Bailout vote eyed as two European Banks rescued

Sun Sep 28, 2008 6:10pm EDT

By Richard Cowan and Patrick Rucker

WASHINGTON (Reuters) – U.S. lawmakers geared up to vote on Monday on creating a $700 billion government fund to buy bad debt and alleviate the financial crisis while two troubled European banks looked set for nationalization.

U.S. House of Representatives Speaker Nancy Pelosi insisted the plan was not a “bailout of Wall Street,” but a way to protect taxpayers and turn around the U.S. economy, since it included strong oversight and guarantees for use of public money.

Sen. Judd Gregg of New Hampshire, a senior Republican lawmaker, threw his weight behind the plan and said it could come to a vote in both the House and the Senate as soon as Monday. Others said the Senate might not vote until Wednesday.

Congressional leaders from both parties said they had a tentative agreement early on Sunday, but questions abound as to whether the U.S. financial rescue plan, which would use taxpayer funds to buy up toxic mortgage debt, would restore confidence to shaky markets and head off a deeper downturn.

Kathy Lien, director of currency research at GFT Forex in New York, predicted a relief rally in most markets on Monday as any rescue package would be seen as better than inaction.

“But the bailout is just a band-aid over a very large problem,” she added. “It will help Wall Street in the very short term, but it won’t help Main Street — the U.S. economy will remain challenged in many fronts.”

In a sign of the spreading financial crisis, Belgian-Dutch financial group Fortis was rescued by a state buyout after European Central Bank President Jean-Claude Trichet held emergency talks with Dutch and Belgian and Luxembourg officials.

In London, regulators were also preparing to nationalize troubled mortgage lender Bradford & Bingley and were discussing a sale of its savings deposits and branches, people familiar with the matter said.