Senate Endorses Bailout as Economy StuttersBy Reuters - | Posted 2008-10-02 Print
The fate of the rescue plan, passed by the Senate 74-25, now lies with the House of Representatives, which rocked global markets this week by rejecting an earlier version. President George W. Bush has called the bailout "essential to the financial security of every American". But the crisis has spread well beyond U.S. shores and beyond the financial sector. Top automakers including General Motors Corp and Ford warned of tough times amid fears slowing demand could force production cuts and job losses.
HONG KONG/LONDON (Reuters) - Shockwaves from the global credit crisis spread on Thursday threatening industry and jobs worldwide and putting pressure on the U.S. Congress to pass a $700 billion bailout of the American financial sector.
The fate of the rescue plan, passed by the Senate 74-25 on Wednesday night, now lies with the House of Representatives, which rocked global markets this week by rejecting an earlier version. President George W. Bush has called the bailout "essential to the financial security of every American".
But the crisis has spread well beyond U.S. shores and beyond the financial sector. Top automakers including General Motors Corp and Ford warned of tough times amid fears slowing demand could force production cuts and job losses.
"The problems of subprime and credit crunch are now all over the world," Ford Motor Co Chief Executive Alan Mulally said.
"The downturn is longer and deeper than we foresaw a year ago," he said.
U.S. figures show falling factory output and plunging car sales -- a sign of increasing reluctance of banks to give loans to business or private individuals.
Meanwhile French President Nicolas Sarkozy's office said the president would host the leaders of Britain, Italy, Germany and the European Central Bank on Saturday to discuss a response. Sarkozy, however, denied reports a 300 billion euro plan akin to the U.S. bailout was under consideration.
The European Commission welcomed the Senate vote as heading in the right direction. "We certainly hope that other steps will follow," Commission President Jose Manuel Barroso said.
Market participants warned, however, that the rescue package is not a cure-all, with a worsening economic outlook spurring calls for central banks to cut interest rates.
"Even if the bill is passed, worries remain over the global economic outlook so financial markets are unlikely to stabilize," said Masamichi Adachi, senior economist at JPMorgan in Tokyo.
"It's a completely different world now. All the things U.S. authorities are doing now are simply aimed at preventing a global meltdown."
The bailout plan, equivalent to some $2,300 per American, is intended to reinvigorate credit markets and interbank lending that has frozen up while overleveraged financial institutions staggered under the weight of failed mortgages. It has stirred fierce criticism from those who see it as help for a Wall Street guilty of taking reckless risks in pursuit of short-term profit.
Under the deal, the Treasury would take on illiquid assets held by banks, in the hope of restoring confidence and unfreezing credit markets vital to the wider economy.
Asian stocks drifted lower despite the vote, on fears of recession. The FTSEurofirst 300 index of top European shares rose 1.5 percent in morning trade.
Interbank lending rates, a gauge of general confidence within the banking system, remained high, despite the Senate vote and large injections of cash by central banks.
President Bush, his personal authority eroded by the approaching end of his term in office, welcomed Senate passage of the package and urged the House to quickly do the same when it votes, probably on Friday.
"With the improvements the Senate has made, I believe members of both parties in the House can support this legislation," Bush said in a written statement.
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