US Congress set to pass bailout package

Key lawmakers who struck a post-midnight deal on a 700bn (€479bn) for the financial industry tonight predicted it would pass Congress, putting in place the largest US government intervention in markets since the Great Depression of the 1930s.

Key lawmakers who struck a post-midnight deal on a US$700bn (€479bn) for the financial industry tonight predicted it would pass Congress, putting in place the largest US government intervention in markets since the Great Depression of the 1930s.

Negotiators sought to iron out the final shape of the legislation, which House Republicans still had to review. It was their fierce opposition to a federal rescue that nearly torpedoed an emerging bipartisan pact late in the week.

But officials in both parties were hopeful for a House vote tomorrow, and the two presidential candidates said they probably would support it when it comes up for a vote in the Senate.

Under the rescue plan, the US government would pump as much as $700bn (€479bn) into beleaguered financial firms that are starving for cash, taking over huge amounts of devalued assets from the companies in the hopes of unlocking frozen credit.

The proposal is designed to end a vicious downward spiral that has battered all levels of the US economy, in which hundreds of billions of dollars in investments based on mortgages gone bad have cramped banks' willingness to lend.

"This is the bottom line: If we do not do this, the trauma, the chaos and the disruption to everyday Americans' lives will be overwhelming, and that's a price we can't afford to risk paying," Senator Judd Gregg, the chief Senate Republican in the talks said today.

"I do think we'll be able to pass it, and it will be a bipartisan vote."

A breakthrough came when Democrats agreed to incorporate a Republican demand - letting the government insure some bad home loans rather than buy them - designed to limit the amount of federal money used in the rescue.

Another important bargain, vital to attracting support from centrist Democrats and Republicans who are fiscal hawks concerned about the growing federal budget deficit, would require that the government, after five years, submit a plan to Congress on how to recoup any losses.

The plan would give Congress a stronger hand in controlling the money than the Bush administration wanted. Lawmakers could block half the money and force the president to jump through some hoops before using it all.

The government could get $250bn (€171bn) immediately, $100bn (€68.4bn) more if the president certified it was necessary, and the last $350bn (€239.5bn) with a separate certification - and subject to a congressional resolution of disapproval.

Still, the resolution could be vetoed by the president, meaning it would take extra-large congressional majorities to stop it.

The presidential nominees came behind the outlines of the bail-out.

"This is something that all of us will swallow hard and go forward with," said Republican Sen John McCain of Arizona. "The option of doing nothing is simply not an acceptable option."

His Democratic rival, Illinois Sen Barack Obama, sought credit for taxpayer safeguards added to the initial proposal from the Bush administration. "I was pushing very hard and involved in shaping those provisions," he said.

House Republicans said they are still reviewing the plan.

"We are not ready to say that a deal is done," said Eric Cantor, a Virginia Republican.

Congressional leaders announced a tentative deal in the early hours of today after marathon negotiations at the Capitol.

"We've still got more to do to finalise it, but I think we're there," said Treasury Secretary Henry Paulson, who also participated in the negotiations in the Capitol.

Executives whose companies benefit from the rescue could not get "golden parachutes" with large payments should they leave their firms and would see their pay packages limited.

The government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in financial companies' future profits.

To help struggling homeowners, the plan requires the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers' monthly payments so they can keep their homes.

"Nobody got everything they wanted," said Democratic Rep Barney Frank of Massachusetts, chairman of the House Financial Services Committee. He predicted it would pass, though not by a large majority.

Gregg, a New Hampshire Republican, said he thinks taxpayers will come out as financial winners.

"I don't think we're going to lose money, myself. We may, it's possible, but I doubt it in the long run," he said.