Following round-the-clock negotiations, leaders of the US Congress agree on a bill designed to address the growing credit crisis. "We sent a message to Wall Street - the party is over," said the House speaker Nancy Pelosi. After earlier opposition, Republican leaders reluctantly offer their support ahead of a difficult vote.
US Congress unveils financial rescue plan
"Congress braced for a difficult vote to be taken on Monday on a $700 billion rescue of the financial industry after a weekend of tense negotiations produced a plan that Congressional leaders portrayed as greatly strengthened by new taxpayer safeguards," The New York Times reported. "The 110-page bill, intended to ease a growing credit crisis, came after a frenzied week of political twists and turns and still faced some resistance from lawmakers on both the left and right who portrayed it as a dangerous rush to economic judgment.
"But leaders of both parties in the House and Senate were moving to back the legislation, which they said had been significantly improved from the Bush administration's initial proposal by limiting gold-plated farewells for executives of some participating companies and a deal-clinching plan to eventually recoup any losses from the financial community. "That provision, pushed by House Democrats, was one of the last to be agreed to in a high-level series of talks that had top lawmakers and administration economic chiefs huddled in offices just off the Capitol Rotunda after midnight Saturday as they raced to strike an agreement before Asian markets open Sunday night." By Sunday evening in Washington, it was still unclear whether there was enough support among Republican members for the bailout plan to pass in a vote in the House of Representatives on Monday. In The New Yorker, John Cassidy wrote: "As political theatre ('If money isn't loosened up, this sucker could go down,' Bush declared at one point in the White House meeting [on Thursday], according to the New York Times), the wrangling over the Wall Street rescue package is engrossing. As an exercise in crisis management, it is potentially disastrous - and, to the rest of the world, dumbfounding. Willem Buiter, an economist at the London School of Economics, who has served on the Bank of England's policy-making committee, said in a blog entry last Thursday that unless Congress acts now 'the freeze of the financial wholesale markets will intensify and the attacks on financial institutions will resume, first in the US, then in the UK, then in the rest of Europe and soon after everywhere in the financially connected world.... Instead of a mere recession, there will be a long and deep depression.' "Some experts dispute the Bush-Buiter analysis. One school argues that the financial system is a mere 'veil' wrapped around the rest of the economy. Strip it away and other business activities - the development and marketing of new products; families buying clothes and going out for meals - will go on unabated. If a bank that was performing a valuable function fails, another will spring up in its place. "[House Republican Leader John] Boehner and his Republican colleagues, to judge from their attempts to block the bailout - which coincided with the failure of Washington Mutual, the biggest banking collapse in US history - were apparently intent on organising a natural experiment to test the veil theory. But they neglected to point out that their get-tough approach has been tried twice before: in the period from 1929-32, when treasury secretary Andrew Mellon's advice to bankers burdened with bad loans was 'liquidate, liquidate'; and just a few weeks ago, when Mellon's successor Henry Paulson and Federal Reserve chairman Ben Bernanke chose to let Lehman Brothers go bankrupt." In The Financial Times, Chrystia Freeland said: "Americans are struggling to comprehend what the financial crisis means for their economy. Yet the biggest impact may be on the role the US plays in the rest of the world. By coincidence, the United Nations General Assembly held its annual meeting in New York this week. Many of the heads of state had experienced financial crises and endured lectures from Washington about the need for a tough, market-driven government response. "As one European head of state said, the discrediting of open market democracy is dangerous for all the countries of what we used to call the West. 'It is very damaging,' he said. 'Some people are trying to see this as a failure of western values, of capitalism overall. When I met African leaders this week, some of them said to me: "Maybe we should follow the Chinese model, instead. Authoritarianism seems to work for them." ' " Robert J Shiller, professor of economics at Yale, wrote: "our economy is not a shining example of pure unfettered market forces. It never has been. In his farewell address back in 1796, 20 years after the publication of Adam Smith's The Wealth of Nations, George Washington defined the new republic's own distinctive national economic sensibility: 'Our commercial policy should hold an equal and impartial hand; neither seeking nor granting exclusive favors or preferences; consulting the natural course of things; diffusing and diversifying by gentle means the streams of commerce, but forcing nothing.' From the outset, Washington envisioned some government involvement in the commercial system, even as he recognised that commerce should belong to the people. "Capitalism is not really the best word to describe this arrangement. (The term was coined in the late 19th century as a way to describe the ideological opposite of communism.) Some decades later, people began to use a better term, 'the American system,' in which the government involved itself in the economy primarily to develop what we would now call infrastructure - highways, canals, railroads - but otherwise let economic liberty prevail. I prefer to call this spectacularly successful arrangement 'financial democracy' - a largely free system in which the US government's role is to help citizens achieve their best potential, using all the economic weapons that our financial arsenal can provide. "So is the government's bailout a major departure? Hardly. Today's federal involvement offers bailouts as a strictly temporary measure to prevent a system-wide financial calamity. This is entirely in keeping with our basic principles - as long as the bailout promotes, rather than hinders, financial democracy... "So the current crisis got me thinking back to 1990, the year before the collapse of the Soviet Union, when I worked with two Soviet economists, Maxim Boycko and Vladimir Korobov, to try to understand the different belief systems in their country and mine. We carried out identical surveys in Moscow and New York, comparing answers about fundamental notions of capitalism, and published our results in the American Economic Review. We expected to find that the Muscovites possessed scant understanding of how capitalism really works. But we found that they actually understood free-market dynamics better than the New Yorkers. We concluded that the Muscovites had proved more savvy precisely because their system was in crisis - something that encouraged them to rethink their most fundamental notions. "We Americans are going through a similar change right now. We no longer think that our financial future will be determined by securities brokers or inhumanly large investment banks. The most important question is not, 'What form should these temporary bailouts take?' It is, 'What are we really learning from all this?' "We should be learning a great deal. The current crisis offers us a singular opportunity to reevaluate fundamentally the safety and permanence of the master financial institutions that we have come to take for granted as part of the national economic landscape. Over these past few turbulent weeks, we have learned that the monolithic investment banks are mortal: They are mostly gone, or absorbed by other banks. We have learned that what we called 'cash' and considered perfectly safe is not necessarily so secure. "So we are groping around for something else to trust. We should be open to thinking about a new set of financial arrangements - a better financial democracy - that can restore the public's faith in the economic principles espoused by Washington more than two centuries ago."