White House, Congress still negotiating bailout

WASHINGTON Thu Sep 25, 2008 7:23pm EDT

House Financial Services Committee Chairman Barney Frank (D-MA) (2nd L) talks to reporters after a meeting with other Congressional finance leaders to discuss the economic bailout plan in the Capitol in Washington September 25, 2008. From left are Representative Spencer Bachus (R-AL), Frank, Senator Chris Dodd (D-CT) and Senator Jack Reed (D-RI). REUTERS/Kevin Lamarque

House Financial Services Committee Chairman Barney Frank (D-MA) (2nd L) talks to reporters after a meeting with other Congressional finance leaders to discuss the economic bailout plan in the Capitol in Washington September 25, 2008. From left are Representative Spencer Bachus (R-AL), Frank, Senator Chris Dodd (D-CT) and Senator Jack Reed (D-RI).

Credit: Reuters/Kevin Lamarque

Related Topics

WASHINGTON (Reuters) - A deal to rescue the faltering U.S. financial system stalled on Thursday amid bickering between Democrats and Republicans and accusations of political posturing by Republican presidential candidate John McCain.

U.S. lawmakers had appeared close to a final agreement on Thursday on a massive $700 billion bailout to save the financial system, lifting world stock markets and sending the dollar higher. But things spun off course during an emergency White House meeting between Congressional leaders with U.S. President George W. Bush, according to lawmakers.

In advance of that meeting, which included the two men battling to succeed him, Democrat Barack Obama and McCain, a compromise bipartisan deal seemed imminent.

After the session, Congressional leaders said an agreement could take until the weekend, sending U.S. stock futures down, paring earlier gains.

Republican U.S. Sen. Richard Shelby bluntly told reporters, "I don't believe we have an agreement.

A group of conservative Republican lawmakers proposed an alternative mortgage insurance plan, eschewing the Bush administration's Wall Street bailout just weeks before the November 4 election as many lawmakers try to hold on to their seats.

Congressional aides said they were still working on reaching a deal, with many issues remaining.

White House spokeswoman Dana Perino said, "The deal is not finalized ... There's a commitment to get something done, nobody's happy about it."

U.S. Senate Banking Committee Chairman Christopher Dodd said a deal could take beyond Friday to reach and took a firm swipe at McCain, who returned from his presidential campaign to try to broker a deal.

"What this looked like to me was a rescue plan for John McCain for two hours," Dodd told CNN. "To be distracted for two to three hours for political theater doesn't help."

Also speaking to CNN, Obama said, "Sen. McCain spoke briefly. I think he still wants to see something happen."

"The concern that I have ... is that when you start injecting presidential politics into delicate negotiations then you can actually create more problems rather than less."

Earlier, news that a deal was near stabilized beleaguered money markets, frozen by a reluctance by banks to lend. The rate on one-month U.S. Treasury bills shot higher as traders unwound safe-haven trades.

Still, officials from France to China voiced alarm.

"A crisis of confidence without precedent is shaking the global economy," French President Nicolas Sarkozy said in a speech in Toulon, France.

As Thursday's meeting began, Bush warned, "We're in a serious economic crisis in the country if we don't pass a piece of legislation."

U.S. Rep. Barney Frank, the powerful Democratic chairman of the House Financial Services Committee, said before the Bush meeting that the deal would give the money to the U.S. Treasury in installments rather than a $700 billion lump sum the Bush administration wanted.

The enormity of the deal, which would cost every man, woman and child in the United States about $2,300, led many lawmakers to ask U.S. Treasury Secretary Henry Paulson during two days of rancorous hearings this week to take the cash in installments.

The bailout exceeds total lending by the International Monetary Fund since its inception after World War II. The IMF has loaned $506.7 billion since 1947 to countries in crisis as far flung as Argentina, Britain, Turkey and South Korea.

Frank also said the deal would allow the government to take part-ownership of banks, ban companies who sell toxic assets to the government from paying massive "golden parachutes" to executives being fired and include measures to help some Americans avoid losing their homes.

Reflecting that the current crisis appears to be the most serious since the Great Depression of the 1930s, fresh Federal Reserve data showed U.S. banks and money managers have borrowed a record $188 billion daily in recent days from the Fed -- a daily amount roughly equal to Argentina's annual economic output.

"This looks like the balance sheet of a central bank that is keeping the financial system on life support," said Michael Feroli, U.S. economist with JPMorgan in New York.

The swirl of political theater and meetings in Washington followed fresh turbulence in the world economy.

Orders for costly U.S. manufactured goods plunged in August, new-home sales hit a 17-year low, while new claims for jobless benefits shot up last week.

Top U.S. industrial conglomerate General Electric Co (GE.N), widely seen as a bellwether of the U.S. economy, issued a profit warning, citing "unprecedented weakness and volatility" in the financial services market.

In the latest shake-up on Wall Street, JPMorgan Chase & Co (JPM.N) plans to acquire the deposits of beleaguered savings and loan Washington Mutual Inc (WM.N), the Wall Street Journal reported.

The crisis reverberated in Amsterdam and Brussels, where Fortis NV FOR.BR, the Belgian-Dutch financial services group, denied a rumor the Dutch Central Bank had asked a Fortis rival to support the company's liquidity position. Fortis shares sank as much as 21 percent to 14-year lows.

In Asia, hundreds of people lined up outside the Hong Kong branches of the Bank of East Asia Ltd (0023.HK), some sleeping there overnight, to withdraw their savings.

China's banking regulator sought to reassure jittery financial markets, denying a report that it had told local banks to stop lending to U.S. banks.

INTENSE BAILOUT TALKS

Earlier, expectations of a deal to stave off a widespread financial meltdown gave beleaguered U.S. stocks and the U.S. dollar a boost.

The crisis comes after a month of turbulence marked by the government's takeover of mortgage companies Fannie Mae FNM.P

and Freddie Mac FRE.P, the bailout of insurer American International Group Inc (AIG.N), and the bankruptcy filing of investment bank Lehman Brothers Holdings Inc LEHMQ.PK.

But just weeks before Americans go to the polls to elect a new president, critics are concerned the plan will let freewheeling bankers off too lightly, and doubts have surfaced over whether it can solve the wider crisis.

Concern lingered that even with a bailout, the United States may stumble, prompting a global slowdown.

German Finance Minister Peer Steinbrueck said one outcome of the crisis would be a less dominant role for the United States in the global financial system.

"The United States will lose its superpower status in the world financial system. The world financial system will become more multipolar," he said.

(Writing by Mark Egan; Reporting by Richard Cowan, Alister Bull, David Lawder, Kevin Drawbaugh, Glenn Somerville, Noah Barkin, Richard Leong, Megan Davies, John Parry, Jessica Hall and Ellis Mnyandu; editing by John Wallace and Jeffrey Benkoe)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.