House Rejects Financial Rescue, Sending Stocks Plummeting
Tuesday, September 30, 2008
A bipartisan rebellion in the House killed a $700 billion rescue plan for the nation's financial system yesterday, sending global stock prices plunging, prompting fierce recriminations on the presidential campaign trail and dealing President Bush his worst legislative defeat.
House Democratic and Republican leaders vowed to go back into negotiations to devise compromise legislation to stabilize the credit markets, but no talks were scheduled. After U.S. financial markets closed, with the Dow Jones industrial average down a one-day record of 778 points, or 7 percent, Treasury Secretary Henry M. Paulson Jr. tried to calm frazzled traders, assuring them that work on a market intervention would resume.
"I will continue to work with congressional leaders to find a way forward to pass a comprehensive plan to stabilize our financial system and protect the American people by limiting the prospects of further deterioration in our economy," he said. "We've got much work to do, and this is much too important to simply let fail."
Rarely has a congressional vote held such high drama and produced such immediate repercussions, directly from the House floor to the trading floor. Wall Street traders huddling around television screens watched lawmakers denounce the bailout legislation, and then sent the Dow plummeting. Stocks had recovered somewhat by the time the vote was gaveled to a close, but jittery investors sent them plunging again as Republicans and Democrats took turns blaming each other for the defeat. In a few hours, $1.2 trillion in paper wealth was wiped out.
As lawmakers in Congress pointed fingers, the collapse of the world's financial markets only built steam. Brazil's main stock index lost more than 9 percent on the news of the U.S. congressional vote, and fears spread that other emerging markets could feel the credit crunch. European bourses fell earlier in the day as a result of the financial struggles of major European banks, and regulators from Belgium, the Netherlands and Luxembourg moved to rescue the European banking and insurance giant Fortis. And Citigroup stepped in to buy Wachovia's banking operations for $2.16 billion, making it the dominant bank in the Washington area.
On the 228 to 205 congressional vote, 140 Democrats voted yes and 95 voted no; 133 Republicans opposed the measure, while 65 approved.
"The Democratic side more than lived up to its side of the bargain," said House Speaker Nancy Pelosi (D-Calif.).
House Minority Whip Roy Blunt (R-Mo.) said of the Democrats: "We're going to reach back out to them. We're going to be talking to our members and see how we can come together in the next few days to reverse whatever negative impact there may be in the economy over the next few days because Congress has failed to act."
Yesterday, Bush called nearly every member of Texas's Republican delegation, GOP aides said. He won over four of the 19.
Congressional leaders and the White House faced several options, none of them palatable just weeks before a heavily contested presidential election. Democratic leaders could choose to return with a measure guaranteed to win more Democratic votes, even at the expense of Republican support. Instead of simply purchasing distressed assets from financial institutions, some Democratic economists favor injecting lenders with cash in exchange for stock, letting the institutions figure out what to do with the mortgage-backed securities and other troubled assets weighing down their books.
A Democratic bill would also include more money for homeowners in or facing foreclosure and would change the bankruptcy law to allow judges to adjust mortgage repayment terms. But Democratic leaders would have to ensure that the measure could survive a filibuster in the Senate and would be signed by the president.
Republicans were advocating slight changes to the bill that could attract a handful of new votes. Party members might be enticed by a measure that would allow businesses to write off more past losses on this year's taxes or a more robust expansion of mortgage insurance, financed by banks. Democrats could add more assistance to ailing state and local governments without raising too many GOP objections.