCain’s response has been to aggressively tout his conservative credentials while out on the road campaigning for the nomination, attempting to strike a delicate balance by reaching out to centrists who may be wooed to vote for him while at the same time striving not to upset evangelicals or more right-wing members of the Republican party. Past controversies Two decades ago, McCain and four other senators were accused of trying to influence banking regulators on behalf of Charles Keating, a savings financier later convicted of securities fraud. The Senate Ethics Committee decided that McCain had used “poor judgment” but that his actions ‘were not improper” and did not deserve punishment. In 2000 McCain ran against George Bush, losing after a controversial nomination race in which scurrilous accusations against him implied erroneously he had fathered an illegitimate African-American child. The experience, he later acknowledged, left him angry – although his relationship with Bush has since thawed. Nonetheless, sensitised by the slurs against him in the 2000 nomination campaign, McCain set up a “South Carolina truth squad’ to rebut allegations that he had “sold out” prisoners of war. In February, he also denied a New York Times report that suggested he had a romantic relationship with a Washington lobbyist. However, with the potential slings and arrows of a major presidential campaign, McCain may face more of the same in the future.

Obama sets out to sell his vision

Barack Obama has a hard act to follow at this convention: himself.

Barack Obama faces a career-defining moment

Four years ago, when Democrats gathered for their national convention in Boston to nominate John Kerry, the then-US Senate candidate made a much-lauded, career-defining speech. His message of a unified America, coming from the mouth of a young, mixed-race politician, marked the effective launch of the history-making Obama phenomenon.

It also brings a level of expectation ahead of his speech on Thursday, which the last Democratic candidate, who went on to become president, did not have to face.

When nominee Bill Clinton spoke at the 1992 Convention in New York, it was four years after he had made a convention speech that was widely seen (including by Clinton, himself) as rather long-winded and boring.

He did not repeat his mistake. With his “I still believe in a place called Hope” speech, the Arkansas governor defined himself in a way that resonated with the country at large.

Weight of history

Barack Obama needs to do something similar. With opinion polls placing him in a tight race with Republican John McCain and suggesting that sections of the public still do not have a clear impression of who he is, his goal is to come out of the week having defined himself as someone whom Americans can feel comfortable about as a leader.

He needs to sell his vision, his experience and his unconventional background.

Mr Obama must unite the Democrats behind his campaign

He will be selling that vision of himself on an auspicious date: the 45th anniversary of Martin Luther King Jr’s “I have a dream” speech.

But, while that may add to the weight of history on his shoulders, the location of his speech represents a break with history.

Obama will not accept the nomination in the Convention Hall, but at the 70,000-seater Invesco Field, home of the Denver Broncos Football team. This will provide a unique spectacle, but it also presents a certain danger of perception for a candidate who – since securing the Democratic nomination in June – has faced accusations of being too presumptuous about his chances of winning the November election.

Clinton tensions

And while the 1992 Clinton experience offers him a something of a blueprint for success, the 2008 Clinton presence, on the other hand, presents him with potential pitfalls.

Both Hillary and Bill Clinton will be speaking at the Convention. Their performances – on Tuesday and Wednesday respectively – will be watched closely for signs of party disunity, that could harm not only Barack Obama’s chances, but those of Democrats running for Congress in November.

Despite a joint appearance with Senator Obama in Unity, New Hampshire earlier this summer, Hillary Clinton is still dogged by questions about her level of support for the man who narrowly beat her to the nomination. Many of her supporters are still unhappy about the manner of her defeat. There is also concern that she was not seriously considered for the position of running mate, which Senator Joe Biden has secured.

Observers will be closely watching Bill Clinton’s mood

By allowing Senator Clinton’s delegates to participate in a formal nominating roll call vote – recognising the historical nature of her campaign – the Obama team hopes to defuse some of the remaining tensions and shore up the support of the millions who voted for the former First Lady. Neither outcome is a foregone conclusion.

John McCain’s campaign is doing its mischievous best to stir things up: releasing an advert, showing Hillary Clinton asking some of the same questions about Barack Obama’s experience and judgment during the primary campaign which they are asking now.

But, perhaps, it is Bill Clinton’s speech that will be the most closely dissected; both for its words and for the body language of the man delivering it. By his silence, the former president has given the impression that he is still sulking about Obama’s victory over his wife.

Many Convention-goers will be looking for him to swallow his pride and give the sort of full-throated endorsement of the party’s nominee, that will sway Democrats flirting with John McCain, and help to repair some of the damage done to President Clinton’s own reputation during the primaries.

As he effectively hands over the role of party leader to a younger man, he can still play the role of party healer.

How to measure the success of this? The time-honoured tradition has been to look at the “convention bounce” – the boost in the opinion polls which a candidate gains from his moment engulfed in balloons and ticker tape. Bill Clinton, for example, got one in 1992 and never relinquished his lead over George H W Bush.

Time is not Barack Obama’s side, though. No sooner has the Democratic Convention finished, than the Republicans meet in St Paul, Minnesota.

So the onus is on Senator Obama to make the most of his time in the spotlight, before the spotlight quickly turns to his Republican rival, John McCain.