October 1, 2008 / 12:03 AM / 9 years ago

Europe scrambles for bailout as Senate vote looms

<p>A police officer patrols an empty hall on Capitol Hill, September 30, 2008.Jim Young</p>

NEW YORK (Reuters) - A revised $700 billion U.S. financial bailout plan is significantly more likely to pass Congress, the White House said Wednesday, as European leaders scrambled to agree on their own bank rescue package.

The Senate geared up to vote on the bill after 7:30 p.m. The House, which rejected the original plan on Monday, was likely to vote on Friday, a senior aide said.

White House spokesman Tony Fratto said the new bill was significantly more likely to pass after revisions, including one that would raise the cap on individual bank deposits guaranteed by the government to $250,000 from $100,000.

A source at a European government, speaking anonymously, said France plans to propose a $300 billion plan to bail out European banks on Saturday. French Economy Minister Christine Lagarde denied the report, while the German Finance Ministry said it disagreed with any such plan.

Earlier, Lagarde told a German newspaper in an interview to be published on Thursday that the idea of a rescue fund to save banks would be discussed when British, German, French and Italian leaders met in Paris on Saturday.

Stocks briefly turned positive after news of the European discussions, but evidence mounted that the crisis has started to hit U.S. consumers and big companies.

General Electric Co said it would sell $3 billion of preferred stock to investor Warren Buffett and make a public offering of $12 billion of common stock. Earlier, GE shares fell sharply on concerns that the credit crisis would hit profits and push up the cost of borrowing.

Ford Motor Co said auto sales were "extremely weak" in the last 10 days of September as consumers were frozen by the debate over the U.S. bailout plan.

Sen. John McCain and Sen. Barack Obama, the Republican and Democratic candidates in U.S. presidential elections on November 4, said failure to pass the bailout bill would have dire consequences for the economy.

Urging senators to approve the bill earlier on Wednesday, the White House said there was evidence the crisis was squeezing credit for small businesses and municipalities all across the country.

<p>President Bush pauses while speaking next to the Commander for NATO International Security Assistance Force in Afghanistan U.S. Army General David McKiernan in the Oval Office of the White House in Washington, October 1, 2008.Larry Downing</p>

House members who voted against the rescue plan on Monday cited complaints from their constituents that taxpayers were being asked to bail out Wall Street. The plan's defeat sent the U.S. stock market to its worst percentage drop in 20 years on Monday.

But opposition to the plan turned to support after the market drop, according to members of Congress and staffers.

Lobbyists from the banking industry and the U.S. Chamber of Commerce were trying to identify House members who might reconsider their Monday "no" votes, and business executives around the world warned the crisis would hit growth.

EUROPEAN ACTION

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Manufacturing industry in the United States and the rest of the developed world contracted in September as global financial turmoil hurt businesses, and all signs pointed to more economic weakness ahead.

Data from Japan, the euro zone and Britain were all weak and added to the sense of urgency in bringing some stability to the financial markets.

The financial chaos, which has prompted comparisons with the Great Depression of the 1930s, has redrawn the banking landscape in the United States and Europe.

Wall Street giants Bear Stearns, Lehman Brothers and Merrill Lynch have been swallowed by rivals, and gone is the investment banking model that dominated for decades after Goldman Sachs and Morgan Stanley sought commercial bank status.

Jean-Claude Juncker, chairman of the euro zone's finance ministers, said the United States had to adopt the rescue plan, a view echoed by Russian Finance Minister Alexei Kudrin.

"It is the responsibility of the United States to other countries," Kudrin said.

The EU said it would change its rules on fair-value accounting if others did so, after U.S. regulators said they were revising a rule that requires banks to account for assets in line with market prices, which has led to big charges on mortgage-backed securities.

Additional reporting by Reuters reporters in Washington, Brussels, Tokyo, Frankfurt and Moscow; Editing by John Wallace

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