The historic effort to rescue the U.S. financial system was thrown into doubt Monday after the House rejected a $700-billion emergency plan, causing the most devastating stock market collapse in 21 years and the deepest one-day point dive ever by the Dow.
Stunned leaders of both parties and the White House scrambled to put together a new remedy after the legislation that was widely expected to pass the House fell victim to partisan acrimony.
Administration officials and lawmakers said they hoped ailing financial institutions and frightened markets could hold on till Thursday, when the House again may take up the legislation after a two-day break for observance of Jewish holidays.
“We need to work as quickly as possible,” Treasury Secretary Henry M. Paulson said tensely after briefing President Bush at the White House. “We need to get something done.”
The vote was seen as a defeat for an outgoing administration with waning powers of persuasion and as a product of a congressional culture so soured by years of rancor that it has become dysfunctional even at moments of national crisis. Public opposition to a bailout was the reason most frequently cited by both Republicans and Democrats who voted “no.”
The leaders of both parties had endorsed the bill, warning that Wall Street’s woes were about to strike a blow at the pocketbooks of ordinary Americans.
“The legislation has failed. The crisis has not gone away,” House Speaker Nancy Pelosi (D-San Francisco) said.
The drama was palpable in the House chamber when, as “no” votes were outpacing “aye” votes, a Democratic leader began to circle the chamber, repeating: “The market is falling. The market is falling.” On the floor of the New York Stock Exchange, meanwhile, traders fell silent as they watched television screens showing the House vote falter.
In the end, the rescue plan failed by a vote of 228 to 205. The Dow Jones industrial average plummeted 777.68 points to close at 10,365.45 -- not only a record point drop but also the stock index’s lowest level since 2005. Markets in Canada, Mexico and Brazil also stumbled on the news.
“The markets answered the question today for everyone -- in case anyone had any doubts -- about whether no action was acceptable,” Senate Minority Leader Mitch McConnell (R-Ky.) said. “No action is not an answer.”
Chastened, leaders of both sides pledged to keep working to pass the bill. Senate leaders said they hoped to vote by the end of the week.
“The bottom line is this: If we don’t act promptly around here, and effectively, then a lot of people are going to lose their jobs,” said Sen. Judd Gregg (R-N.H.), the top Republican on the Senate Budget Committee and a lead negotiator of the legislation.
Some strategists suggested that Democratic leaders try to pass the bill solely with Democratic support. But Pelosi and other Democrats have said that the plan is not theirs but the Bush administration’s, and that both parties should share in the outcome’s blame or credit.
Paulson said the government would continue to act to try to contain the crisis using its existing powers. The Federal Reserve took one such step Monday, announcing it would more than double the cash available to banks with shaky assets by adding hundreds of billions of dollars to existing loan programs.
“Our tool kit is substantial but insufficient,” Paulson said. “Therefore, 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.”
In what has become a familiar routine in the closely divided Congress, Democratic and Republican leaders blamed each other. Pelosi said that Republican and Democratic leaders each pledged to deliver half their votes for the bill, but that Republicans fell short. Ultimately, 60% of the chamber’s Democrats supported the bill, but only 33% of Republicans did.
“Democrats voted overwhelmingly for the bill. Republicans voted overwhelmingly against it,” said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee and the Democrats’ lead negotiator.
Republican leaders said they lost 12 votes at the last minute and blamed what they described as a partisan speech by Pelosi.
“I do believe that we could have gotten there today had it not been for this partisan speech that the speaker gave on the floor of the House,” Minority Leader Rep. John Boehner (R-Ohio) said. “We put everything we had into getting the votes to get there today.”
In the speech, Pelosi said the bailout was a result of the Bush administration’s failed economic policies, which she described as being “built on budgetary recklessness, on an anything-goes mentality, with no regulation, no supervision, and no discipline in the system.
“Democrats believe in the free market, which can and does create jobs, wealth and capital,” she said. “But left to its own devices, it has created chaos.”
The rescue plan would have permitted the Treasury Department to buy or insure up to $700 billion in mortgage-related assets in an effort to jump-start credit markets. In recent days, banks have stopped providing loans to one another and officials warned that credit for small businesses and households would quickly dry up.
More banks and financial institutions would fail, potentially affecting the savings and nest eggs of ordinary citizens, officials warned.
“Markets around the world are under stress, and that reduces the availability of credit that businesses across America depend on to meet payroll and to purchase inventories,” Paulson said. “Families, too, feel the credit crunch as it becomes more difficult to get car loans or a student loan.”
The political impasse could be chalked up to many factors. Members facing reelection in a few weeks said they were wary of defying voters’ anger.
Rep. Joe Barton (R-Texas) said Bush called him early in the day to ask him to vote for the measure. But Barton said he decided to oppose it because of other phone calls, hundreds of them, from constituents opposed to the plan.
“This was no easy vote,” and the compromise bill “wasn’t all bad,” Barton said. “But in its final version, it failed to give taxpayers the protection they deserve.”
Bush did his best to promote the plan, starting the day with a televised statement designed to calm the markets and rally votes for the bill.
“With this strong and decisive legislation, we will help restart the flow of credit, so American families can meet their daily needs and American businesses can make purchases, ship goods and meet their payrolls,” the president said.
But his words appeared to have little effect either on the markets or on lawmakers.
“It was a revolution by the troops,” said Michael A. Genovese, director of the Institute for Leadership Studies at Loyola Marymount University. “The generals were saying, ‘Follow me,’ and they didn’t.”
Bush and Vice President Dick Cheney called dozens of Republican lawmakers but appeared to make little headway.
“I would hope the administration would be able to work more closely with members of their own party,” Frank said. “We’re ready to work. We obviously have to ask the administration to coordinate with their Republican colleagues.”
Rep. Mike Pence (R-Ind.), a leader of House conservatives who opposed the bill, suggested that the plan would need revisions to attract more Republican votes.
“It will be important that Congress . . . devise an alternative that reflects the American people’s commitment to free markets and limited government,” Pence said. “The American people rejected this bailout, and today, Congress did likewise.”
Times staff writers Noam N. Levey and Janet Hook contributed to this report.
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How they voted
California members of the U.S. House of Representatives voted 29 to 24 in favor of the failed bailout package. Here’s how each member voted:
Voting for the legislation
Democrats: Howard L. Berman (Valley Village), Lois Capps (Santa Barbara), Dennis Cardoza (Atwater), Jim Costa (Fresno), Susan A. Davis (San Diego), Anna G. Eshoo (Menlo Park), Sam Farr (Carmel), Jane Harman (Venice), Michael M. Honda (San Jose), Zoe Lofgren (San Jose), Doris Matsui (Sacramento), Jerry McNerney (Pleasanton) George Miller (Martinez), Nancy Pelosi (San Francisco), Laura Richardson (Long Beach), Jackie Speier (Hillsborough), Ellen O. Tauscher (Alamo), Maxine Waters (Los Angeles), Henry A. Waxman (Beverly Hills).
Republicans: Mary Bono Mack (Palm Springs), Ken Calvert (Corona), John Campbell (Irvine), David Dreier (San Dimas), Wally Herger (Chico), Jerry Lewis (Redlands), Dan Lungren (Gold River), Howard P. “Buck” McKeon (Santa Clarita), Gary G. Miller (Diamond Bar), George Radanovich (Mariposa).
Democrats: Joe Baca (Rialto), Xavier Becerra (Los Angeles), Bob Filner (Chula Vista), Barbara Lee (Oakland), Grace F. Napolitano (Norwalk), Lucille Roybal-Allard (East Los Angeles), Linda T. Sanchez (Lakewood), Loretta Sanchez (Garden Grove), Adam Schiff (Burbank), Brad Sherman (Sherman Oaks), Hilda L. Solis (El Monte), Pete Stark (Fremont), Mike Thompson (St. Helena), Diane Watson (Los Angeles), Lynn Woolsey (Petaluma).
Republicans: Brian P. Bilbray (Carlsbad), John T. Doolittle (Roseville), Elton Gallegly (Simi Valley), Duncan Hunter (Alpine), Darrell Issa (Vista), Kevin McCarthy (Bakersfield), Devin Nunes (Tulare), Dana Rohrabacher (Huntington Beach), Ed Royce (Fullerton).
Source: The Associated Press