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Bailout performs 'emergency surgery' on economy

Many economists and members of Congress agreed that the plan does little to address broader economic problems.

The US$700 billion rescue package was a bitter pill for many members of the US House of Representatives to swallow, but they swallowed it anyway and quickly sent it to George W Bush, who signed it on Friday. As the "sweetened" version of the rescue plan passed the House in a 263 to 171 vote on Friday - 58 more votes than the original draft had on Monday - few who voted "aye" did so without pointing to the bill's imperfections.

"We've just performed emergency surgery, but unless the patient starts eating right and exercising, the problem's coming right back," Steny Hoyer, the House majority leader, said after the bill passed. It was a muted victory to say the least. Beyond the partisan bickering - and the occasional pats on the back from everybody, including the president, when both sides finally came together - many economists and members of Congress agreed that the plan does little to address broader economic problems, which were manifest in economic data that surfaced last week.

The labour department reported on Friday that the US economy lost 159,000 jobs in September, the steepest one-month drop in five years and the ninth straight month that jobs have fallen. That came just after US automakers reported a stunning 27-per-cent decline in sales, a statistic that is considered a bellwether of people's ability to afford big-ticket items and one of the first to indicate a recession.

The US lending market was so crippled that Arnold Schwarzenegger, the governor of California, said on Friday his state might need a $7bn (Dh26bn) emergency loan from the federal government to pay its bills, something almost unheard of in the United States. Rob Scott, a senior international economist at the non-partisan Economic Policy Institute, said the rescue plan barely scratches the surface of much deeper economic woes.

"This is a hope and a prayer that Hank Paulson [the treasury secretary] can do something to keep the situation from getting worse, but it is going to do nothing to help us get out of the recession that is already in the pipeline," he said. "It's like trying to give a blood transfusion to a patient with internal haemorrhaging. "We've already got a collapsing housing market, a collapse in auto sales; we have recessionary conditions in the manufacturing sector. The data just keeps getting worse."

Under normal circumstances, the bill - which essentially grants Mr Paulson the money and authority to buy up soured bank assets and unclog the arteries of the US financial system - may not have passed at all. Fiscally conservative Democrats, for example, took exception to some of the more than $100bn in tax breaks the Senate attached to the legislation without curtailing spending. "I'm angry, frustrated and sad, but I believe we have to do the responsible thing and that's why I am going to support the bill," said Joe Baca, a congressman from California and member of the Blue Dog Coalition, a group of 49 fiscally conservative Democrats. Although the tax breaks were meant to make the bill more attractive to Mr Baca's Republican colleagues, who were already troubled by a massive government intervention in the free market, many remained unconvinced of the plan on Friday. "People are hurting, people are mad - I'm mad," said J Gresham Barrett, a Republican congressman from South Carolina. "Do I still have concerns about this bill? Yeah. Do I still have concerns that it will affect the free market system? Yes, I do. But we have to act, and we have to act now." After the House's initial rejection of the bill on Monday, which sent the US stock market into a record-breaking 777-point tailspin, the prevailing sentiment on Capitol Hill was that something had to be done, even if it was not perfect. "I don't say that we celebrate it," the House speaker, Nancy Pelosi of California, said after the bill passed. "We could have had a much better bill under different circumstances, but these were not the circumstances we were under - we were dealt a bad hand and we made the most if it." That sentiment was echoed on the campaign trail by the two presidential contenders, both supporters of the Senate measure, and both of whom were able to lay claim to some 11th-hour brinkmanship that helped the bill succeed. John McCain, the Republican candidate who took the politically risky step of suspending his campaign 10 days ago to work on the bailout negotiations, took credit for helping negotiate the tax provisions that brought conservatives on board. "I'm glad I suspended my campaign to go back to Washington to help bring the House Republicans to the table," he said. Across the aisle, some House Democrats who flipped their votes were sure to point out that it was a last-minute phone call from their candidate, Barack Obama, that persuaded them to support the measure. As grim economic data continue to spook voters, it is generally seen to benefit Mr Obama, who a majority of voters believe is stronger on pocketbook issues. Even as Mr McCain tries to assert himself on the economy, he is tied to a political party many associate with the meltdown. Still, with neither party completely sold on the short-term rescue plan and the country's financial future uncertain, the candidates sounded much like their brethren in the House. "This is not a moment for celebration," Mr Obama said. "The action Congress took today is a tourniquet, not a permanent solution," Mr McCain had added. sstanek@thenational.ae

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