Pressure mounts on US over rescue package

Pressure mounted on lawmakers to agree on a $700-billion financial rescue plan after talks at the White House broke down in acrimony and the biggest bank closure in United States history roiled global markets.

US authorities shut bank Washington Mutual on Thursday, selling its assets to JPMorgan Chase. In Europe, Belgian-Dutch financial group Fortis denied it had a liquidity problem after its shares tumbled for a fifth straight day.

Europe’s biggest bank, HSBC Holdings, said it was cutting 1 100 jobs, or 4% of its workforce, citing the crisis.

Global money markets dried up, forcing increased injections of cash from central banks as dollar borrowing rates remained high, particularly for three-month money. The market stress was aggravated by the looming quarter-end next week.

As Washington’s efforts to contain the credit crisis descended into angry clashes between Republicans and Democrats, the dollar and Asian and European share markets fell, Treasuries rose, and US stock futures indicated shares would open sharply lower, with financial stocks under pressure.

”The negotiations over the bail-out are sapping the enthusiasm that people could have for the market,” said Rick Meckler, president of investment firm LibertyView Capital Management in New York. ”I think with no agreement, it’s going to be hard for the market to push ahead.”

Fortis’s stock fell nearly 10% on investor concerns about its liquidity, which its president said was not a problem. The bank’s woes extended to China, where shareholder Ping An Insurance sank 9,7%.

US Treasury Secretary Henry Paulson and Federal Reserve chairperson Ben Bernanke put together the bail-out proposal, but hopes for a speedy deal dimmed when a group of conservative Republican lawmakers proposed an alternative plan on Thursday.

Republican Senator Richard Shelby, who opposes the Treasury bail-out plan, said early on Friday it would have to be changed to win his party’s approval.

The Democratic chairperson of the House Banking Committee, Barney Frank, countered that passage would depend on Republicans reaching agreement among themselves.

Asked in an interview on CBS News’s Early Show whether it would be approved by the end of the week, Shelby replied: ”We could, but I think we’ll have to change the structure some.”

Frank said: ”It depends on the House Republicans dropping this revolt against the president and cooperating in trying to amend the plan.”

Presidential politics
The heated political debate comes just weeks before the November 4 presidential and congressional elections as many lawmakers try to hold on to their seats.

The group of conservative lawmakers wants the government to offer insurance coverage for the roughly half of all mortgage-backed securities that it does not already insure.

Lawmakers critical of the Paulson deal are concerned that freewheeling bankers will get off too lightly, and have doubts over whether the plan can solve the wider credit crisis.

An emergency White House meeting between congressional leaders, President George Bush, Republican presidential candidate John McCain and Democratic candidate Barack Obama ”devolved into a contentious shouting match”, according to a statement from the campaign of McCain, who was accused by some of stalling the process.

US Senate Banking Committee chairperson Christopher Dodd accused McCain of creating ”political theatre” to ”rescue” his presidential campaign.

McCain has told Obama he does not want to attend the first of their televised presidential campaign debates set for Friday without a deal being reached on the bail-out. Obama has insisted the debate go ahead, arguing the American people want to have the issue aired.

Lawmakers face the most serious financial crisis since the Great Depression of the 1930s, with the $700-billion price tag bigger than the cost of the Iraq war and topping all International Monetary Fund lending since its inception after World War II.

Negotiations are expected to continue on Friday.

Washington Mutual saw its market value virtually wiped out because of massive amounts of bad mortgages. Buyer JPMorgan said it would be business as usual on Friday for WaMu’s depositors and customers.

The 13-month-old credit crisis has come to a head this month, after the US government’s takeover of mortgage companies Fannie Mae and Freddie Mac, the bail-out of insurer American International Group, and the bankruptcy filing of investment bank Lehman Brothers Holdings.

Bush this week in a televised speech warned of a looming economic disaster if Congress failed to act swiftly to fund a bail-out. On Thursday he warned: ”We’re in a serious economic crisis in the country if we don’t pass a piece of legislation.” — Thomson Reuters

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