The world economy continues to be a prominent topic in the media, as will likely be the case for a long time, considering the impact that the expensive rescue plan will have, and the scenario that might have unfolded if there had been no rescue plan.

The Associated Press reports that a tentative accord has been reached on bailing out bankers.


House Financial Services Chairman Barney Frank, D-Mass., center, and House Speaker Nancy Pelosi, D-Calif., left, Secretary of the Treasury Henry Paulson, second right, and Senate Majority Leader Harry Reid, D-Nev., right, announce a tentative deal regarding on the financial crisis on Sunday, Sept. 28, 2008 on Capitol Hill in Washington. Associated Press © 2008

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Congressional negotiators and the Bush administration's top Treasury officials go to work Sunday on settling the final details of a historic $700 billion Wall Street bailout aimed at keeping credit flowing and saving the nation's shaky economy from collapsing into a crippling recession.

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Congressional leaders and the Bush administration reached a tentative agreement early Sunday on what may become the largest financial bailout in American history, authorizing the Treasury to purchase $700 billion in troubled debt from ailing firms in an extraordinary intervention to prevent widespread economic collapse.

The bill includes pay limits for some executives whose firms seek help, aides said. And it requires the government to use its new role as owner of distressed mortgage-backed securities to make more aggressive efforts to prevent home foreclosures.

In some cases, the government would receive an equity stake in companies that seek aid, allowing taxpayers to profit should the rescue plan work and the private firms flourish in the months and years ahead.

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Top U.S. policy makers emerged from hours of tense negotiations with a clear message just after midnight Sunday morning: A deal to bailout U.S. financial markets has been agreed on and all that remains to be done is to commit the legislation to paper.

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Offers and counteroffers were flowing back and forth all night. Among the offers extended by Democrats: an agreement to drop a proposal to devote 20% of potential profits to an affordable housing fund, according to a Senate staffer close to the talks.

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One of the biggest sticking points involved concerns that executives at troubled financial institutions would wind up benefiting from handsome pay packages as the government took on more risks. But Democrats emerging from the talks said a whole array of issues related to executive pay had been addressed, including issues involving "golden parachutes," the big pay packages that are sometimes awarded to departing executives.

Mr. Dodd said that protections against golden-parachute awards had made it into the final deal, along with an insurance component sought by House Republicans as an option for the Treasury to use if necessary and requirements that Treasury is seeking to mitigate and reduce foreclosures where possible.

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LEHRER (the Moderator): All right. All right, speaking of things that both of you want, another lead question, and it has to do with the rescue -- the financial rescue thing that we started -- started asking about.

And what -- and the first answer is to you, Senator Obama. As president, as a result of whatever financial rescue plan comes about and the billion, $700 billion, whatever it is it's going to cost, what are you going to have to give up, in terms of the priorities that you would bring as president of the United States, as a result of having to pay for the financial rescue plan?

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OBAMA: Well, there are a range of things that are probably going to have to be delayed. We don't yet know what our tax revenues are going to be. The economy is slowing down, so it's hard to anticipate right now what the budget is going to look like next year.

But there's no doubt that we're not going to be able to do everything that I think needs to be done. There are some things that I think have to be done.

We have to have energy independence, so I've put forward a plan to make sure that, in 10 years' time, we have freed ourselves from dependence on Middle Eastern oil by increasing production at home, but most importantly by starting to invest in alternative energy, solar, wind, biodiesel, making sure that we're developing the fuel-efficient cars of the future right here in the United States, in Ohio and Michigan, instead of Japan and South Korea.

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MCCAIN: Look, we, no matter what, we've got to cut spending. We have -- as I said, we've let government get completely out of control.

Senator Obama has the most liberal voting record in the United States Senate. It's hard to reach across the aisle from that far to the left.

The point -- the point is -- the point is, we need to examine every agency of government.

First of all, by the way, I'd eliminate ethanol subsidies. I oppose ethanol subsidies.

I think that we have to return -- particularly in defense spending, which is the largest part of our appropriations -- we have to do away with cost-plus contracts. We now have defense systems that the costs are completely out of control.

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LEHRER: But if I hear the two of you correctly neither one of you is suggesting any major changes in what you want to do as president as a result of the financial bailout? Is that what you're saying?

OBAMA: No. As I said before, Jim, there are going to be things that end up having to be ...

LEHRER: Like what?

OBAMA: ... deferred and delayed. Well, look, I want to make sure that we are investing in energy in order to free ourselves from the dependence on foreign oil. That is a big project. That is a multi-year project.

LEHRER: Not willing to give that up?

OBAMA: Not willing to give up the need to do it but there may be individual components that we can't do.

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Americans woke up Friday to more dramatic news about the financial bailout. As a big meeting between President Bush, the presidential candidates and congressional leaders ended Thursday without a consensus, news broke of the failure of the nation's largest savings and loan.

The government seized Washington Mutual, and much of the company is being sold for about $2 billion to JPMorgan Chase, which also bought Bear Stearns after its collapse in March.

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The United States House of Representatives rejected the economic bailout bill today with 228 votes against and 205 votes in favor.


A board shows the final numbers of the New York Stock Exchange, September 29, 2008. By a vote of 228-to-205 the House of Representatives rejected a compromise plan that would have allowed the Treasury Department to buy up debt from struggling banks. Source: Reuters - September 29, 2008

According to National Public Radio: House Rejects Bailout Bill; Wall Street Shudders:

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September 29, 2008 · The House failed to pass a $700 billion emergency rescue plan for the financial sector on Monday, causing the Dow Jones industrial average to plummet at one point more than 700 points amid continued uncertainty.

It did not appear that the measure would come up for a second vote on Monday.

The bailout plan would have empowered the Treasury Department to take over bad mortgage debt from banks' balance sheets in order to spur them into lending again. The legislation was the result of days of intense talks between the White House and congressional leaders, who agreed Sunday to a public bailout of the ailing financial industry after lawmakers insisted on sharing spending controls with the Bush administration.

The House held open its vote on the bailout plan well after the allotted time had expired; 228 lawmakers voted against the bill and 205 voted in favor.

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The House delivered a stunning defeat to legislation designed to rescue the nation's troubled financial system, sweeping aside a call from Bush to "send a strong signal" of confidence to markets at home and abroad. The Dow plunged about 780 points, its worst point drop ever. The S&P 500 fell 8.7%.

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WASHINGTON — In a moment of historic import in the Capitol and on Wall Street, the House of Representatives voted on Monday to reject a $700 billion rescue of the financial industry. The vote came in stunning defiance of President Bush and Congressional leaders of both parties, who said the bailout was needed to prevent a widespread financial collapse.

The vote against the measure was 228 to 205, with 133 Republicans joining 95 Democrats in opposition. The bill was backed by 140 Democrats and 65 Republicans.

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The vote was a catastrophic political defeat for President Bush, who was described as “very disappointed” by a spokesman, Tony Fratto. Mr. Bush had put the full weight of the White House behind the measure and had lobbied wavering Republicans in intensely personal telephone calls on Monday morning before the vote. Both presidential candidates also supported the plan.

Supporters of the bill had argued that it was necessary to avoid a collapse of the economic system, a calamity that would drag down not just Wall Street investment houses but possibly the savings and portfolios of millions of Americans. Moreover, supporters argued, a lingering crisis in America could choke off business and consumer loans to a degree that could prompt bank failures in Europe and slow down the global economy.

Opponents said the bill was cobbled together in too much haste and might amount to throwing good money from taxpayers after bad investments from Wall Street gamblers.

Immediately after the vote, many House members appeared stunned. Some Republicans blamed Speaker Nancy Pelosi, Democrat of California, for a speech before the vote that disdained President Bush’s economic policies, and did so, in the opinion of the speaker’s critics, in too partisan a way.

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The lower house of the US Congress has voted down a $700bn (£380bn) plan aimed at bailing out Wall Street.

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The vote followed a day of turmoil in the financial sector.

* Wachovia, the fourth-largest US bank, was bought by larger rival Citigroup in a rescue deal backed by US authorities
* Benelux banking giant Fortis was partially nationalised by the Dutch, Belgian and Luxembourg governments to ensure its survival
* The UK government announced it was nationalising the Bradford & Bingley bank
* Global shares fell sharply - France's key index lost 5%, Germany's main market dropped 4% while US shares plunged after the vote result was announced.

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The House has voted to pass the $700 billion financial-markets rescue bill, with 263 in favor and 171 opposed, two days after the Senate passed the measure.


Republican Representatives John Boehner, left, Eric Cantor, Roy Blunt and Adam Putnam at a press conference on Capitol Hill before the vote on Friday.
Ken Cedeno for The New York Times
Source: New York Times: House Approves Bailout on Second Try

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NPR.org, October 3, 2008 · The U.S. House passed a $700 billion financial rescue package by a vote of 263-171, paving the way for the government to start buying up troubled assets from financial institutions caught on the wrong side of record home foreclosures. President Bush was ready to sign the measure into law.

The House had rejected a similar bill on Monday, sending the Dow Jones industrial index down almost 800 points. The Senate approved a revised version earlier this week.

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Source: National Public Radio: House Approves $700 Billion Financial Bailout



House Minority Leader John Boehner (left) and Minority Whip Roy Blunt emerge from a House Republican meeting on the financial bailout package Friday. Getty Images Source: National Public Radio: House Approves $700 Billion Financial Bailout

Additional information from the New York Times:

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WASHINGTON — The House of Representatives gave final approval on Friday to the $700 billion bailout for the financial system, reversing course to authorize what may be the most expensive government intervention in history.

The crucial vote was 263-171, passing by a comfortable bipartisan margin. Most Democrats voted in favor (172 yeas to 63 nays), while a slighter majority of Republicans voted against (91 yeas to 108 nays). Every member of the House voted. (There is one vacancy, created by recent death of Stephanie Tubbs Jones of Ohio.)

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Financial markets, already weighed down by another round of bleak economic data, including a report showing 159,000 jobs were lost in September, had a positive but hardly exuberant response to the House action. Ahead of the vote, the Dow Jones industrial average was up about 290 points but the market gave up almost all of those gains within 30 minutes after the final vote.

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Shortly after the U.S. House passed, President Bush signed the $700 Billion Financial Bailout Bill.


Brendan Smialowski/Getty Images - Source: National Public Radio

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The president signed the rescue measure Friday, shortly after the U.S. House passed it. The action paved the way for the government to start buying up troubled assets from financial institutions caught on the wrong side of home foreclosures.

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U.S. stocks closed down on Friday, as fears the economy will not be able to avoid a recession overshadowed the effects of the $700 billion financial rescue package signed by President Bush.

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The Dow Jones industrial average was down 157 points at 10,325. The Standard & Poor's 500 Index was down 15 points at 1,099. The Nasdaq Composite Index was down 29 points at 1,947.

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For almost 10 minutes on Friday, Wall Street seemed in a free-fall.

The Dow Jones industrial average fell almost 700 points or about 8 percent in that time. The broader Standard & Poor’s 500-stock index, declined almost 8 percent.

Then the turnaround began, and in the next five minutes, the Dow regained about 500 points. The S.&P. made similar gains.

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The Hang Seng index in Hong Kong fell 7.2 percent on Friday, while the ASX/200 index in Sydney closed 8.3 percent lower.

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In Seoul, the Kospi index fell 4.1 percent. The Shanghai composite index fell 3.6 percent, giving it a loss for the week of about 15 percent. The Indonesian stock exchange suspended trading for a third day, and exchanges in Bangkok and Vienna halted trading after shares fell more than 10 percent, triggering circuit-breaker rules.

In Moscow, the Russian Duma, or lower house of Parliament, approved a financial sector bailout package valued at more than $80 billion. Trading on Russian stock exchanges was suspended until further notice.

Investors were keeping a close eye on a crisis meeting of Group of 7 finance ministers in Washington later Friday. The United States and Britain appear to be converging on a similar blueprint for stemming the financial chaos, which includes injection of government money into banks in return for ownership stakes and guarantees of repayment for various types of loans.

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Source: New York Times: Global Markets Dive in Relentless Selloff

These problems are bound to have an impact on many of the issues that are discussed on these forums, including lifestyles of many people around the world. Iceland has already been hard hit.


Boxes of fish are stored for export in Reykjavik. Source: World Street Journal: As Banking 'Fairy Tale' Ends, Iceland Looks Back to the Sea (Getty Images)

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THINGEYRI, Iceland -- Kristjan Davidsson went to sea as a deckhand at 16. At fisheries college he aspired to be a boat captain. For two decades, he sold fish and fish-processing equipment. Like his father, and practically everyone in this remote village, he owed his living to the fish his country pulled from the ocean.

But in 2001 Mr. Davidsson got bored. He joined one of Iceland's newly privatized banks. He got rich. Now, he says, it looks like it's back to fish. That may be true for this nation's fortunes as a whole.

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Fishing sustained the rugged and remote island of Iceland for centuries. But just a half-dozen years ago, Icelanders discovered that vast fortunes could be made in high finance. They took to the new business with all the zeal and fearlessness of their seagoing past, lending abroad with speculative fervor. The banks quickly swelled to a size that dwarfed the economy of some 300,000 Icelanders back home.

Within a few years, Iceland's three big banks -- Kaupthing Bank hf, Landsbanki Islands hf and Glitnir became highly leveraged, like other now-troubled banks. The banks' assets reached €100 billion, about 10 times the country's gross domestic product last year, and their foreign depositors have come to far outnumber the island's population.

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Today, Iceland's swollen banks are ruined. In the space of a few days, practically the entire banking system has been seized by the government. The largest bank of all, Kaupthing Bank, was seized Thursday, and trading was suspended on the stock exchange until Monday. The krona has ceased functioning as a currency outside Iceland.

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In an address last week, Iceland's prime minister told his countrymen that they would have to fall back on the resources of land and sea. Fishermen say they believe the government will raise cod quotas to goose the business. This week, Iceland nationalized the three banks. The prime minister said the "fairy tale" of banking was over.

"Most of the people knew at heart that it would end in disaster somehow," Mr. Kristjansson says. Says his son: "We had one hell of a party. Don't tell me we shouldn't have expected some sort of hangover."

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