Bailout deal near as Bush to meet lawmakers

FE Team | Published: September 26, 2008 00:00:00 | Updated: February 01, 2018 00:00:00

WASHINGTON, Sept 25 (Reuters): 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 remained on tenterhooks Wednesday as negotiations dragged on. Investors sought 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.
Most Asian stock markets were weaker and the US dollar dipped against major currencies Thursday on lingering worries about the timing and scale of rescue plan and fears of the financial contagion deepening.
On Wednesday, Senate Banking Committee Chairman Christopher Dodd expressed optimism a deal was nearing.
"We're not there yet," Dodd told reporters, adding there was a "good possibility we'll get there in a day or so."
Bush offered few details about the makeup of the emerging deal but 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 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.
Moments after Bush spoke Wednesday, powerful Democrat Rep Barney Frank said a bailout bill would pass.
Frank also said there was agreement between House and Senate Democrats on what should be in the bill and that a meeting was scheduled for 10am Thursday to meet the Republicans.
Bush used his televised speech to tell Americans there was little choice but to undertake the massive bailout, which could cost every man, woman and child in America $2,300.
"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.
Many lawmakers have demanded changes to the bailout plan, including more protections for taxpayers and restrictions on executive pay at companies that unload their bad assets.
AP adds: President Bush said Wednesday that lawmakers risk a cascade of wiped-out retirement savings, rising home foreclosures, lost jobs and closed businesses if they fail to act on a massive financial rescue plan. "Our entire economy is in danger," he said.
"Without immediate action by Congress, American could slip into a financial panic and a distressing scenario would unfold," Bush said in a 12-minute prime-time address delivered from the White House East Room that he hoped would help rescue his tough-sell bailout package. "Ultimately, our country could experience a long and painful recession."
Said Bush: "We must not let this happen."
The unprecedented $700 billion bailout, which the Bush administration asked Congress last weekend to approve before it adjourns, is meeting with deep skepticism, especially from conservatives in Bush's own Republican Party who are revolting at the high price tag and massive private-sector intervention by government. Though there is general agreement that something must be done to address the spiraling economic problems, Bush has been forced to accept changes almost daily, based on demands from the right and left.
Seeking to explain himself to conservatives, Bush stressed he was reluctant to put taxpayer money on the line to help businesses that had made bad decisions and that the rescue is not aimed at saving individual companies. He tried to address some of the major complaints from Democrats by promising that CEOs of failed companies won't be rewarded, while warning he would draw the line at regulations he determined would hamper economic growth.
"With the situation becoming more precarious by the day, I faced a choice: to step in with dramatic government action or to stand back and allow the irresponsible actions by some to undermine the financial security of all," Bush said.
The president turned himself into an economics professor for much of the address, tracing the origins of the problem back a decade.
But while generally acknowledging risky and poorly thought-out financial decisions at many levels of society, Bush never assigned blame to any specific entity, such as his administration, the quasi-independent mortgage giants Fannie Mae and Freddie Mac or the Wall Street firms that built rising profits on increasingly speculative mortgage-backed securities.