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US lawmakers publish rescue deal US lawmakers publish rescue deal
(about 3 hours later)
US politicians have announced a $700bn deal to rescue America's financial system and end the credit crunch.US politicians have announced a $700bn deal to rescue America's financial system and end the credit crunch.
The move, backed by both Republican and Democratic leaders, allows the Treasury to spend up to $700bn (£380bn) buying bad debts from ailing banks in the US.The move, backed by both Republican and Democratic leaders, allows the Treasury to spend up to $700bn (£380bn) buying bad debts from ailing banks in the US.
President George W Bush announced his support of the bill. Both houses of Congress are expected to vote on it in the coming days.President George W Bush announced his support of the bill. Both houses of Congress are expected to vote on it in the coming days.
Stock markets in Asia rose following the announcement.Stock markets in Asia rose following the announcement.
The announcement came after days of high-level wrangling between Republicans and Democrats in Congress over the content of the bill.The announcement came after days of high-level wrangling between Republicans and Democrats in Congress over the content of the bill.
Both parties had vigorous objections to a proposal submitted last week by Treasury Secretary Henry Paulson that would have given him sweeping powers over how the money was spent.Both parties had vigorous objections to a proposal submitted last week by Treasury Secretary Henry Paulson that would have given him sweeping powers over how the money was spent.
Every American has an interest in fixing this crisis - inaction would paralyse the economy Harry ReidSenate majority leader Announcement in quotesSantander to buy parts of B&BQ&A: Bail-out planEvery American has an interest in fixing this crisis - inaction would paralyse the economy Harry ReidSenate majority leader Announcement in quotesSantander to buy parts of B&BQ&A: Bail-out plan
His plan was prompted by a string of failures in large US financial institutions, including the government bail-out of insurance giant AIG.His plan was prompted by a string of failures in large US financial institutions, including the government bail-out of insurance giant AIG.
If approved by the Senate and House, the revised plan will led to the biggest intervention in the markets since the Great Depression in the 1930s. If approved by the Senate and House, the revised plan will lead to the biggest intervention in the markets since the Great Depression in the 1930s.
Nancy Pelosi, the Democratic Speaker of the House of Representatives, said the agreement was "not a bailout of Wall Street", but designed to ensure pensions, savings and jobs would be safe.Nancy Pelosi, the Democratic Speaker of the House of Representatives, said the agreement was "not a bailout of Wall Street", but designed to ensure pensions, savings and jobs would be safe.
Democratic Senate leader Harry Reid said the deal was a big improvement on the initial proposal.Democratic Senate leader Harry Reid said the deal was a big improvement on the initial proposal.
"They wanted a blank cheque and we couldn't give them one... Now we have to get the votes.""They wanted a blank cheque and we couldn't give them one... Now we have to get the votes."
'Necessary tools''Necessary tools'
The negotiations had lasted all weekend and were so intense that at one point Treasury Secretary Hank Paulson suffered what was described as a "woozy spell".The negotiations had lasted all weekend and were so intense that at one point Treasury Secretary Hank Paulson suffered what was described as a "woozy spell".
Now that agreement has been reached on the so-called Act of Emergency Economic Stabilization 2008, both the House of Representatives and the Senate are expected to vote on it as early as Monday.
READ THE BAIL-OUT BILL Emergency Economic Stabilization Act[189KB] Most computers will open this document automatically, but you may need Adobe Reader Download the reader hereREAD THE BAIL-OUT BILL Emergency Economic Stabilization Act[189KB] Most computers will open this document automatically, but you may need Adobe Reader Download the reader here
The US administration had wanted a deal to be announced before markets open in Asia. The US administration had wanted a deal to be announced before markets opened in Asia.
After senior members of Congress announced the agreement, President Bush gave his backing to the draft legislation.After senior members of Congress announced the agreement, President Bush gave his backing to the draft legislation.
He said the bill would send a strong message that the US was serious about restoring confidence in its financial markets.He said the bill would send a strong message that the US was serious about restoring confidence in its financial markets.
"This bill provides the necessary tools and funding to help protect our economy against a system-wide breakdown," he said in a statement."This bill provides the necessary tools and funding to help protect our economy against a system-wide breakdown," he said in a statement.
The first stock markets to open after the news broke reacted positively, with Tokyo's Nikkei index and Seoul's Kospi registering gains.The first stock markets to open after the news broke reacted positively, with Tokyo's Nikkei index and Seoul's Kospi registering gains.
No golden parachutesNo golden parachutes
The deal addresses several of the key concerns raised by both Democrats and Republicans:
  • The government will get the money in tranches - $250bn straight away, and $100bn at the request of the White House; Congress can veto the release of the remaining $350bn
  • Banks that accept bail-out money will have to hand over shares in return, which allows tax payers to benefit from the banks' recovery
  • Top bankers, meanwhile, will see their pay limited, and "golden parachutes" - huge payments when they leave the firm - will be banned
  • The banking industry will have to help finance the bail-out if the money can not be recovered from the struggling banks themselves
  • Four agencies will monitor the deal, including an independent Inspector General and a bipartisan oversight board
  • Banks will be obliged to join an insurance programme to protect them against the losses of mortgage-backed securities
The deal addresses several of the key concerns raised by both Democrats and Republicans:
  • The government will get the money in tranches - $250bn straight away, and $100bn at the request of the White House; Congress can veto the release of the remaining $350bn
  • Banks that accept bail-out money will have to hand over shares in return, which allows tax payers to benefit from the banks' recovery
  • Top bankers, meanwhile, will see their pay limited, and "golden parachutes" - huge payments when they leave the firm - will be banned
  • The banking industry will have to help finance the bail-out if the money can not be recovered from the struggling banks themselves
  • Four agencies will monitor the deal, including an independent Inspector General and a bipartisan oversight board
  • Banks will be obliged to join an insurance programme to protect them against the losses of mortgage-backed securities
The bill, called the Emergency Economic Stabilization Act of 2008, faces its first hurdle later on Monday when the House votes on it, says the BBC's Justin Webb in Washington.
It goes before the Senate later in the week.
The proposed legislation was now "frozen", said Ms Pelosi, which means critics can not strike out individual provisions that they do not like.The proposed legislation was now "frozen", said Ms Pelosi, which means critics can not strike out individual provisions that they do not like.
However, several key critics of the deal called on their fellow legislators to block it.However, several key critics of the deal called on their fellow legislators to block it.
Financial woesFinancial woes
The Bush administration submitted its initial proposal after several financial institutions got into trouble - unable to free up the money to keep their daily business going.The Bush administration submitted its initial proposal after several financial institutions got into trouble - unable to free up the money to keep their daily business going.
The liquidity problems have not been limited to the US.
  • In the United States' largest bank failure, Washington Mutual was taken over by regulators and sold on to JPMorgan Chase
  • Lehman Brothers collapsed, Merrill Lynch sought refuge in a takeover by Bank of America and Morgan Stanley secured a large capital injection from a Japanese rival
  • US insurance giant AIG had to be bailed out by the US government, which in effect took an 80% stake in the firm
  • In the UK, meanwhile, mortgage lender Bradford & Bingley is set to be nationalised, with the savings part of the business to be sold to Spanish banking group Santander
  • The governments of Belgium, Luxembourg and the Netherlands agreed late on Sunday evening to invest 11.2bn euro in huge financial services group Fortis, in effect nationalising it.
The liquidity problems have not been limited to the US.
  • In the United States' largest bank failure, Washington Mutual was taken over by regulators and sold on to JPMorgan Chase
  • Lehman Brothers collapsed, Merrill Lynch sought refuge in a takeover by Bank of America and Morgan Stanley secured a large capital injection from a Japanese rival
  • US insurance giant AIG had to be bailed out by the US government, which in effect took an 80% stake in the firm
  • In the UK, meanwhile, mortgage lender Bradford & Bingley is set to be nationalised, with the savings part of the business to be sold to Spanish banking group Santander
  • The governments of Belgium, Luxembourg and the Netherlands agreed late on Sunday evening to invest 11.2bn euro in huge financial services group Fortis, in effect nationalising it.