White House, Congress reach deal on financial crisis relief

WASHINGTON, Sept. 29 Kyodo -
The White House and congressional leaders struck a deal Sunday on a bill to
curb the ongoing financial crisis, with the legislation set for a vote in the
U.S. House of Representatives as early as Monday.
The bill, called the ''Emergency Economic Stabilization Act of 2008,'' allows
the administration of President George W. Bush to use up to $700 billion in
public money to buy troubled assets from financial institutions, but adds
spending controls that lawmakers have demanded.
Rather than giving Treasury Secretary Henry Paulson all the funds at once, the
legislation gives him $250 billion immediately, and then requires certification
from Bush if an additional $100 billion is needed. The remaining $350 billion
can be disbursed only with the approval of Congress, according to the House
Financial Services Committee.
''Today, a bipartisan group of members of Congress, working with my
administration, reached agreement on economic rescue legislation that is
urgently needed to address a crisis in our financial system that threatens the
entire U.S. economy,'' Bush said in a statement.
''This plan sends a strong signal to markets around the world that the United
States is serious about restoring confidence and stability to our financial
system,'' Bush said. ''Without this rescue plan, the costs to the American
economy could be disastrous.''
Under the bill, an Office of Financial Stability will be set up within the
Treasury Department to implement a ''Troubled Asset Relief Program'' to
purchase bad mortgage and other assets clogging the balance sheets of financial
firms.
The program will be overseen by the Financial Stability Oversight Board,
comprising the heads of the Federal Reserve, the Treasury Department, the
Securities and Exchange Commission, the Housing and Urban Development
Department and the Federal Home Finance Agency.
The legislation requires most of the participating financial firms to provide
non-voting warrants to the government so that taxpayers can benefit from any
future growth the firms may experience.
Firms participating in the program will lose certain tax benefits and, in some
cases, be obligated to limit executive pay.
If the purchased assets do not regain their value after five years, the
financial firms must repay the losses to taxpayers.
After a tentative deal was reached with the administration early Sunday, House
Speaker Nancy Pelosi and other congressional leaders finalized the drafting of
the bill so as to put it to a vote in the House as early as Monday and in the
Senate on Wednesday.
''This is a difficult vote, but with the improvements made to the bill, I am
confident Congress will do what is best for our economy by approving the
legislation promptly,'' Bush said.
The ongoing financial crisis erupted in August last year as a result of the
subprime mortgage meltdown and has since forced companies to write off tens of
billions of dollars in related losses and has dampened global economic growth.
Japan's Finance Minister Shoichi Nakagawa said in a press conference in Tokyo
that he ''welcomes'' the accord between the Bush administration and Congress,
and that he ''hopes financial problems will take a turn for the better as soon
as possible'' as a result of the legislation.
Japan's role in resolving the financial problem is large, said Nakagawa, who is
also financial services minister, adding that he intends to maintain close
contact with the U.S. government over the matter.
Hideo Kumano, chief economist at the Dai-ichi Life Research Institute, said
that while the agreement is a big step forward, ''it is still unclear whether
it will be a silver bullet solution to the financial crisis.''
Kumano said that among the focal points will be how the U.S. government will
decide on a purchase price for the troubled assets.
''If the bad assets are bought at low prices, financial firms will be forced to
book losses,'' he said, adding that financial firms lacking capital will have
difficulty applying to use the purchase program.