After days of deliberation, the House of Representatives voted in favour of the Emergency Economic Stabilization Act of 2008 on Friday in a vote of 263 to 171, allowing the deployment of up to $700 billion to purchase illiquid assets from financial entities.
Equity markets sold off sharply on the announcement, with the S&P 500 futures tumbling 20 points to 1140 and Dow futures losing 186 points to as low as 10640 in the minutes following the announcement.
On Monday, the House shot down an older version of the legislation in a vote of 228 to 205, sparking an unprecedented selloff on Wall Street.
The new bill includes billions of dollars in tax breaks to both taxpayers and businesses and additional powers to the Federal Deposit Insurance Corporation, which will allow it to insure deposits of up to $250k in compared to the current $100k.
Aside from the amendments made in the Senate on Wednesday evening, the legislation remains virtually identical to the initial proposal, allowing for the immediate release of $250 billion in funding for the purchase of illiquid assets from financial institutions. The document, entitled the Emergency Economic Stabilization Act of 2008, calls for $700 billion of funding to be delivered in stages.
On Wednesday, the Senate passed the amended bill in a vote of 74 to 25.
The bill now awaits the signature of U.S. President George W. Bush, who said he was eager to sign the bill as soon as possible. The President is expected to speak at 1:55 p.m. EDT.
The news comes on the heels of a string of bad news for U.S. financial markets, with the FDIC seizing Washington Mutual and selling most of its assets to JPMorgan Chase on Sept 19, followed by the acquisition of Wachovia and subsequent sale in principle to Citigroup on Sept 22.
In recent weeks, the Fed agreed to an $85 billion loan to American International Group, but allowed Lehman Brothers to file bankruptcy and subsequently be sold to Barclays PLC.
The impact of the turmoil has also reached Europe, with Fortis Bank in the Benelux, Hypo Real Estate Bank in Germany and Bradford & Bingley in the UK all receiving government funds on Monday.
European lawmakers are scheduled to meet in Paris on Oct. 4 to discuss the state of the European financial system, and there are rumors that French President Nicolas Sarkozy may attempt to unveil a €300 billion bailout plan.
By Erik Kevin Franco and edited by Stephen Huebl
©CEP News Ltd. 2008