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Congress throws lifeline to US economy

October 04, 2008

WASHINGTON, Oct 3: The US House of Representatives on Friday overwhelmingly approved a $700 billion bailout package to rescue US financial market from a possible collapse.

The 263-171 vote reversed shock rejection of the package by the same House on Monday, which sent the markets reeling and caused the highest-ever single-day plunge of 778 points on Wall Street.

The package is designed to free US banks from troubled assets and encourage them to lend and thus revive the ailing financial sector.

Commenting on the vote, President George W. Bush said the measure would help “stabilise the US economy”.

He also dispelled the impression that the rescue package was aimed at helping rich financial speculators responsible for the crisis.

“The rescue effort we’re negotiating is not aimed at Wall Street — it is aimed at your street,” Mr Bush said. “And there is now widespread agreement on the major principles. We must free up the flow of credit to consumers and businesses by reducing the risk posed by troubled assets.”

After Monday’s defeat, Democratic and Republican leaders were able to sway a sufficient number of opponents to vote yes on the legislation, which is considered an imperfect but necessary short-term effort to address the financial crisis.

They were helped by a strong pro-bailout vote in the US Senate on Wednesday. The strong endorsement by the Senate — 74 votes for and 25 votes against — was a major boost and relief for supporters of the bill.

The Senate, however, added about $100 billion to new tax breaks to win Republican votes, which also helped in winning over votes in the House.

The Dow Jones Industrial Average had been buoyant ahead of the vote and remained more than 200 points up on the day.

The House vote also had a positive impact on the oil market. Crude prices turned lower on Friday.

After the initial House rejection on Monday, crude plummeted $10.52 a barrel, the most in dollar terms since 1991, when Operation Desert Storm was launched.

Friday’s debate in the House, however, showed serious differences among the lawmakers over the bailout package.

Some who had voted “No” on Monday said they were switching because of improvements to the bill, but many of them still expressed serious reservations.

Others maintained their opposition, saying the bill was still a bailout benefiting mainly Wall Street.

House Speaker Nancy Pelosi and Republican minority leader John Boehner said the measure did what was necessary to forestall further economic damage.

“The urgency is clear. We hear it from our friends and our neighbours. We hear it every place we turn,” Ms Pelosi said.

Mr Boehner said: “The American people sent us here to do our jobs on their behalves. They’re counting on us.”

House Democrats have pledged further aggressive action on financial market reforms when lawmakers return in 2009, with either Democrat Barack Obama or Republican John McCain in the White House.

While approval of the bill marked a final major action by the House before adjournment, congressional committees will hold a series of hearings examining the causes of the financial crisis and the collapse of key firms such as Lehman Brothers and American Insurance Group.

Earlier in the week, the legislation had been altered to expand the federal insurance programme for individual bank deposits, and the Securities and Exchange Commission took steps to ease the impact of the questionable mortgage-backed securities on financial institutions.