US legislators agree on rescue plan

European shares also fell heavily on Monday and money markets remained frozen with banks refusing to lend to each other for all but the shortest periods.

Al Jazeera’s Anand Naidoo, reporting from Capitol Hill where legislators held marathon talks throughout the weekend, said the house would probably vote on the bill on Monday and it was likely to pass, based on the optimistic language used by congressional leaders.

Criticism

George Bush, the US president, also expressed confidence that the bill would be approved quickly.

“This plan sends a strong signal to markets around the world that the United States is serious about restoring confidence and stability to our financial system,” he said.

Henry Paulson, the US treasury secretary, who under the plan will have unprecedented powers to use taxpayers’ money to buy up bad debts, said “I think we’re there”.

“We’ve been working very hard on this … And we’ve made great progress toward a deal, which will work and will be effective in the marketplace, and, you know, effective for all Americans,” he said.

But the enthusiasm was not shared by Michael Zweig, an economics professor from New York, who said the plan offered very little to the ordinary person and warned that the worst was not yet over.

“The bail-out package is a sort of classic example of how the needs and interests of the corporate elites have pushed aside the interests of the ordinary working people.

“I’m quite disturbed that the bail-out package does not include any prospective relief for homeowners facing foreclosure, which is a very significant failure in these negotiations.”

Restrictions

If it goes through, the biggest intervention by the government in markets since the Great Depression of the late 1920s will have clauses to protect American taxpayers who will be footing the bill for the rescue.

The bill looks into the deregulation that many say caused the chaos, as well as place limitations on the pay of participating senior Wall Street executives.

“The party is over. The era of golden parachutes for high-flying Wall Street operators is over. No longer will the US taxpayer bail out the recklessness of Wall Street,” Nancy Pelosi, the Democratic house speaker, said in unveiling the plan.

Barney Frank, the chairman of the senate banking committee, said it would be “the first time in the history of the United States that anything has been done by congress to curtail excessive CEO compensation”.

“The absence of regulation is at the root of this crisis. It would be irresponsible of us to take this action and not be committed, as we all are, to preventing it from reoccurring.

“There is a recognition in this bill that if there is a shortfall in the amount of money collected as we sell the assets, it should be made up, not by the general taxpayers, but by the financial institutions and the industries that have benefited.

“At the end of five years, the president must send a proposal for us to collect that shortfall from the institutions and industries that benefited.”

Al Jazeera’s Rosiland Jordan explained that because the government would be buying the financial institutions’ bad debts cheaply, it is assumed that the treasury – and therefore the taxpayer – will recoup its investment or even make a profit when the economy rebounds.

Republican support

The bill will also include a provision for companies to take out insurance against failing assets in addition to their being able to sell the assets to the government.

House Republican leaders claimed credit for improving the plan and urged party members to support it.

“We have reduced the amount of taxpayer risk in this bill significantly,” John Boehner, the house Republican minority leader, said on Sunday.

“We are supporting this bill.” 

Negotiations had nearly unravelled last week when a group of conservative house Republicans – who traditionally hold that the government should not interfere in financial markets – said they preferred the government to offer mortgage insurance to failing financial institutions instead of buying their bad debts.

Acknowledging that “nobody wants to have to support this bill”, Boehner said: “I’m encouraging every member whose conscience will allow them to support this.

“We want them [house Republicans] to support this because it is the right thing to do for this country.”

Roy Blunt, the house Republican whip, declined to give specific vote estimates but said he expected “substantial support” among house Republicans for the plan.

House speaker Pelosi said she hoped to get a vote on the bill on Monday and Harry Reid, the Democratic senate majority leader, said the senate would try to vote on it by Wednesday before sending it on to Bush to approve.