Wall Street rescue deal stalemate
Talks to agree a huge $700bn (£380bn) bail-out of the US financial industry have ended in a "shouting match".
After several hours of discussions with President George W Bush, a
group of Republican members of Congress blocked the government plan.
The proposal would have seen the government buy bad debts from US banks to prevent more of them collapsing.
President Bush is due to make a statement about the negotiations at 0935 in Washington (1435 BST).
Both sides have agreed to resume talks later on
Friday. The leader of the Democrats in the House of Representatives,
Nancy Pelosi, told ABC News that she "hoped" a bailout plan could be
agreed within 24 hours, because "it has to happen".
Financial markets are gummed up because banks do not know
exactly how much bad debt they hold and are therefore reluctant to lend
to businesses, consumers and each other.
The fall-out of this credit crunch continues to make a huge impact:
The United States suffered its largest bank failure yet, when
regulators moved in to close down Washington Mutual and then sold it to
US rival JP Morgan Chase for $1.9bn In a co-ordinated move the European Central Bank, the US Federal
Reserve, the Bank of England, Bank of Japan and the Swiss National Bank
announced new short-term loans to the banking sector worth tens of
billions of dollars Banks continued to cut costs, with UK banking giant HSBC saying it would axe 1,100 jobs Shares in UK bank Bradford & Bingley fell another 20% to 17 pence before recovering slightly.
"Full throated discussion"
On Thursday, Democratic and Republican legislators appeared to have struck a deal.
A group of Democrats and Republicans even made a public
statement, with Senator Christopher Dodd, chairman of the Senate
Banking Committee, announcing that they had reached "fundamental
agreement" on the principles of a bail-out plan.
But after the White House meeting, the top Republican on the
committee, Richard Shelby, told reporters: "I don"t believe we have an
The intense discussions reportedly saw US Treasury Secretary
Henry Paulson literally down on one knee, begging Ms Pelosi to help
push through the bail-out package.
However, the agreement unravelled when a group of Republican legislators objected to the principle of the plan.
The talks at the White House, led by Mr Paulson and US President
George W Bush, then descended into what one participant described as "a
Officials with the campaign team of Republican presidential candidate John McCain spoke of "a contentious shouting match".
The Republican critics of the bail-out plan worry about both its
cost and how it would involve the government in the financial sector.
Instead, they want a government-backed insurance policy for the huge
amounts of bad debt built up by US banks.
This proposal, however, was described as "unworkable" both by Democratic politicians and some US government officials.
Doubts over presidential debate
Some Democrats were scathing about the lack of support for the Paulson plan.
"For House Republicans to take a walk is just appalling," said Democrat Barney Frank.
He later added that the passage of the bill depended on the Republicans.
"It depends on the House Republicans dropping this revolt
against the president and cooperating in trying to amend the plan," he
The breakdown of talks has put a huge question mark over the first debate in the presidential election campaign in the US.
Democratic candidate Barack Obama and Mr McCain were supposed to meet in Oxford, Mississippi.
But Mr McCain said he wanted to pull out and focus on getting a
bailout plan agreed instead. Democrats accused him of posturing and
avoiding telling voters how he would solve the crisis.
As the credit crunch continues to bite, regulators moved in and
shut down Washington Mutual (WaMu), one of the largest savings and loan
institutions in the US. Depositors had withdrawn $16.7bn from the bank
during the past 10 days alone.
They immediately sold on the bank to banking giant JPMorgan Chase for $1.9bn.
"With insufficient liquidity to meet its obligations, WaMu was
in an unsafe and unsound condition to transact business," said the
Office of Thrift Supervision.
WaMu had seen its share price drop by more than 80% this year,
after suffering considerable losses due to failed mortgages. Earlier
this year JPMorgan Chase also bought investment bank Bear Stearns when
it faced collapse.
26 September 2008