Washington: Congress looked close to reaching a deal to approve a $700 billion plan to bail out the US financial system and President George W Bush called an emergency meeting for Thursday to hammer out details.
The move toward a deal will likely calm US markets, which were in turmoil on Wednesday as negotiations dragged on. Investors stampeded into cash and safe-haven assets, briefly sending short-term interest rates below zero. Experts said banks were hoarding cash, fearful that if they loaned money to other banks they might not get repaid.
But with a deal near, US stock futures were up about 0.5% after earlier being negative, suggesting a firmer open for Wall Street on Thursday. Asian stock markets also retraced earlier losses.
Bush warned of a looming economic disaster if Congress failed to act swiftly to fund the $700 billion bailout that would be larger than the total cost of the Iraq war.
Bush offered few details about the makeup of the emerging deal for a bailout.
US congressional Democrats and Republicans plan to meet on Thursday to draft a final bipartisan plan, a Democratic source told Reuters on Wednesday night.
“Not too many unresolved issues remain,” the source said.
Earlier on Wednesday, Senate Banking Committee Chairman Christopher Dodd expressed optimism a deal was nearing.
Bush said he had called an emergency meeting with Democratic presidential candidate Sen. Barack Obama, his Republican rival Sen. John McCain and members of Congress to broker a deal. Obama accepted.
Moments after Bush spoke, powerful Democrat Rep. Barney Frank said it was “clear” a bailout bill will pass.
Bush used his televised speech to tell Americans there was little choice but to undertake the massive bailout.
“I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances,” Bush said.
“The market is not functioning properly. There has been a widespread loss of confidence, and major sectors of America’s financial system are at risk of shutting down.”
If left unchecked, Bush said the problems in capital markets would reach far beyond big business and Wall Street,guarantee a long and painful recession and make it harder for Americans to get loans to buy cars or send kids to college.
Demand for change in the plan
Wrangling over the bailout overshadowed Berkshire Hathaway Inc’s $5 billion investment in embattled Wall Street titan Goldman Sachs Group Inc, which is transforming into a traditional bank to shield itself from the crisis. Goldman’s shares closed 6.4% higher.
Many lawmakers have demanded changes to the bailout plan.
The changes include more protections for taxpayers and restrictions on executive pay at companies that unload their bad assets.
After a week of pointed barbs on the campaign trail, McCain and Obama later took the unusual step of issuing a joint statement, calling Bush’s plan “flawed” but urging fellow Republicans and Democrats to reach a solution.
“No matter how this began, we all have a responsibility to work through it and restore confidence in our economy. The jobs, savings and prosperity of the American people are at stake,” the candidates’ statement said.
“This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe.”
Earlier, as Federal Reserve Chairman Ben Bernanke and US Treasury Secretary Henry Paulson toiled to convince Congress to approve the plan allowing the government to buy up toxic mortgages and other bad assets that have dried up global credit, financial markets showed extreme strain.
Scarce credit forced overnight lending rates for companies to 6.50%. The US dollar fell against the euro and global stocks seesawed as unease over the rescue plan - which could cost every man, woman and child in America $2,300 - kept investors on edge. The Dow industrials and the S&P 500 index both closed lower.
A new report showed existing US home prices fell a record 9.5% in August, and up to 40% of homes on the market were either in foreclosure or being sold at a loss.