The Obama Administration is stepping up pressure on the US Congress to pass its huge economic stimulus bill to get passed as soon as possible.
This package, and the revamp of the banking bailout, have emerged as defining moments for the new administration, and the chances of the US economy and financial system settling and reversing the current slump.
The US is due to hold a procedural vote Tuesday morning, our time, on the package to determine whether a compromise reached at the weekend, which removed about $US100 billion ($A150 billion) in spending from the bill, would persuade enough Republicans to support it.
Wall Street and other markets were hesitant before this vote, suspending the rebound that appeared last Friday.
Although not vital, a loss for the Obama administration (by failing to get the 60 Senate votes), would be damaging to market confidence.
Even if senators approve the bill, which carries an $US827 billion price tag, they face the daunting task of negotiating a final bill with the House, which passed its own version last week with far more spending proposals and smaller tax cuts.
Democrats in Congress claim it will be tough to get the stimulus to President Barack Obama’s desk by Congress’s self-imposed deadline of Friday.
President Obama flew to Indiana, where unemployment has soared past 15% in some cities to increase pressure on Congress. He then hold a news conference to urge congressional leaders to quickly reconcile the Senate and House versions.
He told a rally that the “endless delay and paralysis” in Washington was holding up the bill and called on Congress to pass the bill immediately.
Reverting to the “town hall” format that he used during the election, Mr Obama said that failure to act would only exacerbate the recession.
He has a nationwide prime time Tv press conference and Tuesday flies to Florida to talk about mortgages and the stimulus and bailout packages.
The US Senate was finalising plans to vote on a compromise $US827 billion stimulus that was brokered with just three of the 41 Republican senators.
This Senate vote on the general stimulus package forced the postponement of the new version of the bailout plan for banks and other groups.
The stimulus package was sorted out (so far) in Senate negotiations at the weekend and there are high hopes it won’t be rejected like the $US700 billion TARP plan was last October/November.
Bloomberg pointed out overnight that this stimulus package will raise the government’s commitment to solving the financial crisis to $US9.7 trillion.
Bloomberg said the US Federal Reserve, Treasury Department and Federal Deposit Insurance Corporation have lent or spent almost $US3 trillion over the past two years and pledged to provide up to $US5.7 trillion more if needed.
Once the Senate votes on the $US780 billion stimulus package it would need to be reconciled with an $US819 billion plan the House of representatives approved last month.
The bank plan will now be announced early tomorrow morning (Australian time) by Treasury Secretary, Tim Geithner.
US media reports say some aspects of the plan have been sorted out, others are still being negotiated.
Those bits settled are said to include a new round of injections of taxpayer funds into banks, (aimed at firms identified as most in need of new capital).
As well a Federal Reserve program designed to encourage more consumer and small-business lending will be expanded. That could include real estate assets, hopefully housing.
But Bloomberg and others report that still outstanding is the biggest issue of all; how to treat the illiquid assets that have caused the credit freeze, such as credit and housing based securities and derivatives.
The idea of a bad bank to buy them is on the drawing board, but others in the Administration want cooperation with private investors to improve the chances of wider acceptance of the proposal, and force the private sector to get involved.
Some in the Government believe that unless the private sector is involved, then many politicians will object to taxpayers footing the bill.
It’s said to be uncertain just how big a role there’ll be for federal guarantees of securities that remain on banks’ balance sheets.
Geithner is scheduled to unveil the effort at 11 a.m. tomorrow, or 3 am Australian eastern time.
Bloomberg and Reuters report that the Government won’t ask for any more money and will use the remaining $US350 billion in the TARP fund to start the process. Involving the private sector would also make that money go further.
The Federal Deposit Insurance Corp, a key banking regulator, is expected to play a role either running and/or financing some bad bank type of unit that takes on illiquid securities, which may sell its own government- backed debt.
That in turn would generate more capital for tackling this most difficult of all bailouts.
The FDIC’s credit line with the US Treasury to $US100 billion from $US30 billion to enable it to have enough in reserve to handle an expected rise in bank failures. Nine US banks have already failed this year, three in each of the last two weeks.
