By a vote of 228-to-205 the House of Representatives yesterday rejected US Treasury Secretary Hank Paulson’s USD 700 bn (GBP 386 bn) bailout plan t
By a vote of 228-to-205 the House of Representatives yesterday rejected US Treasury Secretary Hank Paulson’s USD 700 bn (GBP 386 bn) bailout plan to rescue the financial industry, sending shock waves around global markets.
US stocks spiraled downwards following the failure of US lawmakers to agree the bailout aimed at buying up ‘toxic debt’, with the Dow Jones industrial falling more than 700 points, its biggest intraday drop ever, closing Monday down 777 points, or 6.98 per cent. Reflecting the uncertainty in the markets, the Chicago Board Options Exchange Volatility Index, the traders’ benchmark of ‘market fear’, shot up over 33 per cent.
Shares had already been under pressure following sharp declines in Asian and European shares on fears of contagion. Global money markets remained frozen, even as central banks poured in cash in an attempt to boost liquidity.
The euro and the pound sank and bonds rose as governments raced to prop up banks infected by growing US mortgage losses. Crude futures tumbled more than USD 10 a barrel.
The vote followed a day of turmoil in the financial sector. Wachovia, the fourth-largest US bank, was bought by larger rival Citigroup in a rescue deal backed by US authorities, Benelux banking giant Fortis was partially nationalised by the Dutch, Belgian and Luxembourg governments to ensure its survival and the UK government announced it was nationalising the Bradford & Bingley bank.
Paulson and the backers of the bailout plan will head back today to the drawing board to try and iron out a comprise version and attempt to win the support of the House of Representatives during this week.
After hours of debate yesterday on Capitol Hill, House Majority Leader Steny Hoyer of Maryland warned of the consequences of failure to agree a bailout plan: “A meltdown would begin, it is true, on a few square miles of Manhattan, but before it was over, all of us know, no city or town in America would be untouched.”
