Published September 26, 2008

US rivals join forces to seal rescue deal

Bush, Obama, McCain put politics aside to ensure bailout goes through; key proposals watered down

By ANDREW MARKS
NEW YORK CORRESPONDENT
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THE present and future presidents of the United States are coming together to clear the way for the proposed US$700 billion bailout of major banking institutions that would avert the threat of a global meltdown of the financial markets.

President George Bush announced that he had invited Senator Barack Obama, the Democratic presidential candidate, and Senator John McCain, the Republican nominee for president, to come to the Oval Office to sit down with him and leaders of Congress and hammer out a bipartisan solution. This would restore liquidity to the markets and protect the economy from the disastrous fallout should the government fail to act swiftly to aid the imperilled financial firms.

Both Mr Obama and Mr McCain, who on Wednesday announced he was suspending his campaign in order to help broker a deal in Washington, have voiced support for a rescue plan that would buy up distressed securities, most of them tied to home mortgages, from US financial firms. At the same time both were being careful to reflect the growing anger among many Americans that they are being stuck with the bill for Wall Street's excesses.

'We must be sure that any rescue plan include greater oversight, and assurances that taxpayer dollars not be used to enrich the very same executives who brought about this mess,' said Mr Obama.

Senate Banking Committee chairman Christopher Dodd said late on Wednesday that while 'we're not there yet', on approving the plan, there was a 'good possibility we'll get there in a day or so'.



Early yesterday morning, Representative Barney Frank, the Democratic chairman of the House Financial Services Committee, said Democrats in the House and Senate had reached a deal among themselves on provisions that should be in the bill and planned to meet Republicans at 10 am and meet at the White House later in the day.

Stocks were rising as trading got underway in New York early yesterday, with the Dow Jones Industrials up 110 points, or 1.02 per cent, to 10,935.5, shortly after the opening bell.

The tone had been set on Wednesday night, when President Bush signalled his determination to hammer out a rescue package - warning of a long and painful recession if nothing was done.

'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,' Mr Bush said in his address. He went on to explain his rationale for the extraordinary bailout, which at US$700 billion would be larger than the cost of the Iraq war thus far and the most expensive in US history, dwarfing the estimated US$200 billion rescue during the savings & loan crisis of the late 1980s.

'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,' the president said.

Even as he spoke to the national television audience, warning that 'our entire economy is in danger', and that a 'long and painful recession' will ensue if Congress does not move swiftly to the plan, congressional Democrats and Republicans continued to meet Treasury Department officials, negotiating details of a bipartisan debt relief plan for the banks late into the night in order to bring calm to Wall Street and global financial markets.

President Bush signalled his willingness to make concessions in the plan, such as stricter controls and oversight of Treasury Secretary Henry Paulson's authority over the terms and process of the bailout, limits on executive compensation at the companies participating in the rescue plan and a provision giving taxpayers an equity stake in some of the firms so that the government might profit from the costly rescue if and when the banks return to prosperity.

Meanwhile, Wall Street endured another chaotic day on Wednesday, as Secretary Paulson and Federal Reserve chief Ben Bernanke spent hours on Capitol Hill defending the bailout plan. Investors fled from stocks and into cash and safe haven assets, briefly sending short-term interest rates below zero. The stock market seemed to take heart at the end of the trading day, however, from pronouncements by Congressional leaders that a deal on the bailout appears near.