White House shifts focus from bail-out to jobs market

New York, October 6:

Within hours of the $700 billion bail-out of Wall Street’s financial giants clearing Congress on Friday, attention had shifted towards other stressed parts of the US economy. The focus is now on the country’s jobs market after the Bush administration reported 150,000 job losses in September, the biggest monthly drop in five years which, if sustained, would see the US lose a million jobs this year.

Though the political crisis in Washington was overcome with the second attempt at the bail-out bill being voted through by 263 to 171 votes in the House of Representatives, concern mounted quickly over the inability of the deal to cope with the wider economic weakness. In an editorial yesterday, the New York Times called on the government to move swiftly to protect Americans threatened with foreclosure and to pass a stimulus bill.

“The meltdown on Wall Street is only part of a larger meltdown and the bail-out bill is only one attempt at a fix,” the paper reported.

“The wheels seem to be coming off the economy right now,” Brian Sack, a forecaster with Macroeconomic Advisers, said. “It’s hard to see how we avoid a recession, and it could prove a tough one to climb out of.”

Under the broad terms of the bail-out, the treasury will have up to $700 billion, released in stages, to buy up toxic mortgages and other assets in order to inject confidence into the financial system.

Golden parachutes for executives seeking to profit from the collapse of their institutions will be forbidden and the government is requ-ired to come up with a plan to ease the burden for threatened homeowners by adjusting the terms of those loans taken up by the treasury.

George Bush, who has frequently tried to reassure the American public over the airwaves during the past fortnight, used his regular weekly radio broadcast to emphasise that the bail-out would bolster the general economy. But he said its impact would take time to filter through. “My administration will move as quickly as possible, but the benefits of this package will not all be felt immediately,” he said. “The federal government will undertake this rescue plan at a careful and deliberate pace to ensure that your tax dollars are spent wisely.”

Ted Strickland, governor of Ohio, gave the official Democratic response, saying that the job losses, which now total 7,60,000 so far this year, were a sign that while the spotlight was on the big financial houses, ordinary Americans were suffering. “The crisis that hit Wall Street a couple weeks ago isn’t news to families on Main Street all across this country,” he said.

As the dust settles over the bail-out, some hard questions are likely to be asked about the amount of sweeteners added into the bill. With whips from both parties scrambling to bring representatives on board in advance of the vote on Friday, some $150 billion of tax breaks were included in the final 400-page bill. The fine print of the legislation also included spending and tax breaks that were sought by individual members of Congress which they can now take back to their constituencies and use as arguments in favour of the deeply controversial measure.

From today the first steps will be taken to implement the bail-out, starting with the employment of a small team of about 20 staff to implement the programme.

The first treasury auction is likely to take weeks to put together and will probably concentrate on discrete areas such as subprime loans that fell within a particular financial quarter.

Some British banks with substantial American assets, such as Barclays, Royal Bank of Scotland

and HSBC, are likely to be able to take part in the bail-out.