Page last updated at 21:09 GMT, Thursday, 25 September 2008 22:09 UK

US shares up on rescue deal hopes

NYSE traders
Traders are watching the outcome of the Congressional talks closely

Wall Street shares have risen after a leading senator said politicians had agreed to an outline of the $700bn (380bn) bail-out deal for the economy.

The Dow Jones Industrial Average ended nearly 200 points, or 1.82% up, at 11,022.06, with the White House saying a deal would be reached "shortly".

Christopher Dodd, head of the Senate Banking Committee, said agreement on the plan's principles had been reached.

The financial market has seen huge upheaval recently with firms folding.

President George W Bush has been in talks with both presidential candidates to discuss the bail-out.

The talks came after heads of Fannie Mae and Freddie Mac, the mortgage giants that had to be rescued by the government, took part in a Congressional hearing.

James Lockhart, director of the Federal Housing Finance Agency, which regulates the firms, told lawmakers that he had discovered "significant and critical weaknesses across the board" by August when the government was considering how it would help the lenders.

He also said he expected the new heads of both lenders to be paid "over million dollars a year."

The two firms finance or guarantee nearly half of the outstanding mortgages in the US and authorities were forced to step in as the pair lost billions of dollars in the housing slowdown.

A collapse of the two lenders would have frozen US mortgage lending for years, and would likely have led to even steeper declines in house prices.

Fannie and Freddie became two of the firms hardest hit by the crisis enveloping the US, which has recently led to the collapse of investment bank Lehman Brothers, the takeover of Wall Street giant Merrill Lynch and the government bail-out of insurer AIG.

Crisis plan

Mr Bush has been urging both Republicans and Democrats to back plans for a $700bn rescue package to ease the "serious financial crisis".

A bipartisan meeting, including presidential candidates Barack Obama and John McCain, took place on Thursday to discuss the proposals.

While the plan has tentative agreement, both Democratic and Republican politicians voiced doubts about the plan and the speed at which they are being asked to approve it.

Something needs to be done now
Howard Davies, London School of Economics

They have pointed to a lack of protection for taxpayers, the possibility of "golden parachutes" for Wall Street bosses behind the current problems, as well as calls for a dramatic cut in the size of the bail-out package.

Howard Davies, director of the London School of Economics, said there was an "air of panic" in the US and "something needs to be done now".

A "comprehensive" solution was needed to tackle the problems, not piecemeal ones, he added.

Last week, US Treasury Secretary Henry Paulson said the government planned to buy out the so-called "toxic debts" that were clogging up the financial system.

Without such a move, he warned the savings of ordinary Americans could be at risk.

However, Mr Davies said that simply buying the bad debts would not be enough.

"I would have preferred a package of buying troubled assets and direct injections into troubled institutions," he said.



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