Wall Street plunges as bailout vote takes place
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The Dow Jones plunged 500 points as the results of the US House of Representatives vote on the bailout plan came through. The rescue package comprises a $700 billion government fund to buy bad debt in an effort to avoid financial disaster.
US lawmakers faced a pivotal vote on Monday on a revised 700-billion-dollar bailout plan for struggling Wall Street banks designed to stem a grave financial crisis and free up frozen credit markets.
The rescue package, a compromise forged in high-stakes negotiations between rival party leaders in Congress and White House officials over the weekend, is due for a vote in the House of Representatives on Monday with the US and global financial markets anxiously awaiting the outcome.
The plan would mark the largest government economic intervention since the Great Depression of the 1930s, and is designed to shore up a troubled economy suffering from a burst US housing bubble that has ravaged the global banking system and dried up credit.
The proposal grants the Treasury secretary authority to buy up toxic mortgage-related assets in troubled banks in hopes of easing the flow of credit and reviving the moribund housing market.
Congressional leaders, mindful of the approaching November 4 general elections, had been rushing to strike a deal before global bourses reopened late Sunday US time.
Japanese share prices rose 0.46 percent in morning trade on Monday after the deal struck by lawmakers.
President George W. Bush praised the draft legislation, saying the rescue was needed "to help protect our economy against a system-wide breakdown."
Bush, who was due to make a statement before US markets open on Monday morning, said the plan "sends a strong signal to markets around the world that the United States is serious about restoring confidence and stability to our financial system."
With some conservative Republicans as well as liberal Democrats steadfastly opposed to the plan, it was unclear if the bailout would win approval.
White House hopefuls Republican John McCain and his Democratic rival Barack Obama reluctantly offered cautious backing for the plan, both claiming that demands they had made had been incorporated into the new bill.
The breakthrough among lawmakers capped an extraordinary weeks-long rollercoaster on the world's financial markets, sent into a tailspin by the overexposure of both US and international financial firms to the US subprime mortgage crisis.
Democratic lawmakers portrayed the revised plan, that ran more than 100 pages, as much improved from the three-page version sent days earlier by the White House, saying it included stricter oversight and caps on executive pay packages.
"Working in a bipartisan way, we sent a message to Wall Street. The party is over," said House Speaker Nancy Pelosi.
"The era of golden parachutes for high flying Wall Street operators is over. No longer will the US taxpayer bail out the recklessness of Wall Street."
The proposed rescue, posted on financialservices.house.gov and formally titled the Emergency Economic Stabilization Act of 2008, calls for the immediate release of 250 billion dollars to enable the government to buy up troubled assets.
Under the bill, the president is authorized to approve a further 100 billion dollars, but the plan gives Congress a veto power over purchases above that limit and sets a ceiling for all purchases of 700 billion dollars.
The rescue operation will be overseen by a board including the chairman of the Federal Reserve, the Treasury secretary and the chairman of the Securities and Exchange Commission.
The board will be one of four separate oversight agencies or processes, which also include a presence in the Treasury office and an independent inspector general that would monitor the Treasury secretary's actions.
There will be no "golden parachutes" for CEOs or other executives who lose or leave their jobs at companies participating in the plan as long as the Treasury holds equity in those firms.
The negotiations were reportedly marked by bitter disagreement over how to pay for possible losses suffered by taxpayers after debt has been bought and sold.
Democratic lawmakers had called for financial firms to help pay for the losses but the draft legislation left the question open for the next US president to tackle.
The White House on Sunday sought to reassure anxious Republican lawmakers, saying the government expects assets acquired from troubled banks to eventually generate income and ease any potential burden on taxpayers.
"The impact on the taxpayer will be considerably less than 700 billion dollars," White House budget director Jim Nussle wrote in a letter to the Republican leader in the House of Representatives, John Boehner.
The bailout bill "authorizes the purchase of assets that, over time, will produce income and can eventually be sold," Nussle wrote in the letter released by the White House.
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