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US lawmakers nail deal on bailout

world Updated: Sep 29, 2008 09:47 IST
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US lawmakers Sunday struck a deal on an unprecedented 700-billion-dollar bailout for struggling Wall Street banks to avert the worst financial crisis since the Great Depression of the 1930s.

But in announcing the deal after nine days of tense negotiations, Democratic lawmakers sent a sharp warning to US financial firms that they would be under stricter supervision from now on.

"Working in a bipartisan way, we sent a message to Wall Street. The party is over," said House Speaker Nancy Pelosi, adding she hoped a vote could be taken on the bill on Monday.

"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."

The deal capped an extraordinary weeks-long rollercoaster on the world's financial markets, sent into a tailspin by the overexposure of both US and international financial institutions to the US subprime mortgage crisis.

Congressional leaders, who are also eyeing the November 4 general elections, had been rushing to strike a deal before global bourses reopen with Asian markets getting back to work late Sunday US time.

"We have given the (Treasury) secretary the authority and the resources and the flexibility necessary, that he feels is necessary," Republican negotiator Judd Gregg said. "I think it's a good product."

The proposed rescue, posted on financeservices.house.gov, is designed to buy up tainted assets from over-exposed banks and breathe life back into frozen credit markets.

The main points of the 106-page bill, known as the Emergency Economic Stabilization Act of 2008, include the immediate release of 250 billion dollars to enable the government to buy up troubled assets.

In the bill, the president is authorized to approve a further 100 billion dollars, but the plan gives Congress a veto power over purchases above that limit and sets a ceiling for all purchases of 700 billion dollars.

The implementation of the plan by the US Treasury will be overseen by a board including the chairman of the Federal Reserve, the Treasury secretary and the chairman of the Securities and Exchange Commission.

The board will be one of four separate oversight agencies or processes, which also include a presence in the Treasury office and an independent inspector general would monitor the Treasury secretary's actions.

There will be no "golden parachutes" for CEOs or other executives who lose or leave their jobs at companies participating in the plan as long as the Treasury holds equity in those firms.

Taxpayers also win an ownership stake and a chance to share in any future profits of participating companies, and the bill allows the government to help prevent home foreclosures by renegotiating mortgages.

"People have to know that this isn't about a bailout of Wall Street. It's a buy-in so that we can turn our economy around," Pelosi added.

President George W Bush hailed the new draft legislation, saying in a statement: "I appreciate the leadership shown by members on both sides of the aisle, who came together to write a very good bill.

"This bill provides the necessary tools and funding to help protect our economy against a system-wide breakdown."

US lawmakers had struggled to reach a deal on the original three-page plan by Treasury Secretary Henry Paulson.

Democrats argued the initial plan was unworkable, and they had worked in a bipartisan way to bring something better, if not perfect, before Congress.

"The bill that the president sent us a week ago had a life span of about an hour. It was from that point forward we started to draft legislation to deal with this," said Senator Christopher Dodd, chairman of the Senate banking committee.

It "will provide some critical life support for the US financial system," agreed Brian Bethune, an economist at the research firm Global Insight.

But some analysts remained skeptical about the deal -- whether it would work or create new problems for markets and the economy.

"If you impose too much regulation, too much supervision, too much management and too much cost, you damage the franchise and profit outlook for banks," said David Kotok, chief investment officer at Cumberland Advisors.

White House hopefuls Republican John McCain and his Democratic rival Barack Obama reluctantly hailed the progress that had been made, both claiming that demands they had made had been incorporated into the new bill.