Update: The rescue package was finally passed by Congress and is currently being implemented, with some changes allowing equity in banks to be bought by the government.

Wall Street is back in panic mode again after politicians failed to secure a rescue package for the distressed banking sector last night.

The scenes in Washington were close to farcical as senior members of the administration had stand up rows in the White House. Treasury Secretary, Hank Paulson, reportedly went down on one knee and begged Democrat Nancy Pelosi to pass the bill.

Her response, “Ask the Republicans,” was met with a bewildered “I know, I know” from Paulson.

The $700 billion bank bailout bill is meeting determined opposition from many quarters, in particular a group of Republicans who say the public is 100 to one against the deal.

Negotiations start again today and may spill over into the weekend.

Once again the housing market is in the financial news as it threatens to disrupt the rest of the American economy.

US Treasury Secretary Hank Paulson issued the warning following a two-day meeting of the G20 — the world’s 20 most industrialized economies.

Paulson said there would be continuing volatility in financial market because the sub-prime mortgage crisis is still unfolding. He insisted, however, that the US economy remains “healthy and diversified” and will continue to grow.

The G20 finance ministers agreed there was too much volatility in currency values — a dig at the precipitate fall in the dollar — but fell short of criticizing the weakness of the greenback.

This story will run and run.