Saturday, October 4, 2008

US adopts $700bn bailout plan


The revised bill was passed by the House after it rejected an earlier version [AFP]

George Bush, the US president, has signed into law a $700bn rescue plan for troubled financial institutions in an attempt to deal with the global credit crisis.

Bush signed the bill on Friday, just 90 minutes after the House of Representatives had passed the bill by 263 votes to 171.

"We have shown the world that the United States of America will stabilise our financial markets and maintain a leading role in the global economy," Bush said in the White House Rose Garden.

The new legislation allows Henry Paulson, the US treasury secretary, to buy up billions of dollars in bad mortgage debts which have frozen up the financial system.

The House had sparked market and political turmoil by rejecting an earlier version of the bailout on Monday by 228 votes to 205.

Bipartisan effort

But on Friday, Bush hailed the bipartisan effort to get the bill passed despite concerns over handing that much power to one man and the idea of using taxpayer money to bail out Wall Street firms.

Bailout plan

The US treasury will borrow $700bn from the international money markets by selling bonds to foreign countries.

The treasury will then use the money to buy back mortgage backed-securities from US banks and institutions.

It can use only $250bn immediately, although it does have access to another $100bn if required.

Access the final $350bn is subject to congressional approval.

The treasury can also use that money to save those banks on the verge of collapsing – although it would be entitled to a majority stake in the bank.

If the government takes on a debt and it's still making a loss after five years – the bank will have to pay compensation.

There plan also includes tighter controls over large payments to bank executives.

"By coming together on this legislation, we have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country," he said.

Congressional leaders had been optimistic the bill would be approved after several senior politicians said they would drop their opposition to it. The bill had been amended by the senate to attract more Republican votes.
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