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Bailout goes bust
US House rejects rescue plan; panic reaches India

Sept. 29: The US House of Representatives has rejected the most sweeping government intervention in financial markets since the Great Depression, threatening to fan cross-continental flames that licked India, too.

By a vote of 228-to-205, the House rejected the $700-billion bailout plan that would have allowed the US government to buy up toxic debt from struggling banks.

The plan’s defeat sent US stocks sliding: the Dow Jones industrial average posted its biggest point-loss ever while the tech-heavy Nasdaq plummeted 9 per cent -- its heaviest daily loss since the dotcom bubble burst in 2000. The Dow lost about 788 points.

“A meltdown would begin, it is true, on a few square miles of Manhattan, but before it was over, all of us know, no city or town in America would be untouched,” House majority leader Steny Hoyer of Maryland had warned lawmakers before the vote.

But Republican House members, who are against government intervention in a market economy, voted against the bailout by a more than 2-to-1 margin. A majority of Democrats voted in favour.

Supporters of the bill vowed to bring the package back as soon as possible. But the House adjourned in the afternoon till Thursday, dissolving the possibility of a quick solution.

The day broke with news of the financial contagion spreading to Europe. The sensex sank below 13K while the rupee slithered to a five-year low.

The Indian stock price index swooned over 506 points, or 3.87 per cent, to 12,595.75 at the close of a torrid day of trading — a grim start to the festival season.

The market was spooked by several factors: first, there was news that the US bailout plan was mired in procedural hurdles.

Second, the authorities in the Netherlands, Belgium and Luxembourg threw a $16.3-billion lifeline to save financial services group Fortis even as the UK government stepped into rescue Bradford & Bingley — Britain’s largest lender to landlords. Fortis is the first major euro-zone bank to buckle since US mortgage defaults triggered the global turmoil.

The decline on Indian bourses was led by ICICI Bank — the country’s second largest bank — which plunged to its lowest level in two years at Rs 493.30 on the Bombay Stock Exchange.

ICICI Bank today put out a second note in as many weeks to reassure investors that its London-based subsidiary wasn’t in any trouble because of its exposures to toxic US mortgage-backed securities.

Earlier, ICICI had said its subsidiary had invested $80 million in bonds floated by Lehman Brothers, which was forced to seek bankruptcy protection in the US.

“We don’t expect the stock markets to dip beyond this level,” Ashok Chawla, secretary in the department of economic affairs, said in Delhi without elaborating on the reasons for such optimism.

Worries that foreigners were liquidating their investments to repatriate funds sent the rupee tumbling to Rs 47.11 against the dollar, a level that hasn’t been seen since June 2003.

The rupee closed at 46.96/97 per dollar, clawing back some of the losses after the central bank’s intervention which traders estimated at over $1 billion.

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