US set for rescue plan vote

The US Congress is poised to vote this week on emergency legislation to create a $700bn government fund to buy toxic assets from banks, in an effort to ease stress in the US financial system.
The passage of the legislation is seen as essential to avoid a renewed tailspin in world financial markets, which reached the verge of meltdown last week before recovering as news of the plan emerged.
Under the plan sent by Hank Paulson, US Treasury secretary, to Congress on Friday night, the government would create a $700bn fund that would buy residential and commercial mortgage-based securities, to “unclog” the banking sector.
Any bank with “significant operations” in the US would be able to participate – including foreign-owned banks, a source of potential political controversy.
Mr Paulson said he would be “pressing my colleagues around the world to design similar programmes for their banks”.
But, as negotiations over the details continued through the weekend, Democratic legislators made clear that they would not simply rubber-stamp the proposal put forward by Mr Paulson.
“It needs changes,” Charles Schumer, Democratic senator, said on ABC's This Week programme. Democrats were pushing for the legislation to include help for home owners facing foreclosure.
Legislators from both parties also proposed adding measures on corporate governance and executive pay, steps the Treasury fears could undermine banks' willingness to take part in the programme.
The Democrats said they would also push for a second fiscal stimulus package, though not necessarily as part of this legislation.
“I don't like the fact that we have to do this. I hate the fact that we have to do this,” Mr Paulson said yesterday. “But it is better than the alternative.”
He said he believed that the plan was in the interests of the US. But he admitted: “There is no doubt that this plan is something that is going to increase the debt of the United States of America.” Many analysts expect the US budget deficit for next year will now exceed $1,000bn.
The Treasury said the fund, which is loosely modelled on the Resolution Trust Corporation set up in 1989 to clean up the mess after the savings and loan crisis, would use market mechanisms such as reverse auctions “where possible” to determine the price it paid for assets.