US President George W Bush said yesterday’s defeat of his $700-billion plan to revive credit markets “is not the end of the legislative process” and he warned lawmakers that they must act or damage to the US economy will be “painful and lasting.”
Presidential candidates Barack Obama and John McCain conferred with Bush this morning and joined the president in urging Congress to return to work on the legislation, which was defeated in the House after a majority of Republicans and some Democrats rejected calls by their leaders to approve the rescue.
In separate calls to Bush this morning, White House Spokesman Tony Fratto said, McCain and Obama “offered ideas and reaffirmed what they had said publicly — that this is a critical issue that needs to be addressed.”
“I realise this is a difficult vote for members of Congress,” Bush said at the White House. “But the reality is that we’re in an urgent situation and the consequences will grow worse each day” if Congress fails to act.
The president is huddling with Treasury Secretary Henry Paulson and other top economic advisors, along with leaders in Congress from both parties, “sorting out ideas that can garner enough votes,” Fratto said. He refused to discuss details of possible modifications to the bank-rescue plan. The legislation failed on a 228-205 vote.
After the legislation was defeated yesterday, the S&P 500 fell the most since the October 1987 “Black Monday”, and more than $1 trillion in market value was erased from US equities.
Bush said Paulson and other top officials would confer today with House Speaker Nancy Pelosi, Senate Majority Leader Harry Reid and their Republican counterparts “about how we can move legislation forward” when lawmakers return to the Capitol tomorrow.
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“Our economy is depending on decisive action from the government,” he said. “The sooner we address the problem, the sooner we can get back on the path of growth and job creation.”
The stock market’s plunge yesterday “will have a direct impact on retirement accounts, pensions funds and personal savings of millions of our citizens.”
Two-thirds of House Republicans opposed the bailout as an expensive and unwarranted government intrusion in markets that subsidised mistakes on Wall Street, while 40 per cent of Democrats opposed it.
Bush sought to address objections from conservative House Republicans. He said the cost of the rescue package would be “far less than $700 billion” because of the government purchasing troubled assets that could be resold later, possibly at a profit.
“Congress must act,” he said.
Christopher Dodd, chairman of the Senate Banking Committee, said senators might deal with the Bill as early as tomorrow.
The cost of borrowing in dollars overnight surged to a record, and Keith Hennessey, chairman of the White House National Economic Council, warned that credit markets were seizing up because of the rejection of the rescue plan.
“Our economy relies upon credit,” Hennessey said on Bloomberg Television. “There’s a huge economic cost, if we don’t get this” rescue Bill, he said.
With credit becoming increasingly tight, businesses may find it tough to obtain short-term loans to meet payrolls or purchase inventory. That may lead to job layoffs, which could ripple through the economy in a matter of weeks.
“Conditions will surely get significantly worse unless the credit market seizure is arrested,” Michael T Darda, chief economist at MKM Partners in Greenwich, Connecticut, said in a note to clients today.
He said lawmakers might not understand some of the exotic terms of the financial markets but they were attuned to the political pressure resulting from a record point drop in the Dow Jones Industrial Average.
“As such, we believe a rescue package will pass Congress later this week, and perhaps it will be a better Bill with more public support,” Darda said.