Washington Tries to Wrap Up the Bailout

White House and party leaders push a revised financial rescue plan as markets react coolly and Europe faces its own crisis

House Minority Leader John Boehner (R-OH), at left, speaks to members of the press on Sept. 28, following a caucus meeting on the proposed 'bailout' plan. Win McNamee/Getty Images

by Theo Francis and Jane Sasseen

After another weekend of frenzied negotiations and posturing, the House of Representatives looked likely to vote early afternoon Monday, Sept. 29, on a 110-page bill that would give the Treasury sweeping authority to intervene in U.S. mortgage and securities markets, in a bid to stabilize the financial system. Despite pockets of opposition from Republicans, lawmakers, legislative aides and lobbyists seemed confident it would pass the House and, by Wednesday, the Senate as well. President Bush has said he will sign the bill.

Shaped over the weekend, lawmakers from both parties announced the broad framework of a pact on Sunday afternoon, Sept. 28, with legislative language distributed soon afterward. Many details of the $700 billion plan, first proposed by Treasury Secretary Henry M. Paulson Jr., remained vague, and opposition by conservative Republicans in the House stayed strong. With investors in markets around the world anxiously awaiting progress on the package, legislators feared that further delays would likely cause another rout for stocks.

After days of intensive negotiations, Paulson released a statement early Sunday evening, lauding the bipartisan efforts and pledging to move as quickly as possible to begin implementing the legislation as soon as it is signed. "Members on both sides were focused on the right things: creating an effective program that can be implemented quickly and effectively, and doing everything possible to protect the taxpayers," Paulson said in the statement. "Quick, effective, and bipartisan action sends a signal to investors large and small, here and abroad, that we are committed to taking the necessary actions to protect our financial system and our economy."

The debate on the House floor takes place against the backdrop of a still-volatile stock market, which opened sharply lower despite news of a legislative deal; by mid-day the S&P 500 was down more than 4%, to 1,163.29. Nor have events around the waited for the Congress to act: Citigroup said Monday morning that it would buy Wachovia, in a deal brokered by the Federal Deposit Insurance Corp.; credit appeared to be tightening across much of the economy Monday morning.

A Continental Bailout: Fortis

President George W. Bush issued a statement calling the bill necessary "to help protect our economy against a system-wide breakdown." He added: "The bill will help allow access to credit so American families can meet their daily needs and American businesses can make purchases, ship goods, and meet their payrolls. And this plan sends a strong signal to markets around the world that the U.S. is serious about restoring confidence and stability to our financial system. Without this rescue plan, the costs to the American economy could be disastrous." Early in the day, both Presidential contenders said they would likely support the bill.

Meanwhile, the financial crisis seemed to cascade in Europe. As recently as last week, European officials said they had no intention of mimicking a U.S.-style bailout of Old World banks, claiming their financial situation wasn't as dire (BusinessWeek.com, 9/26/08).

But the rapidly deteriorating financial situation at Brussels-based banking giant Fortis (FOR.BR), whose shares plunged 35% last week on concerns over its balance sheet, prompted an emergency $16.3 billion bailout engineered over the weekend by the governments of Belgium, Luxembourg, and the Netherlands. According to a Bloomberg report, the Belgian government will buy a 49% stake in the bank's Belgian business for $6.9 billion, while Holland will pay $5.8 billion for the bank's Dutch business. Fortis—one of the victorious partners in a hard-fought takeover battle last year for Dutch investment bank ABN Amro—was hammered over concerns that its capital base had been too depleted by the acquisition.