US House and Senate negotiators hoped to seal agreement yesterday on a final version of an US$800 billion economic stimulus package that US President Barack Obama says is urgently needed.
The negotiations began on Tuesday within hours of the Senate approving its US$838 billion economic recovery bill by a 61-37 margin, but with only three moderate Republicans signing on and then demanding the bill’s cost go down when the final version emerges from negotiations.
Also on Tuesday, US Treasury Secretary Timothy Geithner unveiled the administration’s much-anticipated plan to rescue the US banking system at a cost that could hit US$2 trillion.
That unprecedented figure would include a mixture of government and private sector money designed to rid bank balance sheets of toxic investments and thaw frozen credit markets.
“Right now critical parts of our financial system are damaged,” Geithner said. “Instead of catalyzing recovery, the financial system is working against recovery and that’s the dangerous dynamic we need to change.”
But a lack of detail about the bailout program announced by Geithner and questions about whether the private sector could be enticed to sign on sent stocks tumbling 382 points on Wall Street.
In a sign of the urgency the administration attaches to the economic stimulus package, White House Chief of Staff Rahm Emanuel and other Obama aides met in the Capitol late on Tuesday with Democratic leaders as well as moderate senators from both parties, whose support looms as crucial for any eventual agreement.
Negotiators were working with a target of about US$800 billion for the final bill, lawmakers said.
“That’s in the ballpark,” Senate Finance Committee Chairman Max Baucus said of the US$800 billion figure late on Tuesday.
Obama’s negotiating team insisted on restoring some lost funding for school construction projects as talks began on Tuesday in hopes of striking a quick agreement, but by late in the day it appeared resigned to losing up to US$40 billion in aid to state governments.
Baucus had said earlier that US$35.5 billion to provide a US$15,000 homebuyer tax credit, approved in the Senate last week, would be cut back.
Geithner explained his complex banking rescue plan shortly before the Senate voted on the US$838 billion bill.
“This strategy will cost money, it will involve risk and it will take time,” Geithner said in announcing the plan.
He said it would attack the financial collapse on three fronts: restarting the flow of credit, removing bad debt from the books of troubled banks and providing assistance for ordinary Americans and small businesses.
Geithner said the administration intended to: ensure that banks’ balance sheets are “cleaner and stronger;” establish a fund that combines the resources of the US Federal Reserve, the Federal Deposit Insurance corporation and the private sector that could reach US$1 trillion to stimulate spending, particularly in real estate; and set aside US$100 billion from the bailout fund to support US$1 trillion in lending under a Fed program that was announced in November but has yet to begin operations.