How the Numbers Failed the Leaders

House Speaker Nancy Pelosi (D-Calif.), left, and Majority Leader Steny H. Hoyer (D-Md.), center, head for a news conference after the House rejected the $700 billion financial rescue proposal. (By Chip Somodevilla -- Getty Images)

"We thought we had found the very basis of principle and politics," said Rep. Rahm Emanuel (D-Ill.), who led the shuttle diplomacy effort during the weekend negotiations.

Despite the joint leadership effort to corral votes, a ragtag collection of back-bench lawmakers in both parties organized their own counteroffensive.

Rep. Darrell Issa (R-Calif.) led a bipartisan group that thought much of the financial crisis could be resolved with an administrative rule change by the Securities and Exchange Commission. He invited William M. Isaac, a consultant to the financial industry and a former chairman of the Federal Deposit Insurance Corp., to the Capitol on Sunday and yesterday.

Isaac, who runs a financial services consulting firm, argued that the proposed bailout package would do little to solve the financial crisis, which he said had been caused in part by the SEC's accounting rules. Under those rules, banks and other financial institutions are required to revalue their assets based on the price at which similar assets are currently selling, even if the banks have no intention of selling the assets they hold in the near future. This is called "marking to market," and Isaac asserted that the rule had unnecessarily forced banks to claim huge paper losses on mortgage-backed assets.

Even as the House debate began yesterday, about 90 lawmakers from both parties gathered in the Capitol basement for a briefing by Isaac. Republicans looking for a much cheaper alternative to giving Paulson the authority to purchase up to $700 billion in troubled assets leapt at the idea.

"This is an artificial crisis. This is a crisis of choice, not necessity," Issa said after the vote.

Many Republicans and Democrats said Paulson's urgent demands to pass the legislation immediately were overblown. "A lot of people say we've got to do this today because of the market. But you don't do this legislation because the markets might go down by 1,000 points this week. We can live through that," Rep. Allen Boyd (D-Fla.) said before the vote. "If the answer is $700 billion of borrowed money every time the market goes down, we're dead."

Boyd ultimately supported the bill, but Rep. Barney Frank (D-Mass.), the Financial Services Committee chairman who led negotiations with Paulson, said most lawmakers who did not agree that the crisis was immediate helped bring down the legislation. "We have some people who said they don't believe there will be a reaction. And to some extent, reality is going to be the arbiter," Frank said.

The vote, scheduled for 15 minutes, was called shortly before 1:25 p.m. But leaders of both parties, anxiously eyeing the vote tally on electronic boards on the north and south ends of the chamber, realized they were behind.

Afterward, Hoyer said no one asked him to postpone the vote, so, after he gave the concluding speech, the vote began.

It was kept open even after the 15 minutes had passed, as House leaders tried to cajole members into switching their ballots. At their high-water mark, the House leaders had 207 "aye" votes to 226 "nays."

A mere 10 vote-switchers could have then passed the legislation. The Dow Jones industrial average dropped several hundred points as lawmakers cast their votes, the tallies being watched on television screens worldwide.