Bailout agreed ... markets have jumped on news the US Congress has reached agreement on the fundamentals of a rescue plan for the world`s biggest economy.
US Congress agrees on terms of financial bailout
Breakthrough brings $840bn Wall St rescue closer
US market jumps on the news
US legislators have agreed on the fundamentals of a multi-billion dollar historic deal to rescue Wall Street and shore up the world`s biggest economy.
President George W Bush is meeting with rival presidential candidates John McCain and Barack Obama as well as congressional leaders to try to agree to a plan to revive the stuttering US economy. The meeting comes after lawmakers agreed to a basic rescue plan overnight.
But Congress did not fully endorse the President`s proposal to spend $US700 billion ($840 billion) to buy up toxic mortgage-related securities and other sour assets held by banks. Mr Bush wants to set up a fund to provide banks with the liquidity they need to conduct business. Once markets recover, Treasury could re-sell the bonds and claw back some of the $US700 billion.
American taxpayers are angry that their money will be used to bailout Wall St highflyers, and politicians have called the $US700 billion price tag too high.
The tentative accord agreed to by US lawmakers overnight would give the Bush administration just a fraction of the $US700 billion it had requested up front, with half the money subject to a congressional veto, congressional aides said.
Under the plan, the Treasury secretary would get $US250 billion immediately and could have an additional $US100 billion if he certified it was needed.
The last $US350 billion could be blocked by a vote of Congress under the arrangement, designed to give lawmakers a stronger hand in controlling the unprecedented rescue.
Recession warning
In a televised speech yesterday Mr Bush warned of possible recession if the rescue plan wasn’t pushed through. He said without the plan more US banks could go broke, retirement nest eggs could be wiped out, house prices could plummet and millions of jobs lost.
The crisis comes after a month of turbulence on global share markets, marked by the US government`s takeover of mortgage companies Fannie Mae and Freddie Mac the bailout of insurer American International Group and the bankruptcy filing of investment bank Lehman Brothers.
Markets rally
Share markets rallied on the news an agreement is near. The Dow Jones Industrial Average rallied 1.82 per cent and the Nasdaq composite jumped 1.43 per cent. The Standard & Poor`s broad-market index rose 1.97 per cent.
Fred Dickson at DA Davidson said the rescue plan could provide a major boost to the economic and market outlook.
“Quick implementation of the rescue program will probably trigger a significant positive reaction in the stock market,`` he said.
“However, investors will probably quickly settle down and realize we still have to deal with a very slow growth economy ... We believe this will be a very slow process which may extend for two to three years or more.”
The news also lifted spirits in Europe, where London`s FTSE index rose 1.99 per cent. In Paris, the CAC 40 gained 2.73 percent while in Frankfurt the Dax added 1.99 per cent.
Bailout agreed ... markets have jumped on news the US Congress has reached agreement on the fundamentals of a rescue plan for the world`s biggest economy.
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