House Defeats Wall Street Bailout Bill

Looks like any bailout is going to have to be made much more palatable to the average person.

WASHINGTON — Stocks spiraled downward as much as 685 points on Monday as a $700 billion bailout of Wall Street ended in defeat in the House of Representatives.

House leaders held open the vote as they tried to sway reluctant lawmakers to support the plan, which failed 205-228. Arm-twisting continued even after the vote clock expired. One member, retiring Republican Rep. Jerry Weller, did not vote.

House Majority Leader Steny Hoyer said Democrats will take a look at what to do next.

“We did our part,” said Hoyer of Maryland. “As I said on the floor, this is a bipartisan responsibility and we think (Democrats) met our responsibility.”

Asked whether majority Democrats would try to reverse the stunning defeat, Hoyer said, “We’re certainly not going to abandon our responsibility. We’ll continue to focus on this and see what actions we can take.”

Hoyer was joined by House Financial Services Committee Chairman Barney Frank, who were among Democratic leaders debating whether and when to offer a new plan.

“We have to take a look at what to do next,” Frank said.

The bill aimed to open up clogged credit lines for financial markets that had come to a near collapse. Sellers continued to shed stocks as the market teetered down more than 500 points after the vote ended.

Representatives worked throughout the weekend to make a bill palatable. Republicans had insisted on a mortgage securities insurance paid by firms who had invested in bad housing loans. That was included in the bill voted on Monday as were provisions to prevent executives from getting massive severence packages, additional congressional oversight, more transparency and accountability and a means to let the taxpayer get back its investment before shareholders.

But many lawmakers continued to oppose the plan for a variety of reasons, including the massive price tag that would expand the national debt, and GOP members said their constituents were calling 10-1 in opposition to the bill, which had been described as too much government intervention. Of 235 Democrats, 140 supported the legislation. Of 199 Republicans, 133 opposed it.

President Bush was to meet with his economic team, including Federal Reserve Chairman Ben Bernanke and Treasury Secretary Hank Paulson, to determine the next steps, and White House officials said they will meet and then contact congressional leaders.

“The crisis we are facing remains,” said White House Deputy Spokesman Tony Fratto, who added, “We’re obviously disappointed.”

Fratto said that he thinks many Americans were mistaken by believing that the bill was a “bailout of Wall Street.” Instead, he said the bill was to prevent a large economic crisis.

Nobody wants to bail out Wall Street, and we understand Americans might be opposed to bailing out Wall Street … This is not a bailout,” he said. “We hope Americans don’t need to see real evidence of a break down in order to prevent a break down.”

Earlier in the day, Bush argued that jittery U.S. taxpayers will benefit from a number of safeguards that lawmakers wrote into the pending legislation during weekend negotiations on Capitol Hill, including checks and balances on the operation of the program.

But supporters — even Republicans — said they didn’t like the bailout but didn’t want to play with history or risk an economic collapse.

“I’m not willing to put that bullet in the revolver and spin it. I will take the political risk,” said Rep. Spencer Bachus, R-Ala., the ranking member of the House Financial Services Committee.

“We’re all worried about losing our jobs,” said Rep. Paul Ryan, R-Wis., before the vote. “Most of us say, ‘I want this thing to pass, but I want you to vote for it — not me.’

“We’re in this moment, and if we fail to do the right thing, Heaven help us,” he said.

Opponents said part of the reason for the opposition from Republicans was what they termed a partisan speech by House Speaker Nancy Pelosi, said one GOP source. House Minority Whip Roy Blunt said he thinks Republicans could have provided a dozen more votes had Pelosi not given her speech.

Pelosi had said that Congress needed to pass the bill, even though it was an outgrowth of the “failed economic policies” of the last eight years.

“When was the last time someone asked you for $700 billion?” she asked. “It is a number that is staggering, but tells us only the costs of the Bush administration’s failed economic policies — policies built on budgetary recklessness, on an anything goes mentality, with no regulation, no supervision, and no discipline in the system.”

House Republican Conference Chairman, Rep. Adam Putnam, R-Fla., said “he was disappointed that the process that yielded a bipartisan approach took a very marked, partisan tone at the end of the debate.”

This is not a partisan crisis, this is an economic crisis,” said Deputy Minority Whip Rep. Eric Cantor, who said that 94 Democrats also refused to go along with the bill. He described the vote as the result of “Speaker Pelosi’s failure to listen and failure to lead.”

Pelosi said that Republicans have not received the message from the White House that bipartisanship was needed.

“We delivered on our side of the bargain,” Pelosi said, congratulating Democratic leaders for getting 60 percent of the caucus to support the White House bill. “We extend a hand of cooperation to the White House, to the Republicans so we can get this issue resolved”

Bush used a four-minute speech at the White House to try to assure Americans that the plan is good for the country.

“I’m confident that this rescue plan along with other measures taken by the Treasury Department and the Federal Reserve will begin to restore strength and stability to America’s financial system and overall economy,” Bush said. “And I’m confident in that in long run, America will overcome these challenges and remain the most dynamic and productive economy in the world.”

The president spoke shortly after two leading players in the Hill bargaining went on television news shows to urge passage, even as both acknowledged the necessity of this action represents a sad day for the nation.

Asked if the compromise bill indeed will go through Congress, Sen. Chris Dodd, D-Conn., replied: “We hope so.”

But the Connecticut senator, chairman of the Banking Committee, also said the bill is not a panacea for all the problems that have bedeviled the U.S. financial markets. He also said, though, that failure to act would spread the contagion of frozen credit markets even further. “This is not just about Wall Street,” Dodd said. He said that it’s “potentially going to hurt other people across the country.”

Sen. Judd Gregg, R-N.H., who represented fellow Republicans in the weekend talks, called it a “tourniquet” for the ailing financial industry and slow-moving economy.

The latest assessments of prospects for passage came as investors worldwide and in early trading in the United States continued to show doubt about whether the bill would go through, much less go a long way toward curing the systemic problems that have unnerved financial markets across the globe for weeks.

Bush said the legislation addresses the root cause of the problem — “assets related to home mortgages that have lost value during the housing decline.”

And the president noted that under provisions of the pending bill, “the federal government will be authorized to purchase these assets” and said that will help financial institutions to resume lending to individuals and businesses.

“I know many Americans are worried about the cost of the bill,” Bush said. But he also said the nonpartisan Congressional Budget Office and the federal Office of Management and Budget expect that the “ultimate cost to the taxpayer” will be much less.

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