Panic sweeps 300,000 British customers of Icelandic internet bank after it stops withdrawals and deposits

By Daily Mail Reporter
Last updated at 3:47 PM on 07th October 2008

www.dailymail.co.uk/money/article-1069715/Panic-s weeps-300-000-British-customers-Icelandic-interne t-bank-stops-withdrawals-deposits.html

Icesave customers were beginning to panic after the internet bank stopped savers withdrawing their cash.

Customers hoping to access their account were met with a message on the bank's website this morning which said that Icesave was not 'currently processing any deposits or withdrawal requests'.

There was no explanation for the move but it comes as Iceland's government grappled with a major crisis in its banking sector.

Click photo to enlarge: The message on the Icesave website this morning stating that customers were no longer able to make withdrawals or deposits

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Steve, 48, a self-employed textile management agent from Derby, tried to transfer a total of £12,000 from two Icesave accounts to another bank account this morning after learning of the nationalisation, and was worried the transfer would not go through.

His wife had £10,500 in an Easy Savings account and £1,500 in an ISA at Icesave.

He said: 'My wife and I need to pay up to £12,000 for renovations on our bungalow next week and I have no idea if we'll be able to access our money to do so.

'I've been panicking this morning and I can't concentrate on my work. I just keep checking all the websites and forums to try and find out the latest.

'I'm worried we'll lose all the money if the Icelandic government doesn't have enough in its coffers to guarantee everyone's savings.'

Another customer, a 28-year-old woman with ISA savings of £6,300 in Icesave, was also concerned she would be unable to access her money if she needed to.

She said: 'I decided to put my savings there because it offered the best deal - the best interest rate.

Other customers were trying to put on a brave face.

Andy Bloice, 42, from Northamptonshire, who works in management at a supermarket chain, has between £3,000 and £4,000 across two Icesave accounts.

He said: 'I know I'll get my money back but I'm spreading my money around between different banks.

'I'm not desperately worried because I don't urgently need my cash at the moment.

'But I am concerned about the culture of panic that leads people to rush to withdraw all their funds.'

This morning Iceland used emergency powers adopted on Monday to dismiss the board of directors of Landsbanki, the bank that owns Icesave, and put the bank into receivership.

'Landsbanki would like to stress that the bank has not been put into liquidation but is in receivership which gives it a temporary protection from payment of debts and obligations as they fall due,' the bank said in a statement.

The notice on the Icesave website read: 'We are not currently processing any deposits or any withdrawal requests through our Icesave internet accounts.

'We apologise for any inconvenience this may cause our customers. We hope to provide you with more information shortly.'

More than 300,000 British investors in the internet bank Icesave were unable to make any deposits or withdrawals from their accounts.

Debenhams and Oasis are owned by retail investor Baugur. Kaupthing, one of Iceland's three main banks, is a prime mover in Baugur

Angry customers wrote on MailOnline's sister website , thisismoney.co.uk about their situation.

Justin Smith, an IT consultant from West London, said: 'I feel confused and badly informed by Icesave - there has been no direct communication from the firm and now I am unable to withdraw my life savings, with no idea on what happens from here.

'I only recently transferred all my ISA savings to the bank, attracted by high interest rates and guarantees and now I am facing the prospect of having to go through the painful process of claiming back from two governments and the possibility of losing my ISA tax wrapper on nearly 10 years' of savings.'

If Icesave is declared insolvent, British customers with sole accounts will be able to reclaim up to £50,000 and those with joint accounts are protected up to £100,000.

But the payouts are complicated by the fact that the Icelandic scheme would pay the first 20,887 euros (£16,170) people lost, with the FSCS topping up the rest.

If the Icelandic scheme was unable to cope with the scale of the payouts, other Nordic compensation schemes would step in as part of a reciprocal agreement the countries have.

The move from the Reykjavik government followed a day of frantic activity which saw financial shares in the country suspended and the currency plummet by a third.

Worried British customers of Icesave were unable to access their accounts yesterday after its website crashed.

Some were informed they faced a wait of 'several hours' before they could access their money. Those ringing its phonelines were told that the bank was receiving 'unprecedented call volumes'.

The internet bank insists it has ample reserves to pay back UK customers.

However, it admitted savers had been reducing their balances to the compensation level.

Iceland's slide towards national bankruptcy has left a huge shadow hanging over some of the best-known names on Britain's high street.

Businesses ranging from Hamleys to French Connection have all been bought up or backed by Icelandic firms in a remarkable spending spree over the past decade.

As the Icelandic government desperately wrestles with the biggest financial crisis in the country's history, tens of thousands of employees wait anxiously to see if their jobs are secure.

So far one Icelandic bank - Glitnir, the country's third biggest  -  has had to be rescued and five others are under the close supervision of the government. About 300,000 British savers have deposits with Icelandic banks such as Kaupthing and Landsbanki.

Last night retail conglomerate Baugur, the most aggressive Icelandic corporate raider, issued a statement aimed at reassuring staff, banks and suppliers.

It said the crisis, which has given Iceland the unenviable status of the developed world's first "sub-prime" economy, would have no direct impact on its roster of British retailers.

The company said most of its funding came from international, not Icelandic banks, and the businesses were trading well. Baugur added:

'What is happening in Iceland will not flow into the UK high street as some people have tried to speculate and will not lead to a forced sale of assets.'

However, in the current febrile climate any Icelandic connection is being viewed with suspicion by the credit and financial markets.

Baugur has already been hit by the withdrawal of trade credit insurance cover for its suppliers following the collapse of Glitnir last week.

Today the Icelandic authorities prepared to take unprecedented action after emergency legislation was passed late last night. With a population of just 300,000, a national economy of £11 billion but foreign debts of almost £80 billion, the Scandinavian island is in grave danger of national insolvency.

In an address to the nation, prime minister Geir Haarde said the country's top financial-regulator will have wide-ranging authority to dictate a bank's operations and could even force it to merge with another firm or declare bankruptcy.

In an address to the Reykjavik parliament, the prime minister raised the spectre of a complete financial collapse if the Bill had not been agreed.

He said: 'We were faced with the real possibility that the national economy would be sucked into the global banking swell and end in national bankruptcy. The legislation is necessary to avoid that fate."

Yesterday the Icelandic crown had shed 30 per cent of its value in a day to a record low exchange rate of 230 to the euro. In the wake of the currency fall, inflation in the country, which is heavily dependent on imports, is set to rocket.

In a further blow for the once thriving economy, Iceland's national debt was last night downgraded from A- to BBB status by the Standard & Poor's credit rating agency, leaving it perilously close to 'junk' status.

Angry consumers today accused Icesave of using high interest rates to tempt people to handover their money to shore up the group.

Consumer websites were littered with comments from people who had money saved with the group and were worried about when they would get it back.

They also expressed outrage that the Icelandic government had promised to guarantee the money of domestic savers, but not that of people in the UK.

A forum on the issue on MoneySavingExpert.com had received more than 1,500 posts by lunchtime today.

E.G. Callagan, of the West Midlands, said on Thisismoney.co.uk: 'They have tempted us with higher interest rates and now they go and do this.

'Shame on the Icelandic government, they should be guaranteeing the safety of our savings as well as their own nationals.'

Mike, of Battle, said on Thisismoney.co.uk: 'How can the Icelandic Government possibly guarantee the savings of its domestic investors to the detriment of the UK customers?

'Surely we must all be treated the same. Is this a case of robbing Peter (in the UK) to pay Paul (in Iceland). Surely this has to be illegal under international banking law.

'Will the new owners of the bank pay off their own citizens and then leave all the others to claim under the much lower compensation scheme?'

Justin Smith, an IT consultant from West London, said: 'I feel confused and badly informed by Icesave - there has been no direct communication from the firm and now I am unable to withdraw my life savings, with no idea on what happens from here.

'I only recently transferred all my ISA savings to the bank, attracted by high interest rates and guarantees and now I am facing the prospect of having to go through the painful process of claiming back from two governments and the possibility of losing my ISA tax wrapper on nearly 10 years' of savings.'

Enlarge  

Watch the late Aaron Russo film, AMERICA FREEDOM TO FASCISM

video.google.com/videoplay

RIP Aaron Russo

February 14, 1943 - August 24, 2007
Aaron, you changed America with your presence, you have awoken millions to the truth, we will finish the game.

www.freedomtofascism.com/

---------------------------------------

Outing the Constitutional Criminals

www.populistamerica.com/outing_the_constitutional _criminals

by Stephen Neitzke

An Analysis and Review of Aaron Russo's Film, America: Freedom to Fascism

We'll talk some details. But, in the last analysis, Aaron Russo's 2006 film, "America: Freedom to Fascism" is a force of nature. It rips through the secret society corruption culture's history, from 1913 on.

Aaron Russo's film is a deal-breaker. The deal -- the social compact between Americans and their secretly-fascist-since-1913 national government -- will be broken for most ethically normal Americans at the film's first viewing. The Russo-shepherded truths are self-evident.

Russo has outed the constitutional criminals and class-war slavers of the US-national-govt / private-central-banks partnership. And he's done it in such a way as to present one of the first coherent-whole, high-impact pictures of their sneak-thief moves against Americans.

"America: Freedom to Fascism" is available in hi-Q DVD and pay-per-view. It's also available for free viewing online through lower-Q Google Video. In its "final cut", it runs 1 hour, 49 minutes, and some change. Go to Russo's site at --

http://www.freedomtofascism...

and scroll down through the list of options. Free viewing is at "Watch the Movie Online". Just click on "Go".  Or, of course, you can purchase it and support Mr. Russo's work.

Less than two minutes into the film, Russo has nailed together the events of the unconstitutional personal income tax (February 1913 fraudulent ratification of the insufficient 16th Amendment) and the unconstitutional Federal Reserve (December 1913 illegal delegation of one of Congress' essential legislative functions -- the coining and valuing of money).

Money from the "voluntary compliance" personal income tax pays toward the national debt that the usury of the Federal Reserve stacks against the nation in daily windrows.

The Federal Reserve usury is like a giant magnifier for the superrich. Its treasonous "fractional reserve" hocus pocus creates indebtedness with every dollar created and loaned. The lawful counterfeiting of unsecured "fiat" money out of thin air -- horrendously unconstitutional -- multiplies the money supply ad nauseum, automatically reducing the value of the dollar while it creates automatic inflation. Every dollar created out of thin air has its bogus and usurous "interest rate" attached (read, "usury fee"), drawing very real compound interest. The overall effect is one of superprofits to the superrich private bankers who own the Federal Reserve -- an ownership list that is as secret as is the amount of currency in the money supply -- and daily increases of power within the Federal Reserve to go right on magnifying its profits and power.

The purpose of the personal income tax is to redistribute wealth upward and to control the civil society. The purpose of the Federal Reserve is to redistribute the wealth upward and to control the civil society. The receivers of the redistributed wealth and the controllers of the society are the private owners of the Federal Reserve -- not the government.

The timing of the secret societies' income tax and Federal Reserve machinations is no mystery. It was the Reform Era. We the sovereign people were demanding state-level citizen lawmaking to end the Gilded Age's Robber Baron corruptions. By December 1913, citizens in seventeen states had rammed direct democracy down the elitist throats of their state constitutions, and it looked like there would be many more. We were on the brink of a new political dynamic that could shut down all of the elites' corruption machines. Courts across the country, including SCOTUS, had rejected the elites' arguments and ruled citizen lawmaking intrinsic to the Constitution. We were scaring the hell out of the murderous elites. The only answer to their corrupt situation was more corruption.

For days after my first viewing of "Freedom to Fascism", my mind continually replayed Russo's quote from Paul Warburg, member of the Council on Foreign Relations and architect of the 1913 Federal Reserve Act. The quote is from Warburg's speech to the US Senate, 17 February 1950: "We shall have world government, whether or not we like it. The only question is whether world government will be achieved by conquest or consent".

Predator elitism's strategies for world government have been clear to them since the 1694 founding of the first central bank, the Bank of England. The authors of the Constitution knew and despised usurous central banks. They did everything they could to ensure that no such creature would ever hold power in the US. Surprise. Since the 1913 founding of the Federal Reserve, the intentions of the Constitution's authors have been the laughing stock of the secret societies from Skull and Bones, to the CFR, to the Trilateral Commission, to the Bilderberg Group. Americans are way out on the edge of the near-future Owellian world government.

The central bankers knew, from their approx 220 years experience with the Bank of England and other European central banks prior to 1913, that American indebtedness would grow so large that the central bankers would eventually own the American nation.

Has that happened? We have (1) a national debt of $8.6 trillion, (2) the value of the dollar reduced to 4 cents in 1930 dollar-value by the continual inflation of the Fed's unsecured currency watering down dollar value by continual increases of the money supply, (3) the Bush-Cheney package of tax cuts for the multinational, stateless superrich helping to skyrocket the national debt, (4) the absurd, unconstitutional, felonious, and treasonous war in Iraq helping to skyrocket the national debt, while it provides war profiteering for the central bankers who finance it, with their phoney "interest" usury added on, (5) corporate taxation at an all-time low, and corporate tax evasion at an all-time high, helping to skyrocket the national debt, (6) a back-door, undebated, and undeliberated "Real ID Act" effective May 2008 -- attached as a rider to a May 2005 funding bill for the Iraq war by the "Conference Committee" (one of the most evil, stupid, anti-democracy, and unAmerican corruption machines in the national government) -- set to turn us into a very real police state for the benefit of money-power in May 2008, and (7) the fascist leaders of the US, Canada, and Mexico -- unchecked by their civil societies -- about to use the media-hushed and secretive North American Union to reduce our three nations to the slave pool that the EU "Constitution" nearly achieved in Europe last summer, and to replace the dollar with the central bankers' Canusmex currency, the Amero, in the process.

Do the central bankers own our nation? Russo thinks so. Most of his film is about the details of that ownership. And the more details he lays on, the more persuasive his sustained argument is.

Near film's end, he gives a 1991 quote from David Rockefeller, a member of predator elitism's Council on Foreign Relations. It trumpets the criminal CFR's secrecy, national ownership, and world-governing arrogance.

"We are grateful to the Washington Post, the New York Times, Time Magazine, and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years.

"It would have been impossible for us to develop our plan for the world if we had been subjected to the lights of publicity during those years.

"But now the world is more sophisticated and prepared to march towards a world government.

"The supra national sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries."

I'm doomed to fail the CFR sophistication test. I'm convinced that the elites want to take away our rights, freedoms, and liberties to cut their costs, increase their profits, make their power over us predictable and safe, and turn our children into corporate zombies with short and miserable lives. There is no group of them that I'm willing to trust with the time of day, let alone the governance decisions that will rule human life worldwide. I'm unfit for their world. They'll just have to kill me.

As such thoughts sink in and spread because of Russo's work, Americans will become more and more combative. We didn't come all this way to be gang-banged by a bunch of prissy superrich. The unconstitutional IRS wreckage of American lives like those of Joe Louis, Willie Nelson, and John Colaprete will beg vengeance. The unconstitutional wreckage of our rights, freedoms, and liberties under the 3-branch, Bush-Cheney fascist despotism will beg vengeance. There is a new wall-slamming, smash-mouth American politics coming.

In the first two minutes of film, Russo has already said that US Secretary of State Philander Knox fraudulently certified the 16th Amendment's ratification. Because of this fraud, Russo says, the American people were led to believe that there was a legitimate, graduated tax on their labor and wages, when there was not.

Per several SCOTUS rulings since, the 16th Amendment granted no new taxation power. Constitutionally, we still have only indirect taxes, which are avoidable and must apply nationwide (excise tax is an example), and direct taxes, which are unavoidable and must be spread equally among the people ("apportioned" in tax jargon). The "graduated", unapportioned, direct income tax, Russo and many of his conmmentators argue, is as unconstitutional today as it was the day after its fraudulent ratification in 1913.

The fraudulent ratification of the 16th Amendment is a minimum-mention item. Go for the evidence.

The evidence shows that, instead of the approving 36 states required for and certified by Know, there were only two -- two -- state ratifications that were constitutionally and legally valid (if the minor defects of spelling, capitalization, and punctualization are ignored).

As the evidence is examined, it becomes clear that Knox knew, or should have known, that he was certifying many invalid ratifications as genuine ratificaitons. The prima facie case for intentional fraud in Knox's certification is overwhelming. See especially, the synopsis of William Benson's research on the We the People web site; William Benson's own site, The Law That Never Was; and the expanded Benson research -- with defects chart -- on Political Resources

To point the viewer at a recent piece of 16th Amendment evidence, Russo quotes US District Judge James C. Fox in a 2003 ruling: "If you ... examined [the 16th Amendment] carefully, you would find that a sufficient number of states never ratified that amendment".

Judge Fox's quoted statement can be found on page 23 of the ruling's 26 pages. The ruling was in Sullivan v. U.S., 03-CV-39, US District Court for the Eastern District of North Carolina, Wilmington, 21 March 2003. (Most readers will find the entire ruling riveting. Colonel Sullivan had asked for the court's injunction against the US invasion of Iraq, arguing in depth that the president does not have the constitutional power to declare war, that only the Congress has that power, and that it was unconstitutional for Congress to delegate that power to the president. The hearing was held one day after the invasion formally began.)

There is nothing about Judge Fox's ruling that is out-of-context with the case that Russo is making against government and private corporation unconstitutionalities.

Judge Fox used the invalid ratification of the 16th Amendment as an example to argue that some parts of the Constitution are in there because of long-term usage, despite those parts' being properly unconstitutional. Judge Fox comments that no federal court will throw out the 16th Amendment, no matter what evidence of its improper ratification is brought, precisely because of its long-term use.

It is exactly that federal bench motiff -- that nothing be done about past unconstitutionalities -- that Russo rightfully attacks throughout his film.

David Cay Johnston of the NY Times provides a pro-elites review of "Freedom to Fascism". Under a mile-high headline that says, "Facts Refute Filmaker's Assertions on Income Tax in America", Johnston asserts that "every court that has ever ruled on those issues has upheld the constitutionality of the income tax".

Whoa. Russo's commentators provide eight SCOTUS decisions that squash the constitutionality of the income tax. Those SCOTUS decisions ruled that the 16th Amendment gave no new power of taxation, and did not alter the restrictions on taxation given in the Constitution. Equals unconstitutional income tax every time.

In fact, as the constitutionality argument unpacks, Russo documents that nobody in the IRS, from top to bottom, is willing to go on-camera to discuss the issue. He gets a former IRS Commissioner (Sheldon Cohen) on camera only to have him assert that SCOTUS rulings are "inapplicable" to the tax code. And he shows that lower federal courts continually bar SCOTUS decisions from being brought as evidence.

For example, US District Judge Dawson (presiding over his railroaded conviction of author Irwin Schiff) is quoted as saying, "I will not allow the law in my court room". He rejects SCOTUS rulings as "irrelevant". And he tells the jury, "You must follow the law as I give it to you". Schiff was convicted on Dawson's enforcement of jury ignorance.

Russo's material shows conclusively that no recent or lower court that has ever ruled on the constitutionality of the income tax is to be trusted. The juries that get the text of the law safely acquit the defendant. The judges are pro-elites mouthpieces who force convictions whenever they can. They are not about to rule against the cash cow that has financed the corruption machines since 1913.

And then NY Times towering giant Johnston writes: "... Mr. Russo says in the film that the 16th Amendment was never properly ratified and thus a tax on wages is unconstitutional. This claim has been made in various forms by thousands of tax protesters since 1913, and so far their batting average with the courts is .000."

Pretty twisted stuff. The issue bearing on guilty/not-guilty is not the use by thousands of 16th Amendment unconstitutionality. The issue bearing on guilty/not-guilty is whether there is a law requiring US citizens to file an income tax return. "Show me the law", defendant Harrell says in open court, and he will gladly pay his tax. "Show me the law" is the centerpiece throughout the film's IRS seqment. IRS officials and judges go dark. No lights on. Nobody home.

Russo asks Harrell-case juror Marcy Brooks why officials don't just show the law. Ms Brooks replies, "Because there is no law."

Russo wades through the recent juries' not-guilty verdicts for Whitey Harrell, Vernice Kuglin, Franklin Sanders (along with his twenty-three co-defendants) and former-IRS-agent-gone-truth-rogue Joe Banister. Against that back-drop of acquitals, he shows a recent video clip of former IRS Commissioner Charles Rossotti saying: "When the matter is put to the test, which means in terms of court and enforcement action, there is a hundred percent success rate in shooting down these arguments".

NYT Johnston's zero batting average for tax protestors and IRS Rossotti's hundred percent success rate in shooting down anti-income-tax arguments have a suspicious similarity. But neither have a factual basis.

David Cay Johnston's pseudo-facts crash and burn against his mile-high headline.

With this film, the IRS hierarchy, the Federal Reserve and their international central banking cabal, the Congress, and the predator elites' secret societies have already lost. However, given their nine-plus decades of arrogant, anti-Constitution winning, only a wall-slamming, smash-mouth American politics will convince them of their loss. Murderers do not stop murdering until they are stopped. And make no mistake, those people are psychopathic murderers anytime it means secret profits.

Ethically normal Americans, who will like the Russo film, will suddenly understand the culture of corruption in which Bush is immersed as he shouts that the Constitution is just a goddamned piece of paper. Insider Bush, Empire prince of the blood, secret society predator from frat-boy "Skull and Bones" to king of the world in the boss-of-bosses secret society, the "Bilderberg Group", would see the Constitution from the corruption culture's point of view. From that point of view, the Constitution is just a godddamned piece of paper.

The corruption culture's point of view is alien to ethically normal Americans -- until they see the Russo film. Then the corruption culture's point of view crashes home.

For US elected officials who pretend that there is anything about our national fascist despotism that is politics-as-usual until the IRS and Federal Reserve racketeering frauds are repealed, watch your six. Something's going to be gaining on you. There is a new smash-mouth American politics coming. (See especially the "Unity America" action plan in "Open Letter to Susan--Making Bush-Cheney Null & Void", on this site.)

The specter of a Constitution-regaining, bloody revolution/civil-war is looming larger and closer.

Fed May See Companies, States as Next Crisis Fronts

By Scott Lanman and John Brinsley

www.bloomberg.com/apps/news

Oct. 6 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke may find the next fronts of the financial crisis to be just as chilling as last month's downfall of Wall Street titans: its spread to corporate America and state and local governments.

Companies from Goodyear Tire & Rubber Co. and Duke Energy Corp. to Gannett Co. and Caterpillar Inc. are being forced to tap emergency credit lines or pay more to borrow as investors flee even firms with few links to the subprime-mortgage debacle. California Governor Arnold Schwarzenegger says his and other states may need emergency federal loans as funding dries up.

A cash crunch on Main Street would endanger companies' basic functions -- paying suppliers, making payrolls and rolling over debt. The widening of the crisis suggests that Bernanke and Treasury Secretary Henry Paulson may have further fires to put out even as the Treasury sets up the $700 billion financial- industry rescue plan approved last week.

``The rest of the economy is clearly being affected right now by the tightness of credit,'' said Kurt Karl, chief U.S. economist at Swiss Reinsurance Co. in New York. ``It's just gathering momentum in the wrong direction.''

Bernanke announced new moves today aimed at easing the lending crunch. The Fed will double its auctions of cash to banks to as much as $900 billion and is considering further steps to unfreeze short-term lending markets.

The market for commercial paper, which typically matures in 270 days or less and is used to help pay for expenses such as payroll and rent, shrank to a three-year low of $1.6 trillion in the week to Oct. 1, Fed data show.

Gannett, the largest U.S. newspaper publisher, said Oct. 1 it drew on a revolving credit line to ensure it had funds to repay its commercial paper.

Duke, Caterpillar

Duke Energy, the owner of utilities in five U.S. states, last week tapped about $1 billion from a $3.2 billion credit agreement after concluding it may not be able to meet its plan for new financing. Caterpillar, the biggest maker of earthmoving equipment, had to pay the biggest premiums over Treasuries in at least three decades at a sale of five-year and 10-year notes.

``Credit is the lubricant that oils the engine of the economy'' and if it dries up ``then the engine seizes up,'' said Republican Representative Michael Conaway of Texas, who switched his vote last week to support the financial rescue. The inability of a major corporation to renew its short-term loans would have ``a devastating impact on the economy.''

Even as confidence grew that Congress would pass the bailout, banks hoarded cash, indicating the proposed purchases of devalued mortgage assets may not be able to stop the credit crunch from widening.

No `Quick Turnaround'

``It's not going to solve all the problems, and don't expect a quick turnaround,'' said Mickey Levy, chief economist at Bank of America Corp. in New York. ``This is the typical time of the credit cycle where banks are tightening lending standards.''

Corporate bond sales shrank to $1.25 billion last week, capping the worst four-week slump since 1999.

Lending between banks is also seizing up. The gap between the three-month London interbank offered rate and the overnight indexed swap rate, a gauge of cash scarcity among banks, climbed to a record 2.80 percentage points three days ago.

Republican Representative Jerry Moran of Kansas, in an interview with Bloomberg Television, encouraged the Fed to consider guaranteeing loans between banks.

``We will continue to use all of the powers at our disposal to mitigate credit-market disruptions,'' Bernanke said in a statement Oct. 3. He delivers a speech on the economy tomorrow.

Fed Powers

The central bank has power to extend credit to any company under ``unusual and exigent circumstances.'' It already used that authority this year to avert the failure of Bear Stearns Cos., take over American International Group Inc. and lend to banks to shore up money-market funds. The Treasury last month set up a program selling debt to help the Fed expand its balance sheet.

Investors anticipate the Fed will cut rates in an attempt to lower borrowing costs and encourage banks to lend. Futures prices show 100 percent odds of a half-point reduction in the 2 percent benchmark rate at or before the Oct. 28-29 policy meeting.

State and local governments having trouble meeting cash needs may push for help. Schwarzenegger told Paulson in an Oct. 2 letter that California and other states ``may be forced to turn to the federal Treasury for short-term financing'' if the crisis doesn't ease.

``If states can't access the credit markets because of market conditions, then the Treasury should consider providing it,'' said Ben Watkins, a member of the debt committee of the Government Finance Officers Association, a group of public finance officials.

Services Endangered

Without funding, states ``can't operate the health-care system, schools, roads and other services they provide,'' said Watkins, who also serves as head of Florida's bond sales.

Market disruptions forced Oregon to cancel a $21 million sale of bonds for the state university system and several other planned issues are in jeopardy, State Treasurer Randall Edwards said. ``There's really no market, there's no buyers out there,'' Edwards said.

State and local government funding ``has to be a concern for Bernanke and Paulson,'' said Adam Posen, deputy director of the Peterson Institute for International Economics in Washington. ``There are two issues now: stop the immediate panic and restructure the financial system.''

Those aren't the only areas Fed and Treasury officials may be concerned about.

Since 2005, New York Fed President Timothy Geithner has been pushing to reduce risks in the $54.6 trillion credit-default swaps market. Concerns rose after the Fed had to rescue AIG with an $85 billion loan to cover obligations at a unit that sold protection against debt default.

``We're not at the end of the line yet,'' said former Fed Governor Lyle Gramley, now senior economic adviser at Stanford Group Co. in Washington.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; John Brinsley in Washington at jbrinsley@bloomberg.net.

Last Updated: October 6, 2008 10:24 EDT

Ron Paul: Bailout Unconstitutional, Special Interests Forced Bill Through Congress

Texas Congressman Ron Paul has warned that the amended bailout legislation that passed Congress on Friday is not only far worse than the original bill but is also unconstitutional.

Paul speaking just minutes after leaving the floor of the House on Friday, explained that the tax portion of the bill was written by the Senate, when under the Constitution only the House can originate tax bills.

“That in itself was unconstitutional but it’s been done before and it will be done again.” The Congressman said.

Paul highlighted that the passage of the bill defied logic because it was even worse than the original rejected version:

“It’s amazing, you take a very very bad bill, appropriating $700 billion, you can’t get enough votes to pass it so you take it back out, you make it much worse and take it up to over $800 billion.” Paul commented.

“Today is an even sadder day that on Monday,” Paul stated, “Here today when the special interests got their two cents in, or their $10 million worth of lobbying in, the members switched their vote.”

The Congressman decried the fact that 57 members, mostly so called conservatives, switched their votes on Friday. He urged that those who have destroyed the economy and our freedoms not be allowed to dictate how the system is rebuilt in America.

Paul also compared the economic situation to that of the Soviet Union in 1989, urging that the current economic meltdown stems from empire building foreign policy, and that we are now dealing with the bankruptcy of the United States.

Watch Ron Paul’s reaction to the passage of the bailout: www.youtube.com/watch

Earlier in the day Ron Paul had taken the floor in the House to express his opposition to the bailout, stating that it represents an evasion of the real problem and more of the same inflationary practices that have caused the crisis in the first instance.

Watch the video:

www.youtube.com/watch

====================

www.infowars.com/

Steve Watson
Infowars.net
Monday, Oct 6, 2008

Global Stocks Retreat, Led by Banks, as Credit Crisis Widens

By Adria Cimino and Chua Kong Ho

www.bloomberg.com/apps/news

Oct. 6 (Bloomberg) -- Stocks tumbled around the world, the euro fell the most against the yen since its debut and oil dropped below $90 a barrel as the yearlong credit market seizure caused bank bailouts to spread. Government bonds rallied.

The Standard & Poor's 500 Index retreated 5.9 percent, extending the worst weekly slump since 2001, as concern slower global growth will curb demand for commodities sent Alcoa Inc. and U.S. Steel Corp. down more than 7 percent. The MSCI Emerging Markets Index headed for its biggest loss in at least two decades and exchanges in Russia and Brazil halted trading. Europe's Dow Jones Stoxx 600 Index had its steepest decline since 1987.

Today's plunge erased about $2.5 trillion from global equities after the German government was forced to bail out Hypo Real Estate Holding AG, overshadowing the $700 billion U.S. Treasury plan to revive credit markets. The euro weakened 6 percent against the yen, the most since 1999.

``It's like a fire,'' said Emmanuel Soupre, a fund manager at Neuflize OBC Asset Management in Paris, which oversees the equivalent of $33 billion. ``It's easier to extinguish five minutes after the start. Now we're about an hour into it. We have to act quickly to assure the continuity of the financial system to avoid an irreversible contamination of the entire economy.''

Two-year Treasury yields plunged 0.19 percentage point to 1.39 percent as investors sought the relative safety of government bonds. The MSCI World Index slid 6.9 percent as every industry fell at least 5 percent. Rio Tinto Plc, the world's second-biggest aluminum producer, fell 15 percent and UBS AG, the largest Swiss bank, lost 13 percent.

Seeking Safety

The Dow Jones Industrial Average dropped 545 points, falling below 10,000 for the first time since October 2004. Europe's Stoxx 600 sank 7.6 percent, the biggest decline since the October 1987 stock market crash.

National benchmark indexes fell in all 18 western European markets. London's FTSE 100 dropped 7.9 percent, the most in 20 years. Russia's Micex plunged 19 percent, led by OAO Gazprom's 21 percent decrease. The MSCI Asia Pacific Index lost 4 percent, as Mitsubishi UFJ Financial Group Inc. and Macquarie Group Ltd. retreated more than 9 percent.

An 11 percent tumble in Brazil's Bovespa Index and 10 percent drop in Indonesia's Jakarta Composite Index pushed the MSCI Emerging Market Index down 10 percent, the steepest in two decades.

``We're seeing panic all over the markets right now,'' said Javier Barrio, head of equity sales for Spanish clients at Banco BPI SA in Madrid. ``Governments are taking steps to try to reduce investors' fears but confidence is weak.''

National Markets

The plunge in stock markets accelerated along with bailouts of financial institutions and subprime-related credit losses that have approached $600 billion. The MSCI World is valued at 13.2 times the earnings of its companies, the lowest since at least 1995, according to data compiled by Bloomberg. Europe's Stoxx 600 trades at 10.4 times earnings, near the lowest level since at least 2002, while the S&P 500 is valued at 20.9 times earnings.

UBS, the European bank worst hit by credit crisis, lost 3.08 to 20.90 francs. The bank's earnings will be ``challenged for some time,'' and UBS may write down $3.1 billion in the third quarter, Oppenheimer & Co. analyst Meredith Whitney wrote in a note to clients. The Swiss bank has posted $44 billion in losses, according to data compiled by Bloomberg.

Japan Banks

Mitsubishi UFJ Financial Group, Japan's largest bank, fell 9.2 percent to 806 yen. Mizuho Financial Group Inc. dropped 7.8 percent to 402,000 yen.

JPMorgan Chase & Co., the biggest U.S. bank by deposits, slid 6.8 percent to $42.80.

BNP Paribas SA dropped 5.4 percent to 67.50 euros. France's biggest bank agreed to take control of Fortis in Belgium and Luxembourg for 14.5 billion euros ($19.8 billion) after an earlier government rescue failed to ensure the company's stability.

Hypo Real Estate plunged 37 percent to 4.70 euros. The German government and the country's banks and insurers agreed on a 50 billion-euro rescue package for the commercial property lender after an earlier bailout faltered.

German Chancellor Angela Merkel said the government will guarantee savings of private account holders to prevent a rush of withdrawals from the nation's banking system.

U.K. Chancellor of the Exchequer Alistair Darling said Britain is ``ready to do whatever it takes'' to help its banks, while Denmark said commercial lenders will provide as much as 35 billion kroner ($6.4 billion) over the next two years to a fund to insure depositors against losses. The Fed said today it ``stands ready'' to foster ``liquid money market conditions.''

Bailout Package

U.S. President George W. Bush last week signed a $700 billion rescue package into law to stem a banking crisis that has claimed Bear Stearns Cos. and Lehman Brothers Holdings Inc.

The euro tumbled as bank failures in the region increased, falling to 141.97 yen, the weakest since May 18, 2006. All the world's most-traded currencies declined against the yen, which strengthened 5.7 percent against the euro and 11 percent against the Australian dollar.

``The euro zone is the second domino of the globe to be falling over after the U.S.,'' said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland.

Money market rates climbed as investors lost confidence in financial markets. The interest rate that banks charge each other for overnight loans in dollars jumped to 2.37 percent from 2 percent, the British Bankers' Association said.

Commercial Paper

Yields on overnight U.S. commercial paper jumped 0.94 percentage point to 3.68 percent, according to data compiled by Bloomberg. That's the highest since Sept. 30, the day after the U.S. House of Representatives first rejected the bank bailout.

Investors are growing increasingly concerned that higher borrowing costs will worsen a slowdown in world economies, reducing demand for metals and fuel. The Reuters/Jefferies CRB Index of 19 commodities slipped 3.5 percent to the lowest level in a year.

Rio Tinto Group slipped 15 percent to 2,888 pence. Freeport- McMoRan, world's largest publicly traded copper producer, lost $4.23 to $41.63. Marathon Oil, the largest refiner in the U.S. Midwest, sank $3.58 to $32.

Royal Dutch Shell Plc, Europe's biggest oil company, dropped 5.4 percent to 1,540 pence. PT Bumi Resources, Indonesia's biggest power-station coal producer, tumbled 32 percent to 2,175 rupiah, extending a six-day, 19 percent slide.

Crude oil fell for a fourth day in New York, dropping as much as 5.3 percent to $88.89 a barrel. Power station coal prices at Australia's Newcastle port dropped 6.1 percent last week, a seventh decline. Copper fell 6.5 percent to $5,620 a metric ton on the London Metal Exchange.

UBS's Hong Kong-based economist Duncan Wooldridge reduced his growth forecast in Asia excluding Japan next year to 6.1 percent from 6.9 percent, saying the region will face ``recession-like conditions.''

To contact the reporter for this story: Adria Cimino in Paris at acimino1@bloomberg.net; Chua Kong Ho in Shanghai at kchua6@bloomberg;

October 6, 2008

A Futile Bailout as Darkness Falls on America

By PAUL CRAIG ROBERTS

www.counterpunch.org/roberts10062008.html

America has become a pretty discouraging place.  Americans, for the most part, will never know what happened to them, because they no longer have a free and responsible press.  They have Big Brother’s press.  For example, on September 28, 2008, a New York Times editorial blamed the current financial crisis on “antiregulation disciples of the Reagan Revolution.”  

What utter nonsense.  Every example of deregulation that the New York Times editorial provides is located in the Clinton Administration and the George W. Bush administration.  I was a member of the Reagan administration.  We most certainly did not deregulate the financial system.

The repeal of the Glass-Steagall Act, which separated commercial from investment banking, was the achievement of the Democratic Clinton Administration. It happened in 1999, over a decade after Reagan left office.

It was in 2000 that derivatives and credit default swaps were excluded from regulation.

The greatest mistake was made in 2004, the year that Reagan died. That year the current Secretary of the Treasury, Henry M. Paulson Jr, was  head of the investment bank Goldman Sachs.  In the spring of 2004, the investment banks, led by Paulson, met with the Securities and Exchange Commission.  At this meeting with the New Deal regulatory agency tasked with regulating the US financial system, Paulson convinced the SEC Commissioners to exempt the investment banks from maintaining reserves to cover losses on investments. The exemption granted by the SEC allowed the investment banks to leverage financial instruments beyond any bounds of prudence. 

In place of time-proven standards of prudence, computer models engineered by hot shots determined acceptable risk.  As one result Bear Stearns, for example, pushed its leverage ratio to 33 to 1.  For every one dollar in equity, the investment bank had $33 of debt!  

It was computer models that led to the failure of Long-Term Capital Management in 1998, the first systemic threat to the financial system.  Why the SEC went along with Paulson and set aside capital requirements after the scare of Long-Term Capital Management is inexplicable.  

The blame is headed toward SEC chairman Christopher Cox.  This is more of Big Brother’s disinformation.  Cox, like so many others, was a victim of a free market ideology, itself a reaction to over-regulation, that was boosted by academic economic opinion, rewarded with Nobel prizes, that the market “always knows best.”

The 20th century proves that the market is likely to know better than a central planning bureau.  It was Soviet Communism that collapsed, not American capitalism.  However, the market has to be protected from greed.  It was greed, not the market, that was unleashed by deregulation during  the Clinton and George W. Bush regimes.  

I remember when the deregulation of the financial sector began.  One of the first inroads was the legislation, written by bankers, to permit national branch banking. George Champion, former chairman of Chase Manhattan Bank, testified against it. In columns I argued that national branch banking would focus banks away from local business needs.

The deregulation of the financial sector was achieved by the Democratic Clinton Administration and by the current Secretary of the Treasury, Henry Paulson, with the acquiescence of the Securities and Exchange Commission.  

The Paulson bailout saves his firm, Goldman Sachs.  The Paulson bailout transfers the troubled financial instruments that the financial sector created from the books of the financial sector to the books of the taxpayers at the US Treasury. 

This is all the bailout does.  It rescues the guilty.

The Paulson bailout does not address the problem, which is the defaulting home mortgages.  

The defaults will continue, because the economy is sinking into recession.  Homeowners are losing their jobs, and homeowners are being hit with rising mortgage payments resulting from adjustable rate mortgages and escalator interest rate clauses in their mortgages that make homeowners unable to service their debt.  

Shifting the troubled assets from the financial sectors’ books to the taxpayers’ books absolves the people who caused the problem from responsibility.  As the economy declines and mortgage default rates rise, the US Treasury and the American taxpayers  could end up with a $700 billion loss. 

Initially, the House, but not the Senate, resisted the bailout of the financial institutions,whose executives had received millions of dollars in bonuses for wrecking the US financial system.  However, the people’s representatives could not withstand the specter of martial law and Great Depression with which Paulson and the Bush administration threatened them.  The people’s representatives succumbed as they did during the New Deal.

The impotence of Congress traces to the Great Depression.  As Theodore Lowi in his classic book, The End of Liberalism, makes clear, the New Deal stripped Congress of its law-making power and gave it to the executive agencies.  Prior to the New Deal, Congress wrote the laws.  After the New Deal a bill is merely an authorization for executive agencies to create the law through regulations.  The Paulson bailout has further diminished the legislative branch’s power.  

Since Paulson’s bailout of his firm and his financial friends does nothing to lessen the default rate on mortgages, how will the bailout play out?  

If the $700 billion bailout is based on an estimate of the current amount of bad mortgages, as the recession deepens and Americans lose their jobs, the default rate will  rise.  The $700 billion might not suffice.  The Treasury will have to go hat in hand to its foreign creditors for more loans.

As the US Treasury has not got $7, much less $700 billion, it must borrow the bailout money from foreign creditors, already overloaded with US paper.  At what point do America’s foreign bankers decide that the additions to US debt exceed what can be repaid?  

This question was ignored by the bailout.  There were no hearings.  No one consulted China,  America’s principal banker, or the Japanese, or the OPEC sovereign wealth funds, or Europe.  

Does the world have a blank check for America’s mistakes?  

This is the same world that is faced with American demands that countries support with money and lives America’s quest for world hegemony.  Europeans are dying in Afghanistan for American hegemony.  Do Europeans want their banks, which hold US dollars as their reserves, to fail so that Paulson can bail out his company and his friends?

The US dollar is the world’s reserve currency.  It comprises the reserves of foreign central banks.  Bush’s wars and economic policies are destroying the basis of the US dollar as reserve currency. The day the dollar loses its reserve currency role, the US government cannot pay its bills in its own currency.  The result will be a dramatic reduction in US living standards.  

Currently Treasuries are boosted by the habitual “flight to quality,” but as Treasury debt deepens, will investors still see quality?  At what point do America’s foreign creditors cease to lend?  That is the point at which American power ends. It might be close at hand. 

The Paulson bailout is predicated on cleaning up financial institutions’ balance sheets and restoring the flow of credit.  The assumption is that once lending resumes, the economy will pick up. 

This assumption is problematic.  The expansion of consumer debt, which kept the economy going in the 21st century, has reached its limit.  There are no more credit cards to max out, and no more home equity to refinance and spend.  The Paulson bailout might restore trust among financial institutions and enable them to lend to one another, but it doesn’t provide a jolt to consumer demand.

Moreover, there may be more shoes to drop.  Credit card debt could be the next to threaten balance sheets of financial institutions.  Apparently, credit card debt has been securitized and sold as well, and not all of the debt is good.  In addition, the leasing programs of the car manufacturers have turned sour.  As a result of high gasoline prices and absence of growth in take-home pay, the residual values of big trucks and SUVs are less than the leasing programs estimated them to be, thus creating more financial problems.  Car manufacturers are canceling their leasing programs, and this will further cut into sales.

According to statistician John Williams [ http://www.shadowstats.com/... ] who measures inflation, unemployment, and GDP according to the methodology used prior to the Clinton regime’s corruption of these measures, the US unemployment rate is currently at 14.7 per cent and the inflation rate is 13.2 per cent.  Consequently, real US GDP growth in the 21st century has been negative. 

This is not a picture of an economy that a bailout of financial institution balance sheets will revive.  As the Paulson bailout does not address the mortgage problem per se, defaults and foreclosures are likely to rise, thus undermining the Treasury’s estimate that 90 per cent of the mortgages backing the troubled instruments are good.  

Moreover, one consequence of the ongoing financial crisis is financial concentration.  It is not inconceivable that the US will end up with four giant banks: J.P. Morgan Chase, Citicorp, Bank of America, and Wachovia Wells Fargo. If defaulting credit card debt then assaults these banks’ balance sheets, who is there to take them over?  Would the Treasury be able to borrow the money for another Paulson bailout?

During the Great Depression of the 1930s, the Home Owners’ Loan Corporation refinanced one million home mortgages in order to prevent foreclosures.  The refinancing apparently succeeded, and HOLC returned a profit. The problem then, as now, was not “deadbeats” who wouldn’t pay their mortgages, and the HOLC refinancing did not discourage others from paying their mortgages. Market purists who claim the only solution is for housing prices to fall to prior levels overlook that rising inventories can push prices below prior levels, thus causing more distress.  They also overlook the role of interest rates.  If a worsening credit crisis dries up mortgage lending and pushes mortgage interest rates higher, the rise in interest rates could offset the fall in home prices, and mortgages would remain unaffordable even in a falling housing market.  

Some commentators are blaming the current mortgage problem on the pressure that the US government put on banks to lend to unqualified borrowers.  However, whatever  breaches of prudence there may have been only affected the earnings of individual institutions.  They did not threaten the financial system.  The current crisis required more than bad loans.  It required securitization and its leverage. It required Fed chairman Alan Greenspan’s inappropriate low interest rates, which created a real estate boom.  Rapidly rising real estate prices quickly created home equity to justify 100 percent mortgages.  Wall Street analysts pushed financial companies to improve their bottom lines, which they did by extreme leveraging. 

An alternative to refinancing troubled mortgages would be to attempt to separate the bad mortgages from the good ones and revalue the mortgage-backed securities accordingly.  If there are no further defaults, this approach would not require massive write-offs that threaten the solvency of financial institutions.  However, if defaults continue, write-downs would be an ongoing enterprise.

Clearly, all Secretary Paulson thought about was getting troubled assets off the books of financial institutions.  

The same reckless leadership that gave us expensive wars based on false premises has now concocted an expensive bailout that does not address the problem, which will fester and become worse.

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions.He can be reached at: PaulCraigRoberts@yahoo.com

Hyperinflation Catalyst For $2,000 Gold

Wall Street bailout, overprinting of dollar will cause commodity to soar says 40-year market veteran

40-year market veteran and fund manager Robin Griffiths of Cazenove Capital Management predicts that the overprinting of dollars as a result of the Wall Street bailout will act as a catalyst for gold prices to rocket to $2,000 an ounce, as demand for precious metals outstrips supply amidst rumors of market manipulation.

Griffiths said that as the world deleverages, dollar strength could drive gold prices down to $750 an ounce, but that this would be the bottom and it would represent a great buying opportunity.

“Once we get through the crisis, people will realize they’ve printed an awful lot of dollars, too any dollars, and thrown them from a helicopter window - we need to hedge the risk of too many dollars around and real stuff is the way to do that and gold will be an excellent way,” Griffiths told CNBC this morning.

“I think we’re coming up to re-test that $750 low and that’s going to be a buying opportunity, and if this is correct on a 12 month view from here, we’ll go straight off the top of the chart and eventually I’m thinking a target of $1400 to even the $2000 range,” said Griffiths, admitting that the forecast had caused him to become a gold bug.

A recent Reuters snap poll of traders, analysts and industry officials predicted a more modest rise of 6 per cent over the course of 2009 to around $959 an ounce.

However, as the website goldprice.org points out, the demand for physical gold is frantic and people are willing to pay premiums of $50 or more to get their hands on the precious metal.

“That casts the validity of the paper price into doubt, and points to some government manipulation holding down the price, so the weakness of their rescue operation won’t be called into question by a gold price over $1,000,” states the website.

The potential for hyperinflation is a very real threat, and it has led to a spike in gold purchases. The Royal Canadian Mint recently sold out of one ounce gold bullion bars in what tellers described as a “crazy” demand to own the precious metal.

Michael Levy, a gold broker based in Surrey, B.C., said the volume of people purchasing gold is at its highest since the inflation scare of 1979. “People were buying then because of inflation, now because of a growing distrust in paper currency,” he said. “It’s a different mentality but the same rush.”

As the istockanalyst.com website highlights, massive economic correction has routinely been preceded throughout history by a gargantuan demand for gold and silver bullion.

“All through history, every time major confidence is lost in fiat based economies, when those economies face massive corrections in terms of either hyperinflation or deflation, people flock to gold and silver bullion,” states the website.

www.prisonplanet.com/hyperinflation-catalyst-for- 2000-gold.html

Paul Joseph Watson
Prison Planet
Monday, October 6, 2008

WASHINGTON - With the economy on the brink of meltdown and elections looming, a reluctant Congress abruptly reversed course and approved a historic $700 billion government bailout of the battered financial industry on Friday. President Bush swiftly signed it.

The 263-171 House vote capped two weeks of tumult in Congress and on Wall Street, punctuated by urgent warnings from Bush that the country confronted the gravest economic disaster since the Great Depression if lawmakers failed to act.

"We have acted boldly to help prevent the crisis on Wall Street from becoming a crisis in communities across our country," Bush said shortly after the plan cleared Congress, although he conceded, "our economy continues to face serious challenges."

His somber warning was underscored on Wall Street, where enthusiasm over the rescue gave way to worries about obstacles still facing the economy, and the Dow Jones industrials dropped 157 points. The Labor Department said earlier in the day that employers had slashed 159,000 jobs in September, the largest cut in five years.

The vote was a striking turnaround from the measure's spectacular failure earlier in the week, which had triggered a massive stock sell-off and prompted jittery lawmakers — fearing a crushing economic contagion that was spreading to their constituents — to reconsider.

"Let's not kid ourselves: We're in the midst of a recession. It's going to be a rough ride, but it will be a whole lot rougher ride" without the rescue plan, said Rep. John A. Boehner, R-Ohio, the minority leader, as he prepared to cast his vote for the most sweeping federal intervention in markets in decades.

Treasury Secretary Henry Paulson pledged quick action to get the program up and operating.

The bailout, which gives the government broad authority to buy up toxic mortgage-related investments and other distressed assets from tottering financial institutions, is designed to ease a credit crunch that began on Wall Street but is engulfing businesses around the nation.

"In these past two weeks, we've seen things we never thought we would see before in terms of the economic insecurity of our own country," said House Speaker Nancy Pelosi, D-Calif. She said the measure would "begin to shape the financial stability of our country and the economic security of our people."

Rep. Barney Frank, D-Mass., the Financial Services Committee chairman, said the rescue bill was just the beginning of a much larger task Congress will tackle next year: overhauling housing policy and financial regulation in a legislative effort he compared to the New Deal.

"We were the EMTs rushing to the rescue of an economy that suddenly found itself choking, but now we have to perform more serious reform," Frank said.

Just four days earlier, the previous version of the bill was sent down to defeat, largely at the hands of angry conservative Republicans. On Friday, a total of 33 Democrats and 25 Republicans switched from opposition to support. In all, 91 Republicans joined 172 Democrats to support the measure while 108 Republicans and 63 Democrats voted "no."

The reversal reflected a high-stakes political environment just four weeks before Election Day. Some lawmakers were worried about their own jobs, but others — mostly Democrats — focused on the prospect that a new president could have a far more significant effect on the economy than any one piece of legislation.

Several of the Democratic switchers were members of the Congressional Black Caucus who said they changed course after securing commitments from presidential candidate Barack Obama that he would back legislation to help struggling consumers and homeowners facing foreclosures if he wins the White House.

"It's not too often you get the future president telling you that his priority matches your priority," said Rep. Elijah Cummings, D-Md., one of 13 black lawmakers who switched from "no" to "yes."

Republican presidential candidate John McCain also lobbied for the measure, according to aides who declined to say whom he called.

Rep. Roy Blunt, R-Mo., the party vote-counter, said McCain phoned Rep. John Shadegg, a fellow Arizonan who switched to "yes."

The legislation's roller-coaster ride through Congress began at a somber meeting in Pelosi's office in mid-September where Paulson and Federal Reserve Chairman Ben Bernanke frightened senior Democrats and Republicans with their warnings of an impending economic collapse without quick legislative action.

As lawmakers scrambled to draft a bill, they were barraged by angry calls from constituents to reject what many saw as a huge giveaway to the very financial institutions that helped cause the subprime mortgage meltdown at the root of the economic crisis — with nothing to help its ordinary victims.

"Pray for our republic," intoned Rep. Marcy Kaptur, D-Ohio, a leading opponent of the measure. "She's being placed in very uncaring and greedy hands."

Supporters said the prospect of economic disaster superseded their political fears.

"I may lose this race over this vote, but that's OK with me," said Republican Rep. Sue Myrick of North Carolina, who switched her vote to favor the measure. "This is the right vote for the country."

After the breathtaking House defeat on Monday, Senate leaders took custody of the rescue, adding on $110 billion in tax breaks designed to attract additional support. They attached the overall measure to a popular bill mandating broader mental health coverage in the insurance industry.

The rescue measure was changed to lift, from $100,000 to $250,000, the cap on government