US Senate weighs bailout; Europeans split

US Senate weighs bailout; Europeans split
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First Published: Thu, Oct 02 2008. 02 22 AM IST
Updated: Thu, Oct 02 2008. 02 22 AM IST
New York / Washington: World markets braced for a US Senate vote on Wednesday over a proposed $700 billion bailout seen as crucial to reviving paralyzed credit markets while European powers squabbled over their own version of a rescue.
US President George W. Bush said he was confident the Senate would pass the bill. A vote was considered likely after 7:30 p.m. (2330 GMT). The House of Representatives , which rejected the original plan on Monday, was likely to vote on the revised bill Friday, a senior aide said.
The White House and European policy makers called the measure crucial to world financial health with recessionary signals mounting in the world’s largest economy and the credit crisis reverberating among European banks.
France and Germany clashed over the idea of a US-style financial rescue fund for Europe amid further signs of contagion from the global credit crisis.
In Washington, Congressional leaders added two sweeteners to the bill -- a tax cut and extended federal protection for bank deposits -- with the expectation it would sail through the Senate and then return to the House for an up-or-down vote.
The vote would cap another whirlwind day in the markets in which shares of bellwether U.S. conglomerate General Electric Co plunged as much as 9% on concerns about future earnings until super-investor Warren Buffett took a $3 billion stake.
The stock markets suggested investors expected the bailout to pass, but investors had also expected the House to approve the plan on Monday.
With all 435 members of the House and 35 of 100 Senators up for reelection on November 4, politicians were fearful of voter backlash against a plan widely seen as a taxpayer bailout of Wall Street’s errors.
Voter sentiment may have changed since Monday’s rejection of the rescue plan by the House led to a 777-point plunge on the Dow, wiping billions of dollars off the value of retirement funds and personal wealth.
Candidates Call For Passage
The presidential candidates, Republican John McCain and Democrat Barack Obama, left the campaign trail for Washington where they would cast their votes as senators, both saying failure to pass the bill would have dire consequences.
Sen. Charles Schumer of New York, an influential member of the Democratic leadership, predicted the measure would be approved.
Meanwhile, economists kept close watch on interbank interest rates, a measure of credit liquidity that is vital to fueling global economic activity. Global money markets remained largely impaired on Wednesday, with banks wary of lending to each other -- as they have been since the bankruptcy of Lehman Brothers and nationalization of other major financial institutions in the United States and Europe.
The bill before the Senate calls for the US Treasury to buy distressed assets from financial firms staggering under the weight of failed mortgages, intending to clean up their balance sheets and jump-start lending.
Buffett addressed voter concerns about the bailout, calling it necessary to unfreeze credit and reinvigorate interbank lending.
“There’s no question this is a rescue plan, but it’s a rescue plan for the American economy, not for Wall Street,” Buffett told CNBC television.
“This is designed to help the American economy from going into the ultimate tailspin. ... This is an economic Pearl Harbor, And the whole world wants to deleverage. The only entity in the world that can leverage up to match that force is the US Treasury,” said Buffett, an Obama supporter.
Lobbyists from the banking industry and the US Chamber of Commerce were trying to identify House members who might reconsider their Monday “no” votes, and business executives around the world warned that the crisis would hit growth.
After Wall Street giants Bear Stearns, Lehman Brothers and Merrill Lynch were swallowed by rivals and with commercial banks teetering or collapsing, European banks have undergone their own tumult.
Lloyds TSB Group Plc was poised to take over British rival HBOS Plc, potentially at a cut-rate price.
This came after the Dutch-Belgian bank Fortis was partially nationalized through an 11 billion euro bailout on Sunday. J.P. Morgan Securities forecast more pretax write-downs to come.
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First Published: Thu, Oct 02 2008. 02 22 AM IST
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