Lawmakers to Tackle Wall Street Bailout Plan Again Today

By Tom Ferraro and | September 26, 2008

U.S. congressional leaders will try again on Friday to save a $700 billion Wall Street rescue plan after talks broke down in acrimony against the backdrop of the nation’s biggest-ever bank failure.

As negotiations over the White House’s unprecedented bailout scheme degenerated into chaos when a rival Republican plan emerged, the U.S. authorities shut down Washington Mutual, the largest U.S. savings and loan bank, and sold its assets.

Democratic Rep. Barney Frank, who has played a key role in talks over the bailout plan, said negotiations would continue on Friday, but with no sign that Republicans in the House of Representatives would take part.

He said he hoped President George W. Bush and Republican presidential candidate John McCain could convince them to join the talks, where Senate and House Democrats, Senate Republicans and the Treasury Department were working together and “there aren’t huge differences.”

“I can’t believe that House Republicans are going to continue to defy George Bush or that John McCain isn’t going to try to help,” said. “There is optimism.”

Senior Democrats had said after the meeting that McCain gave the impression he backed the new plan, but the McCain campaign denied that he had endorsed anything.

U.S. stock futures, the dollar and Asian share markets all fell, while Treasuries rose reflecting heightened anxiety over Washington’s efforts to contain the 13-month old credit crisis.

“The Congress doesn’t really want the plan — no one really wants the plan, but the alternative is too bad to contemplate,” said Jan Lambregts, head of Asia research with Rabobank Global Financial Markets in Hong Kong.

Central banks in Japan, Australia and Switzerland, the euro area and Britain were back in action, pumping more cash into money markets, rattled by news of another bank failure and the bailout plan’s setback.

The third-largest U.S. bank JPMorgan Chase & Co said on Thursday it bought the deposits of Washington Mutual Inc, which has seen its market value virtually wiped out because of massive amounts of bad mortgages. The government said there would be no impact on WaMu’s depositors and customers. JPMorgan said it would be business as usual on Friday morning.

Had a bailout deal been reached in Congress, it might have helped the savings and loan, founded in Seattle in 1889. Efforts to find a buyer for WaMu have faltered over concerns whether the government would reach a deal to buy its toxic mortgages.

The upheaval in Washington comes after a month of turbulence marked by the government’s takeover of mortgage companies Fannie Mae and Freddie Mac, the bailout of insurer AIG and the bankruptcy of investment bank Lehman Brothers.

At one point, U.S. lawmakers had appeared close to an agreement on the bailout, lifting world stock markets and sending the dollar higher.

But an emergency White House meeting between Congressional leaders, Bush, McCain and Democratic presidential candidate Barack Obama “devolved into a contentious shouting match,” according to the McCain campaign’s statement.

At the heart of the controversy was a new proposal by House Republicans which would scrap the legislation that had been crafted so far by the Treasury and lawmakers in favor of a rival mortgage insurance plan, put forward by conservative Republicans.

The conservative group’s plan calls for the U.S. government to offer insurance coverage for the roughly half of all mortgage-backed securities that it does not already insure. The architects of the original plan, U.S. Treasury Secretary Henry Paulson and U.S. Federal Reserve Chairman Ben Bernanke, rushed to Capitol Hill for late night meetings to urge House Republicans to get back on track.

As Thursday’s meeting began, Bush warned, “We’re in a serious economic crisis in the country if we don’t pass a piece of legislation.”

Frank, the powerful chairman of the House Financial Services Committee, said before the Bush meeting that the deal would give the money to the U.S. Treasury in installments rather than a $700 billion lump sum the Bush administration wanted.

The enormity of the deal, which would cost every man, woman and child in the United States about $2,300, led many lawmakers to ask Paulson during two days of rancorous hearings this week to take the cash in installments.

The bailout exceeds total lending by the International Monetary Fund since its inception after World War Two. The IMF has loaned $506.7 billion since 1947 to countries in crisis as far flung as Argentina, Britain, Turkey and South Korea.

Frank also said the deal would allow the government to take part-ownership of banks and ban companies that sell toxic assets to the government from paying massive “golden parachutes” to executives being fired.

The swirl of political theatre and meetings in Washington followed fresh turbulence in the world economy.

Orders for costly U.S. manufactured goods plunged in August, new-home sales hit a 17-year low, while new claims for jobless benefits shot up last week.

Top U.S. industrial conglomerate General Electric Co, widely seen as a bellwether of the U.S. economy, issued a profit warning, citing “unprecedented weakness and volatility” in the financial services market.

HSBC Holdings, Europe’s biggest bank, said on Friday it was cutting 1,100 jobs or 4 percent of its total workforce, because of the global financial crisis.

The crisis reverberated in Amsterdam and Brussels, where Fortis NV, the Belgian-Dutch financial services group, denied a rumour the Dutch central bank had asked a Fortis rival to support the company’s liquidity position.

Fortis shares sank as much as 21 percent to 14-year lows. China’s second largest insurer Ping An Insurance, which owns 5 percent of Fortis, dived 8.7 percent because of the rumour.

In Asia, hundreds of people lined up outside the Hong Kong branches of the Bank of East Asia Ltd, some sleeping there overnight, to withdraw their savings.

(Reporting by Richard Cowan, Alister Bull, David Lawder, Kevin Drawbaugh, Glenn Somerville, Noah Barkin, Richard Leong, Megan Davies, John Parry, Jessica Hall and Ellis Mnyandu; Writing by Tomasz Janowski, Editing by Sonya Hepinstall)

Topics USA Legislation Washington

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