$700 BILLION BAILOUT:US INVESTORS held their breath yesterday as the Bush administration campaigned to persuade reluctant legislators to urgently reconsider their refusal to back its $700 billion bailout plan.
In the latest of several public pleas for support for the initiative, President George Bush went on television before markets opened yesterday morning to say his government was working towards quick approval of the plan.
"I assure our citizens and citizens around the world that this is not the end of the legislative process," Mr Bush said. "Congress must act."
His remarks were seen as an effort to calm anxious investors as treasury secretary Hank Paulson sought to regain the initiative after a big majority of rank-and-file Republicans staged a revolt against their own party leadership by voting against the bailout.
"It seems to me that the markets will have to live with this for a few days," Dr Charles Geisst, a finance professor at Manhattan College, told The Irish Times.
After offering only qualified support for the bailout when the pact was agreed last weekend, Republican presidential candidate John McCain and his Democratic rival Barack Obama each urged fellow members of Congress to back the plan. Under consideration yesterday was the possibility of bringing the original legislation before a vote of the Senate, where there has been more bipartisan support for it, in the hope of forcing a rethink in the House of Representatives.
Also on the agenda was the possibility of widening the controversial plan to include an expansion of the powers of the Federal Deposit Insurance Corporation, which guarantees US banks deposits.
Legislators are likely to resume negotiations tomorrow when Congress reconvenes after the Jewish New Year holiday. "We will get it done this week," said Republican senator Mitch McConnell.
Members of the House of Representatives who voted against the plan were having "serious second thoughts", said Democratic senator Christopher Dodd, chairman of the banking committee. "They'd like another shot at this," he said.
With the London interbank offered rate (Libor) rising to 431 basis points yesterday to an all-time high of 6.88 per cent, the spike in interbank interest rates reflected heightened concern that any failure to eventually ratify the bailout would further erode confidence in already-weak credit markets.
However, stocks gave up some of the record losses they incurred in the immediate aftermath of the congressional vote on Monday as traders looked to Washington to assess the prospects of salvaging the bailout.
The Standard Poor's 500 Index had recovered more than one-third of its 8.8 per cent plunge on Monday, the biggest drop since the stockmarket crash of October 1987.
Beneficiaries included major banks such as JPMorgan Chase, Citigroup and Bank of America, each of which gained more than 10 per cent. Smaller institutions such as Ohio lenders Sovereign Bancorp and National City, which suffered huge losses on Monday, also regained significant ground.
Dr Geisst said Republican resistance to government intervention in markets lay behind the refusal of legislators to vote for the measure. Stating that the plan's opponents were fixed on the argument that it was merely a bank bailout, an initiative characterised as a strategy to temper "sectoral contagion" in the financial system at large was more likely to find their support.
The government's objective in efforts to restore the plan, he said, was to stress the need for a large-scale bailout package while avoiding the risk of panicking bank depositors. "Wall Street, I think, has a pretty good idea of what this is all about."
Legislators said their constituents were angry that the bailout would leave taxpayers on the hook for Wall Street's mistakes.
However, there was annoyance in the markets about the manner in which the political debate was handled.
