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Obama refuses to postpone debate

Text by REUTERS

Latest update : 2008-12-10

The US Commission on Presidential Debates has said the Friday debate between candidates Barack Obama and John McCain must go on as scheduled, despite McCain's plea to postpone the debate so he could look into the economy.

NEW YORK - Bush administration officials warned an angry Congress on Wednesday that the U.S. financial system would sink into Great Depression-style chaos unless it approved a $700 billion bailout plan, which has become a political football in the U.S presidential campaign.

 

While Congress considers how and when to act, U.S. markets were in turmoil. Investors stampeded into 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.

 

Bush administration officials 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.

 

Wrangling over the bailout overshadowed Berkshire Hathaway Inc's $5 billion investment in embattled Wall Street titan Goldman Sachs Group Inc, which is transforming into a traditional bank to shield itself from the crisis. Goldman's shares closed 6.4 percent higher.

 

"I am to some effect betting on the fact that the government will do the rational thing and act properly," Berkshire's Warren Buffett, one of the world's richest men and preeminent investors, told CNBC.

 

U.S. President George W. Bush will seek to convince the American public to support the plan, which empowers the government to buy toxic mortgages at the center of the crisis, in a televised address Wednesday night.

 

Republican presidential candidate U.S. Sen. John McCain said he will break off from his campaign to return to Washington to help broker a deal, saying he feared legislation could not pass in its current form. The Arizona senator said he wanted to cancel Friday's presidential debate.

 

"McCain's gambit portends the further politicization of the crisis/bailout issue and thus could complicate efforts to enact (the) $700 billion (bailout) ... by as early as this weekend," Chuck Gabriel, managing director at Washington-based consultants Capital Alpha Partners, said in a note to clients.

 

Democratic candidate U.S. Sen. Barack Obama indirectly accused McCain of playing politics and said the first of a series of planned presidential debates should go ahead.

 

"What is important is that we don't suddenly infuse Capitol Hill with presidential politics," Obama said.

 

"What I'm planning to do now is debate on Friday," the Illinois senator said from Florida. "It's my belief that this is exactly the time when the American people need to hear from the person who in approximately 40 days will be responsible for dealing with this mess."

 

While investors see an 80 percent chance that the U.S. Congress will approve the bailout by the end of the month, according to Intrade, an online betting site, many lawmakers are demanding changes to the bailout plan.

 

The changes include more protections for taxpayers and restrictions on the pay of executive at companies that unload their bad assets.

 

U.S. Rep. Barney Frank, chairman of the House Financial Services Committee, said Democrats would have their version of the bailout -- with changes -- ready by Thursday and would then start negotiations with Republicans.

 

The uncertainty has roiled markets.

 

"There's a tremendous amount of anxiety whether this (bailout) bill will get passed," said Thomas di Galoma, head of U.S. government bonds at Jefferies & Co. in New York.

 

As Federal Reserve Chairman Ben Bernanke and U.S  Treasury Secretary Henry Paulson toiled to convince Congress to approve the plan allowing the government to buy up toxic mortgages and other bad assets that have dried up global credit, financial markets showed extreme strain.

 

Scarce credit forced overnight lending rates for companies to 6.50 percent. The U.S. dollar fell against the euro and global stocks seesawed as unease over the rescue plan -- which could cost every man, woman and child in America $2,300 -- kept investors on edge. The Dow industrials and the S&P 500 index both closed lower.

 

Paulson, himself a former Goldman Sachs boss who built a $700 million fortune on Wall Street, tried to downplay the cost of the rescue.

 

"(This) is not a spending program," he told lawmakers. "It is an asset purchase program, and the assets which are bought and held will ultimately be resold with the proceeds coming back to the government."

 

A new report showed existing U.S. home prices fell a record 9.5 percent in August, and up to 40 percent of homes on the market were in foreclosure or being sold at a loss.

 

Washington Mutual Inc's stock fell almost 30 percent after Standard & Poor's slashed its credit rating to junk status on expectations that any sale of the largest U.S. savings and loan would be done in pieces, and that its assets were worth less than its debts.

 

Other nations braced for fallout from the crisis. Business confidence weakened in Germany, France and Italy in September, surveys showed, stoking fears that the euro zone is sinking into recession as the turmoil spreads.

 

In the second day of congressional hearings, U.S. Rep. Baron Hill, a Democrat from Indiana, told Bernanke, "There is great angst in Congress over whether we should do this," and asked how to explain the need for an expense greater than the cost of the Iraq war since 2003 to regular Americans.

 

Bernanke bluntly warned, "Choking up of credit is like taking the lifeblood away from the economy."

 

Asked if the crisis would match the Great Depression of the 1930s, Bernanke said, "I think this is the most significant financial crisis of the postwar period of the United States, and has in fact a global reach."

 

With many members of Congress up for re-election, lawmakers are reluctant to merely rubber-stamp the rescue plan.

 

"I suspect it's true of every one of my colleagues. (They) are not just against this bailout, they're very angry," Rep. Lloyd Doggett, a Texas Democrat, told Bernanke.

 

The crisis comes after a month of turbulence marked by the government's takeover of mortgage companies Fannie Mae  and Freddie Mac, the bailout of insurer American International Group Inc, and the bankruptcy filing of investment bank Lehman Brothers Holdings Inc.

 

The head of the Congressional Budget Office, Peter Orszag, warned lawmakers of possible "chaos" if Congress does nothing resulting in a meltdown, "maybe on the magnitude of the Great Depression," he said.

 

That type of rhetoric left many investors jittery.

 

"The resistance we're seeing in Washington is understandable but frightening at the same time. The longer this drags on and the more bickering we see, the more frightening it is," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago.

 

Sources said Japan's third-largest bank, Sumitomo Mitsui Financial Group Inc, would not invest in Goldman as has been touted in recent days. This week, Japanese financial firms have bought Lehman assets and a stake in Morgan Stanley as they take advantage of the upheaval.

 

As U.S. lawmakers mull the size and content of the bailout, the FBI said it is investigating potential mortgage fraud involving senior executives at Fannie Mae, Freddie Mac, Lehman and AIG.

 

 

Date created : 2008-09-25

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