House passes $700 billion financial bailout

The House of Representatives approved a $700 billion bailout package for U.S. banks, under pressure from all sides as the effort to head off a spreading financial crisis hung in the balance.

The House approved the financial rescue plan by a vote of 263-171, sending the measure to President George W. Bush and concluding two weeks of legislative haggling in Congress that had roiled and captivated global markets.

Wells Fargo & Co stepped in to buy Wachovia Corp, a bank badly hobbled by the credit crisis, providing a rare bit of positive news for the financial sector and sending markets higher.

In new signs of spreading crisis, California said it was running out of money, France said the world stood on the "edge of the abyss" and European leaders were divided over their own response to the global crisis.

The House had shocked world markets on Monday by rejecting a previous draft. With elections on November 4, lawmakers from both parties were wary of voter backlash in asking taxpayers to pay for Wall Street's mistakes.

On Friday, speaker after speaker from both parties said rejecting the bailout could have devastating consequences for an already slowing U.S. economy, arguing the bill was as important for small businesses, homeowners, students and pensioners as it was for the financial sector.

The bill would allow the Treasury to buy toxic debt from U.S. banks, which many economists said is needed to head off the worst financial crisis since the Great Depression.

U.S. stocks rose on hopes for the bailout plan and the deal to buy Wachovia.

Wells Fargo, one of the strongest U.S. banks, said it didn't need the government help that Citigroup Inc required in an earlier effort to rescue Wachovia.

The dollar continued to rally against the euro and European stocks rose about 3 percent.

Earlier on Friday, the United States reported its biggest monthly job loss in 5 1/2 years, more evidence of an approaching recession. Data showed the U.S. services sector holding up.

A collapse in the U.S. housing market and resulting bad mortgages have shattered confidence in the financial sector, with banks across the United States and Europe needing support from governments or outside investors this week.

Interbank lending and credit to businesses and private individuals has all but seized up. Central banks have injected billions of dollars to maintain some flow of funds.

Worries grew that even if Washington agrees on the package, it will not be enough to resolve deeper-rooted weakness in the global economy.

Divisions have emerged within Europe over the past week, with Ireland offering guarantees on bank deposits, prompting a flight of capital from British lenders to Irish banks, and Greece promising to safeguard savers' cash.

EU partners said Ireland's move could break competition rules and threatened the unity necessary to ensure an ordered approach to turmoil ahead., Reuters
10/3/2008 10:42:47 AM