By Jonathan Weisman
Washington Post Staff Writer
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.
In the thick of the presidential campaign, the collapse of the deal left Washington buzzing with recriminations. Republicans -- from Sen. John McCain's top economic aide to the House GOP leadership -- initially blamed Pelosi, saying her floor speech castigating Bush administration "policies built on budgetary recklessness, on an anything-goes mentality, with no regulation, no supervision, and no discipline in the system" poisoned the atmosphere and invited partisan retribution.
In truth, few Republicans were on the floor to hear that speech, and those who were there showed no signs of discomfort, as they often do. Republican leaders backed away within hours, conceding they never had the votes they had promised.
Democrats found strength in numbers, saying nearly two-thirds of their members voted for the bill. If anyone is to blame for a record sell-off on Wall Street, Democrats said, it was the party that provided just 65 votes.
Nowhere were the recriminations fiercer than on the presidential campaign trail. McCain, the GOP nominee, had been prepared to claim credit for the measure's passage, attributing it to his decision to suspend his campaign last week and engage in negotiations.
"I've never been afraid of stepping in to solve problems for the American people, and I'm not going to stop now," he said at a rally in Columbus, Ohio. "Senator Obama took a very different approach to the crisis our country faced," he said of his opponent, Sen. Barack Obama. "At first he didn't want to get involved. Then he was monitoring the situation."
When two-thirds of the House Republican Conference voted no, the McCain camp changed its pitch. Not a single member of McCain's home-state Arizona House delegation voted for the bill.
"Just before the vote, when the outcome was still in doubt, Speaker Pelosi gave a strongly worded partisan speech and poisoned the outcome. This bill failed because Barack Obama and the Democrats put politics ahead of country," said Douglas Holtz-Eakin, McCain's senior domestic policy adviser.
Obama campaign aides gleefully shared a quote from McCain's chief political strategist, Steve Schmidt, who said Sunday on NBC's "Meet the Press": "What Senator McCain was able to do was to help bring all of the parties to the table, including the House Republicans, whose votes were needed to pass this."
Obama delayed a campaign event in Westminster, Colo., to speak to Paulson and Pelosi, then told his audience: "One of the messages I have to Congress is, 'Get this done, Democrats; Republicans, step up to the plate.' "
For Bush, the defeat was the starkest sign yet that a president who once had lockstep support among congressional Republicans has all but lost his influence. He has had vetoes overridden, on a water projects bill and a major agriculture measure, but nothing to compare to the defeat of a measure he had said was critical to the nation's economy. In the days before the vote, the president addressed the nation about the urgency of the plan, spoke out daily, even summoned congressional leaders and the two presidential candidates to the White House.
The divisions in both the Republican and Democratic ranks that had bedeviled negotiators simply could not be mended that easily. House Republican leaders acknowledged they let Pelosi put the bill on the floor with at least a dozen Republican votes still needed. But they thought they could win them over, with stock prices falling and time running out.
Conservative Republicans who have been decrying the bailout never wavered in their opposition, nor did liberal Democrats who saw the measure as a rescue plan for Wall Street millionaires. And House members in tough reelection bids abandoned the legislation in droves.
Opponents included the most endangered Democrats, including Reps. Carol Shea-Porter (N.H.), Nick Lampson (Tex.) and Nancy Boyda (Kan.), and the most endangered Republicans, from conservative Marilyn Musgrave (Colo.) to moderate Lincoln Diaz-Balart (Fla.). Democrats Mark Udall (Colo.) and Tom Udall (N.M.), both running for Senate seats, voted no. Low-level members of the Republican leadership, such as Marsha Blackburn (Tenn.) and Thaddeus McCotter (Mich.), defied their senior leaders. African American Democrats with virtually no prospect of defeat voted no en masse.
Still, with the options declining and their members eager to get home to campaign, congressional leaders insisted they would not adjourn for the year without some kind of stabilizing legislation. The shock waves of the House defeat are expected to rock world markets this morning. Already, the carefree attitude that international bankers had been taking has begun to give way, with the European Central Bank moving an extra $173 billion into European markets yesterday.
"What happened today cannot stand," Pelosi said. "We must move forward, and I hope that the markets will take that message."
Staff writers Paul Kane, Anne E. Kornblut, Michael D. Shear and Perry Bacon Jr. contributed to this report.