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WASHINGTON: US lawmakers overwhelmingly abandoned their president this morning by voting against his US$700 billion (S$1 trillion) bailout plan, sending US stocks into a precipitous tailspin.

The unexpected rejection of the plan in the US House of Representatives ravaged financial markets, sending the Dow Jones Industrial Average down as much as 705 points.

US crude oil sank more than US$10 to below US$97 a barrel, its single biggest fall in almost seven years.

Stocks plummeted on Wall Street even before the 228-205 vote to reject the Bill was announced on the House floor, as Congressmen ignored urgent pleas from President George W. Bush and bipartisan congressional leaders to quickly bail out the staggering US financial industry.

As at press time, the Dow was down more than 500 points at 10,611.

When the critical vote was tallied, too few members of the House were willing to support the unpopular measure with elections just five weeks away. Ample ‘no’ votes came from both the Democratic and Republican sides of the aisle but more Republicans than Democrats rejected the bailout.

A disappointed Mr Bush said he would meet his economic team to determine the next step to prevent a financial meltdown.

The vote had been preceded by unusually aggressive White House lobbying, and spokesman Tony Fratto said that Mr Bush had used a ‘call list’ of people he wanted to persuade to vote yes as late as just a short time before the ballot.

Earlier in the day, it was bad news and more bad news coming out of Europe.

European currencies fell while the US dollar, gold and government bonds surged as the Belgian, Dutch and Luxembourg governments rescued financial firm Fortis to prevent a domino-like spread of failure.

Hours later, the British government said lender Bradford & Bingley’s branch network would be sold to Spanish bank Santander and the remainder of the group would be nationalised.

Then, Iceland’s government bought a 75 per cent stake to take control of Glitnir after the bank’s funding position deteriorated in recent days, knocking the crown currency to record lows against the euro.

German lender Hypo Real Estate struck a last-minute deal with the government and a consortium of lenders to resolve a refinancing squeeze. Russia and Scandinavia also had to rescue their banks.

‘One sees now, that not only American but also European banks are affected and that the crisis is after all global,’ said Mr Carsten Klude, a strategist at MM Warburg.

The US banking system itself faced more upheaval. Its bank regulator announced last night that Citigroup will acquire the bulk of Wachovia, the country’s sixth-largest bank by assets.

This sent Wachovia shares plummeting more than 90 per cent, even as the regulator stressed that the bank ‘did not fail’.

Major central banks meanwhile tried to stem the growing credit crisis as commercial banks hoarded cash and refused to lend to one another for all but the shortest periods.

The US Federal Reserve and its counterparts in Canada, Europe and Asia pumped another US$630 billion into the lending system, flooding the banks with cash.

‘They are throwing billions around, but things seem to be getting worse, said Mr Joe Saluzzi, co-manager of trading firm Themis Trading. ‘There’s a monster amount of fear out there.’

Currency markets also felt the chills, with the euro falling more than 2 per cent to US$1.4301.

The British pound dropped more than 2 per cent to US$1.7962, heading for its steepest one-day loss since mid-1993.

Gold rose above the US$900 threshold, climbing 2.4 per cent to US$909.50 an ounce as investors fled to safety while oil fell more than US$6 a barrel to US$100 on fears of slowing economic growth.

Similar worries drove losses across stock markets in Asia earlier in the day as concern grew that the US bailout would fail to prevent the credit crisis from spreading.

REUTERS, BLOOMBERG, AGENCE FRANCE-PRESSE

Source : Straits Times - 30 Sept 2008