WHITE HOUSE:THE US Senate was preparing late last night to vote on a revised bailout package that would see the Bush administration proceed with its controversial plan to inject $700 billion into the financial system by buying up "toxic" mortgage assets, writes Arthur Beesley, Senior Business Correspondent, on Wall Street
The vote takes place against the backdrop of a warning to the US from European Central Bank president Jean-Claude Trichet, who called for a positive vote "for the sake of global finance".
His remarks were echoed by Jean-Claude Juncker, chairman of the euro zone's group of finance ministers, who said the US had to adopt the rescue plan.
Mr Trichet, who was involved last weekend in the rescue of Fortis, said that a pan-European approach to the banking crisis is unlikely.
"We are not a fully-fledged federation with a federal budget," he said.
US markets were in negative territory yesterday as investors awaited the outcome of the vote.
The leader of Senate Republicans, Mitch McConnell, forecast "victory" yesterday in advance of the vote.
His Democratic counterpart, Senator Harry Reid, said: "We've got to get this done."
Following the rejection of the original bailout pact in the House of Representatives, the package was amended in behind-the-scenes talks.
It has been changed to include new tax breaks and an increase in the limits of Federal insurance on bank deposits.
The original Bill, agreed last week in the course of a difficult negotiation between the government and Congressional Democrats and Republicans, was voted down after House members received a welter of complaints from their constituents about the package.
As senators prepared to cast their votes some time after midnight in Ireland, the White House said the revised package was significantly more likely to pass Congress.
If backed by the Senate, the legislation is likely to go before a new vote in the House of Representatives next Friday.
While raising the cap on individual bank deposits guaranteed by the federal government to $250,000 from $100,000, the new measures embrace a two-year extension of tax breaks that will save individuals and corporations about $149 billion (€106 billion) over the next decade.
This move is likely to prove popular with Republicans in the House of Representatives, who voted by a margin of two-to-one against the original Bill.
However, it may prompt opposition among Democrats concerned about the federal budget.
In spite of confidence in the White House about the revised plan, the central aspects of the proposal remain intact: the federal government will buy the illiquid assets and hold them until there is a market for their resale.
While limiting executive pay in participating companies, the plan allows the US government to take shares in the companies.
The US president will be obliged after the passing of five years to bring forward proposals under which the government would recoup from the financial industrial any outstanding losses on the assets in question.
Democratic presidential election candidate Barack Obama, his running mate Joe Biden and Republican candidate John McCain were each returning to Washington from their campaigns to cast their votes last night.
Both Mr McCain and Mr Obama said failure to pass the bailout Bill would have dire consequences for the economy.
"It is clear that this is what we must do right now to prevent a crisis from turning into a catastrophe," Mr Obama announced in a speech while he was in Wisconsin.
Meanwhile in Missouri, Mr McCain said: "If the financial rescue Bill fails in Congress yet again, the present crisis will turn into a disaster."
With stock markets volatile and money markets frozen, the plan is the centrepiece of the administration's strategy to restore confidence in the troubled financial system.
After ad hoc interventions such as the nationalisation of insurance giant AIG failed to quell turmoil in market, the package representatives a comprehensive effort to contain the contagion in the money markets.
Although critics claimed that the measure was no more than a bailout for bad financial bets made on Wall Street and politicians received a barrage of complaints from their constituents, Congress members and staff have reported that opposition turned to support when the stock market slumped after the vote on Monday.
Lobbyists from throughout the banking industry and the US Chamber of Commerce were trying to identify specific House members who might be likely reconsider their votes against the measure.