/ 4 October 2008

Making up the losses

The United States Senate voted comfortably in favour of the Bush administration’s contentious $700-billion bail-out of the banking industry early on Thursday, bringing the package back to life after a bitter week of political wrangling and wild gyrations in financial markets. After a six-hour debate, the emergency rescue plan was passed by 74 to 25.

The Bill was expected to go back to the House of Representatives on Friday, where Republican and Democratic leaders hope to reverse Monday’s shock vote against its progress.

The upper chamber’s approval will come as a relief to George Bush, whose authority has been severely tested by Congress’s rebellion. Global financial markets have been volatile throughout the week and financial institutions on both sides of the Atlantic have been struggling to stay afloat.

The two candidates vying for the US presidency, Barack Obama and John McCain, both broke off the campaign trail to cast their first votes in the chamber for months.

”This plan is not perfect. Democrats and Republicans in Congress have legitimate concerns about it,” Obama told his fellow senators. ”But it’s clear from my perspective that this is what we have to do right now to prevent the possibility of a crisis turning into a catastrophe.”

Since it was rejected by the House earlier in the week, the plan has been sweetened with measures to appease doubters. The core proposal still authorises the treasury to spend billions of dollars cleaning up the balance sheets of struggling banks by buying up moribund mortgage-related securities. But it has grown from its original three pages to 451 pages.

In its new form, the plan will increase protection for US bank customers by raising the limit of a federal­ guarantee on deposit accounts from $100 000 to $250 000.

Another amendment extends energy-related tax breaks for businesses — a measure intended to win over Republican free-market critics but which has upset some on the left who see it as a nod to commerce rather than to struggling homeowners.

There are still staunch hold-outs in both parties. Bill Nelson, a Democratic senator from Florida, argued that it hardly does anything to help those facing foreclosure on predatory sub-prime mortgages.

”This Bill sends a message to Wall Street that if you play fast and loose in the name of short-term profits, the government will make up your losses,” said Nelson.

But Lindsay Graham, a Republican, argued that the alternative was to allow credit to become so expensive that ”Americans are not going to be able to borrow a dime”. He said: ”If you think this costs a lot now, just do nothing and then see what it costs.”

A glut of dismal economic statistics has given fresh impetus for action. New data this week showed a slump in manufacturing activity, a dive in car sales and soaring job losses.

The world’s richest man, Warren Buffett, has likened the situation to an ”economic Pearl Harbour”. Some 14 high-street banks in the US have already gone bust this year and investment houses Lehman Brothers and Bear Stearns have fallen victim to the crisis.

But on the streets outside Congress noisy protestors demonstrated against the bail-out. Jobs With Justice, a workers’ rights group, held rallies outside Washington branches of Bank of America and Citibank.

Sarcastically dubbing themselves ”billionaires for the bail-out”, they chanted: ”We broke it, you fix it.” —