Washington: The US Congress reached a compromise on Wednesday on a $789 billion package of tax cuts and new spending aimed at pulling the world’s largest economy out of its worst financial crisis since the 1930s.
US lawmakers grilled American bankers on how they used bailout money they got last year,as Treasury Secretary Timothy Geithner pushed a new bank rescue plan that has been met with scepticism.
World trade continued to crumble with a sharp fall in Chinese imports and exports in January, underlining the extent of the damage caused by the global financial crisis.
US House and Senate negotiators approved a compromise bill that provides for 36% of the stimulus package in tax breaks, sought by Republicans, and the rest in government spending. Senate Democrats said the plan would create 3.5 million jobs and could be voted on by both chambers as early as Thursday.
With the US economy reeling from a slump in asset prices, scarce credit and millions of layoffs, President Barack Obama had been pushing Congress to act fast to help reverse the recession he inherited on taking office three weeks ago.
Obama hailed the deal, saying it will help save or create millions of jobs and “get our economy back on track.”
US stock markets, hammered the day before by uncertainty over the new administration’s financial recovery effort, reversed losses after news of a deal on the stimulus package.
Bargain-hunting investors scooped up shares hit by the massive sell-off triggered on Tuesday by disappointment over the latest plan to shore up the banking system.
Bank shares were among US stocks mounting a recovery, led by Bank of America, which was up 9%, Citigroup and JPMorgan, which climbed more than 6%.
Geithner’s bank plan would use $2 trillion to mop up bad assets and restore credit, but it was immediately criticized for lack of detail and clarity, failing to revive confidence.
US Treasury debt prices rose as worries over the effectiveness of the financial rescue plan bolstered the safe-haven appeal of government debt.
Citing the need to act carefully, Geithner said it could take him two weeks to provide details on the financial stability plan he outlined on Tuesday.
“We believe the United States has to send a clear and consistent signal that we will act to prevent the catastrophic failure of financial institutions that would cause broader damage to the economy,” he told the Senate Budget Committee.
Where is the Money?
Eight bank chiefs appeared before the US House Finance Committee to explain what they have done with $176 billion in taxpayer money they received to avert collapse and get them lending again.
Lawmakers vented rising public anger over reports of hefty bonuses the bankers paid themselves while the bailout failed to have a noticeable impact on the deteriorating US economy.
Contrite executives said the money was needed to keep their banks afloat and insisted they had acted responsibly.
“I’ve told my board of directors that my salary should be $1 per year with no bonus until we return to profitability,” said Vikram Pandit, CEO of Citigroup Inc. “We will hold ourselves accountable and that starts with me.”
In London, bankers also got a dressing down in a parliamentary investigation into the integrity of the British banking system, which was partly nationalized in the crisis.
A top UK financial regulator, James Crosby, deputy chairman of the Financial Services Authority, was forced to step down because of allegations he ignored risk warnings when he was chief executive of British bank HBOS.
The need to stimulate the US economy gained urgency with the worsening international outlook.
China, the world’s third-largest economy, has seen its trade flows battered as big customer economies, the United States, Europe and Japan, have gone into reverse.
A worldwide drop in demand for goods also drove US imports and exports down for a fifth straight month in December, according to the Commerce Department.
Britain reported a rise in unemployment to a 12-year high, just short of 2 million people out of work.
In yet another sign of a world slump, the Paris-based International Energy Agency said global energy demand this year would post its biggest decline since 1982 under the weight of the economic crisis.
US oil prices fell to below $36 a barrel as a result of this and a US government report on a larger-than-expected increase in crude inventories.
The global economic slowdown has helped drive down oil prices by about $110 a barrel since last July’s peaks.