Monday, September 29, 2008; 2:42 PM
In a narrow vote, the House today rejected the most sweeping government intervention into the nation's financial markets since the Great Depression, refusing to grant the Treasury Department the power to purchase up to $700 billion in the troubled assets that are at the heart of the U.S. financial crisis.
The 228-205 vote amounted to a stinging rebuke to the Bush administration and Treasury Secretary Henry M. Paulson Jr., and was sure to sow massive anxiety in world markets. Just 11 days ago, Paulson urged congressional leaders to quickly approve the bailout. He warned that inaction would lead to a seizure of credit markets and a virtual halt to the lending that allows Americans to acquire mortgages and other types of loans.
As it became apparent that the measure was heading to defeat, stock markets took a steep dive. The Dow Jones industrial average fell more than 700 points but then rebounded a bit. By 2:30 p.m. the Dow was down 422 points, about 4 percent. The Standard & Poor's 500-stock index was down 5.4 percent and the Nasdaq was off 6 percent.
After a week of intense debate in both party caucuses, House members opposed the bill just five weeks before they face voters in an election that is shaping up as a referendum on the economy.
"Today's the decision day. I wish it weren't the case," said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, who kicked off three hours of impassioned debate just as the opening bell sounded on Wall Street this morning.
Global markets have followed the congressional negotiations closely since Paulson's dire warnings to congressional leaders in a Sept. 18 nighttime meeting in the offices of House Speaker Nancy Pelosi (D-Calif.). As debate began today, news broke that Citigroup was purchasing another troubled bank, Wachovia, and an hour into the debate the Dow Jones industrial average had dropped by 285 points.
The bailout plan would have allowed Paulson to spend up to $700 billion to relieve faltering banks and other firms of bad assets backed by home mortgages, which are falling into foreclosure at record rates. Paulson, and his successor in the next administration, would have given the government broad latitude to purchase any assets from any firms at any price and to assemble a team of individuals and institutions to manage them. Paulson and others hoped to contain a crisis that already has caused the failure or forced the rescue of a half-dozen major Wall Street firms and unnerved markets around the world.
Before the debate started, Bush issued a final public plea urging lawmakers to support the plan, acknowledging that the vote will be "difficult" in the face of opposition from taxpayers and voters, but necessary to protect the economy. "A vote for this bill is a vote to prevent economic damage to you and your community," Bush said, attempting to undercut arguments that the proposed legislation bolsters Wall Street at taxpayers' expense. "This is a bold bill that will keep the crisis in our financial system from spreading through our economy."
Frank said no lawmaker wants to approve such a large bailout that was made necessary by the mistakes of Wall Street financiers and the mortgage industry, but inaction risked a more widespread financial meltdown. If nothing is done, he said, "the consequences will be much more severe."
Democratic and Republican leaders frantically pushed for votes this morning among their rank-and-file members to assure passage. During early morning votes on other noncontroversial matters, Pelosi hurried around the chamber floor, button-holing rank-and-file members, asking for their support.
Speaking on the floor of the House, in the final minutes before the close vote, Pelosi tried to assure her most liberal colleagues that further bailout hearings and legislation would come next year. Knowing that her party was fearful of how many Republicans would support the bill, Pelosi noted the bipartisan talks over the last week and the pledges made among both side's leaders to rally support. "I know that we will live up to our side of the bargain, I hope the Republicans will, too," she said.
On Sunday, Rep. Roy Blunt (R-Mo.), a lead negotiator and the GOP's top vote counter, hauled the nearly 30 retiring Republicans into his office to plead for what may be their final vote in office, warning that it will shape their legacy. James Nussle, the director of Bush's Office and Management and Budget and a former House member, worked the Capitol's halls and the House cloakroom in search of votes, cautioning beforehand of a very narrow vote.
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