World on edge as US votes on financial rescue

World on edge as US votes on financial rescue

Washington: World financial leaders warned that a $700 billion US rescue plan may not be enough to revive the battered global economy as markets suffered fresh losses on Friday.

The House of Representatives was to vote on the new bailout plan on Friday, but European Central Bank chief Jean-Claude Trichet said the measure was no guaranteed panacea.

“In America... as in Europe and the rest of the world, we have to face up to the major correction that is underway" on financial markets, Trichet said, when asked whether the rescue plan would pull the United States out of trouble.

“So we cannot say that after such and such an action, it is all over," he said on French radio. But he stressed the bill must be passed.

US President George W Bush launched an impassioned appeal to the House to follow the Senate’s lead and approve the massive rescue package, warning “people’s jobs are in jeopardy."

“This issue has gone way beyond New York and Wall Street. This is an issue that is affecting hard-working people," Bush said in his 14th appeal in a fortnight for lawmakers to back the controversial proposal.

The leaders of Europe’s four biggest economies - Britain, France, Germany and Italy - were to meet Saturday in Paris to discuss the crisis.

The build up has already revealed a split between European powers on how to protect the banking sector, with Germany dismissing calls for a joint European fund to bail out failing banks.

The Dutch government has proposed that EU governments reserve a sum equivalent to 3% of gross domestic product to help ailing banks and money markets. The measure could create a pool of more than euro350 billion.

Swiss banking giant UBS, which has suffered huge losses in the crisis, said it would cut 2,000 more jobs as it revamps its battered investment bank unit. The lay-offs would bring staff levels in the unit to about 17,000, 6,000 less than the peak level in 2007.

“Reductions will be predominantly targeted to businesses being exited or downsized," the bank said. UBS had been forced to write down over $42.5 billion worth of assets after the US mortgage market soured.

The European Central Bank renewed on Friday loans of $50 billion, in what has become a regular effort to keep cash flowing on distressed interbank money markets.

In the tense run-up to the House of Representatives vote, Asian stocks tumbled amid concerns that it may not be passed. Tokyo slid two percent at close, Hong Kong was down 2.1% at noon and Sydney finished 1.4% lower, while Singapore was off by 2.3%.

“Even if the House passes the bill, we cannot expect markets to recover given the weak economy," said Kazuhiro Takahashi, equities chief at Daiwa Securities SMBC in Tokyo.

The House of Representatives will vote on an amended version of the bailout, laced with $150 billion in tax breaks to coax reluctant lawmakers from both the Democratic and the Republican parties to get on board.

The rescue bill, like the earlier one rejected by the House, gives the US Treasury power to buy up toxic mortgage debt which has been choking the financial industry.

It would essentially create a $700 billion federal program to buy bad assets from banks and other financial firms at a steep discount.

Backers of the legislation said they hope the federal government will eventually be able to recoup most or all of the money by selling the assets later.

To make the bill more attractive, the Senate raised the ceiling on federal insurance for bank deposits from $100,000 to $250,000, and added up to $150 billion in tax break extensions for middle class families and business.

They also retained the limits on “golden parachute" severance payments to disgraced Wall Street executives.

Many remain sceptical however. Nobel Prize-winning economist Joseph Stiglitz warned the rescue package was unlikely to restore economic stability.

The US administration has said the bailout legislation is direly needed to ease a deepening credit freeze and to ease volatility on global markets.