US rescue bill meets opposition in Congress

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WASHINGTON, DC – Democrats have begun to voice their concerns over the $700 billion rescue deal thrashed out by the US Treasury last week in conjunction with the Federal Reserve and the US Securities and Exchange Commission (SEC).

Treasury secretary Henry Paulson submitted legislation to Congress requesting authority to purchase illiquid mortgage-related assets from financial institutions to promote market stability. Under the terms of the deal, the Treasury will have the authority to issue up to $700 billion of Treasury securities to finance the purchase of the assets. The treasury secretary will have the discretion, in consultation with the chairman of the Federal Reserve, to “purchase other assets, as deemed necessary to effectively stabilise financial markets”, but the authority to purchase expires two years from date of enactment.

Congressional Democrats are concerned the new deal gives too much power to the Treasury department and are calling for greater legislative oversight of the department, as well as more direct assistance for homeowners and limits on top bankers’ pay whose firms seek help.

Opponents of the plan have also raised concerns that the deal will be extended to include non-US financial institutions. The legislation states that, for banks to qualify for the programme, “assets must have been originated or issued on or before September 17, 2008,” and that “participating financial institutions must have significant operations in the US, unless the secretary makes a determination, in consultation with the chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilise financial markets.”

This ambiguity, and the Congressional opposition, caused shares to fall in London as traders doubted whether non-US institutions would be included in the deal.

Paulson continues to push for a resolution by this Friday. However, some lawmakers baulk at the idea of rushing into approving such extraordinary new powers for the Treasury secretary.