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U.S. Congress to discuss $700-billion bailout plan

WASHINGTON: While U.S. President George W. Bush’s administration shifts course on its $700-billion rescue plan, the U.S. Congress is examining whether even bigger changes should be made in the programme in light of the deteriorating economy and soaring mortgage foreclosures.

The debate may not be resolved until President-elect Barack Obama takes office on January 20 and pursues policies for administering the rescue programme that are likely to be more closely aligned with his Democratic allies in Congress.

In anticipation of the change of administrations, Democrats were holding hearings in both the House and Senate on Thursday, examining various aspects of the most serious financial crisis to hit the country in 70 years.

The House Oversight Committee was examining the role that hedge funds may have played in recent market turbulence. Among those scheduled to testify was billionaire investor George Soros, chairman of Soros Fund Management.

Meanwhile, the Senate Banking Committee will hear from executives of a number of financial institutions, including Bank of America, JPMorgan Chase and Wells Fargo on the issue of how the $700-billion rescue effort is operating and particularly whether the government should be requiring more commitments on the use of the money to address rising mortgage foreclosure problems.

U.S. Treasury Secretary Henry Paulson announced on Wednesday that the administration had decided to scrap what had originally been the centrepiece of the programme — a proposal to buy troubled assets to get them off the books of banks as a way of promoting increased lending.

Instead, Mr. Paulson said the administration would proceed with an alternative plan to spend $250 billion to buy stock in the banks as a way of bolstering their financial situation and accomplishing the same goal — getting the institutions to return to more normal lending.

However, critics contend the administration should be imposing more restrictions on the stock purchases as a way of insuring that the banks will use the government resources to increase lending rather than just hoarding the cash or using it to acquire other banks or boost dividends for stockholders.

Senator Charles Schumer, a Democrat from New York, said even with the changes in the rescue plan he was still disappointed in the administration’s unwillingness to issue strict guidelines to ensure that participating firms use the funds to increase lending. “In these difficult times, fear is still overwhelming confidence,” Mr. Schumer said on Tuesday.

More reports detailing the difficulties facing the economy were expected on Thursday with the U.S. Labour Department releasing its latest look at weekly applications for unemployment benefits, the U.S. Commerce Department reporting on the trade gap for September and the government reporting on the budget deficit for October.

The level of jobless claims was expected to remain at levels indicating the labour market is under severe strains, reflecting what many economists fear could be a deep and prolonged recession.

The U.S. government reported last week that the unemployment rate soared to a 14-year high of 6.5 per cent in October as businesses cut another 2,40,000 jobs.

The soaring costs of the bank rescue and the weak economy are expected to put the country on track to run up a record deficit for the current budget year of between $700 billion and $1 trillion, a staggering sum for a single year.

Despite its new flexibility, the U.S. administration said on Wednesday it remains opposed to using the rescue fund to bail out the ailing auto industry or to provide guarantees for home loans, an idea that supporters contend offers the greatest hope for helping legions of Americans who are facing foreclosure.

Congressional Democrats felt otherwise on autos, and strongly.

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid were pressing for quick passage of a major package for carmakers during a postelection session that begins next Tuesday, and one key House Democrat was putting together legislation that would send $25 billion in emergency loans to the beleaguered industry in exchange for a government ownership stake in the Big Three car companies.

Mr. Paulson said on Wednesday that the administration was exploring the possibility of setting up a programme in conjunction with the U.S. Federal Reserve that would provide support for the $1 trillion market in securities that fund such vital consumer products as credit cards, auto loans and students loans. — AP

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