# House rejects $700B bailout in stunning defeat....



## Lucky13 (Sep 30, 2008)

By JULIE HIRSCHFELD DAVIS, Associated Press Writer 
2 hours, 49 minutes ago



WASHINGTON - In a vote that shook the government, Wall Street and markets around the world, the House on Monday defeated a $700 billion emergency rescue for the nation's financial system, leaving both parties' lawmakers and the Bush administration scrambling to pick up the pieces. Dismayed investors sent the Dow Jones industrials plunging 777 points, the most ever for a single day. 

"We need to put something back together that works," a grim-faced Treasury Secretary Henry Paulson said after he and Federal Reserve Chairman Ben Bernanke joined in an emergency strategy session at the White House. On Capitol Hill, Democratic leaders said the House would reconvene Thursday, leaving open the possibility that it could salvage a reworked version.

Senate leaders showed no inclination to try to bring the measure to a vote before they could determine its fate in the House. President Bush, meanwhile, was scheduled to make a statement on the rescue plan Tuesday morning, the White House said.

All sides agreed the effort to bolster beleaguered financial markets, potentially the biggest government intervention since the Great Depression, could not be abandoned.

But in a remarkable display on Monday, a majority of House members slapped aside the best version their leaders and the administration had been able to come up with, bucking presidential speeches, pleading visits from Paulson and Federal Reserve Chairman Ben Bernanke and urgent warnings that the economy could nosedive without the legislation.

In the face of thousands of phone calls and e-mails fiercely opposing the measure, many lawmakers were not willing to take the political risk of voting for it just five weeks before the elections.

The bill went down, 228-205.

The House Web site was overwhelmed as millions of people sought information about the measure through the day.

The legislation the administration promoted would have allowed the government to buy bad mortgages and other sour assets held by troubled banks and other financial institutions. Getting those debts off their books should bolster those companies' balance sheets, making them more inclined to lend and ease one of the biggest choke points in a national credit crisis. If the plan worked, the thinking went, it would help lift a major weight off the national economy, which is already sputtering.

Hoping to pick up enough GOP votes for the next try, Republicans floated several ideas. One would double the $100,000 ceiling on federal deposit insurance. Another would end rules that require companies to devalue assets on their books to reflect the price they could get in the market.

In the meantime, Paulson said he would work with other regulators "to use all the tools available to protect our financial system and our economy."

"Our tool kit is substantial but insufficient," he said, indicating the government intended to continue piecemeal fixes while pressing Congress for broader action.

Stocks started plummeting on Wall Street even before Monday's vote was over, as traders watched the rescue measure going down on television. Meanwhile, lawmakers were watching them back.

As a digital screen in the House chamber recorded a cascade of "no" votes against the bailout, Democratic Rep. Joe Crowley of New York shouted news of the falling Dow Jones industrials. "Six hundred points!" he yelled, jabbing his thumb downward.

The final stock carnage far surpassed the 684-point drop on the first trading day after the Sept. 11, 2001, terror attacks.

In the House, "no" votes came from both the Democratic and Republican sides of the aisle. More than two-thirds of Republicans and 40 percent of Democrats opposed the bill. Several Democrats in close election fights waited until the last moment, then went against the bill as it became clear the vast majority of Republicans were opposing it.

Thirteen of the 19 most vulnerable Republicans and Democrats in an Associated Press analysis voted against the bill despite the pleas from Bush and their party leaders to pass it.

In all, 65 Republicans joined 140 Democrats in voting "yes," while 133 Republicans and 95 Democrats voted "no." 

The overriding question was what to do next. 

"The legislation may have failed; the crisis is still with us," said House Speaker Nancy Pelosi, D-Calif., in a news conference after the defeat. "What happened today cannot stand." 

Republican leader John Boehner, R-Ohio, the minority leader, said he and other Republicans were pained to back the measure, but in light of the potential consequences for the economy and all Americans, "We need to renew our efforts to find a solution that Congress can support." 

Sen. Chris Dodd, D-Conn., said there was scant time to reopen legislation that was the product of hard-fought bipartisan negotiations. 

"What happened today was not a failure of a bill, it was a failure of will," said Dodd, the Banking Committee chairman. "Our hope is that cooler heads will prevail, people will think about what they did today and recognize that this is not just scare tactics — it's reality." 

A brutal round of partisan finger-pointing followed the vote. 

Republicans blamed Pelosi's scathing speech near the close of the debate — which assailed Bush's economic policies and a "right-wing ideology of anything goes, no supervision, no discipline, no regulation" of financial markets — for the defeat. It was not much different from her usual tough words against the president and his party. 

"We could have gotten there today had it not been for the partisan speech that the speaker gave on the floor of the House," Boehner said. 

Rep. Roy Blunt, R-Mo., the whip, estimated that Pelosi's speech changed the minds of a dozen Republicans who might otherwise have supported the plan. 

That amounted to an appalling accusation by Republicans against Republicans, said Rep. Barney Frank, D-Mass., chairman of the Financial Services Committee: "Because somebody hurt their feelings, they decide to punish the country." 

More than a repudiation of Democrats, Frank said, Republicans' refusal to vote for the bailout was a rejection of their own president. 

Indeed, many GOP lawmakers spurned Bush's urgent calls for action. "We have a gun to our head," said Rep. Ginny Brown-Waite, R-Fla., who opposed the bill. "This isn't legislation — it's extortion." 

The two men campaigning to replace Bush watched the situation closely — from afar — and demanded action. 

In Iowa, Republican John McCain said his rival Barack Obama and congressional Democrats "infused unnecessary partisanship into the process. Now is not the time to fix the blame; it's time to fix the problem." 

Obama said, "Democrats, Republicans, step up to the plate, get it done." 

Lawmakers were under extraordinary pressure from powerful outside groups, which gave notice they considered the legislation a "key vote" — one they would consider when rating members of Congress. 

The U.S. Chamber of Commerce said opponents of the bailout would pay for their stance. 

"Make no mistake: When the aftermath of congressional inaction becomes clear, Americans will not tolerate those who stood by and let the calamity happen," said R. Bruce Josten, the Chamber's top lobbyist, in a letter to members. 

The conservative Club for Growth made a similar threat to supporters of the bailout. 

"We're all worried about losing our jobs," Rep. Paul Ryan, R-Wis., declared in an impassioned speech in support of the bill before the vote. "Most of us say, 'I want this thing to pass, but I want you to vote for it — not me.'" 

"We're in this moment, and if we fail to do the right thing, Heaven help us," he said. 

If Congress doesn't come around on a bailout, more pressure would fall on the Federal Reserve. 

The Fed, which has been providing billions in short-term loans to squeezed banks to help them overcome credit stresses, could keep expanding those loans to encourage lending. And, it could keep working with other central banks to inject billions into financial markets overseas. 

It also has the power to expand emergency lending to other types of companies and even to individuals if they are unable to secure adequate credit. 
___ 

Associated Press writers Jeannine Aversa, Jim Abrams and Andrew Taylor contributed to this report.


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## Lucky13 (Sep 30, 2008)

By TIM PARADIS, AP Business Writer 
2 hours, 49 minutes ago



NEW YORK - The failure of the bailout package in Congress literally dropped jaws on Wall Street and triggered a historic selloff — including a terrifying decline of nearly 500 points in mere minutes as the vote took place, the closest thing to panic the stock market has seen in years. 

The Dow Jones industrial average lost 777 points Monday, its biggest single-day fall ever, easily beating the 684 points it lost on the first day of trading after the Sept. 11, 2001, terrorist attacks.

As uncertainty gripped investors, the credit markets, which provide the day-to-day lending that powers business in the United States, froze up even further.

At the New York Stock Exchange, traders watched with faces tense and mouths agape as TV screens showed the House vote rejecting the Bush administration's $700 billion plan to buy up bad debt and shore up the financial industry.

Activity on the trading floor became frenetic as the "sell" orders blew in. The selling was so intense that just 162 stocks on the Big Board rose, while 3,073 dropped.

The Dow Jones Wilshire 5000 Composite Index recorded a paper loss of $1 trillion across the market for the day, a first.

The Dow industrials, which were down 210 points at 1:30 p.m. EDT, nose-dived as traders on Wall Street and investors across the country saw "no" votes piling up on live TV feeds of the House vote.

By 1:42 p.m., the decline was 292 points. Then the bottom fell out. Within five minutes, the index was down about 700 points as it became clear the bill was doomed.

"How could this have happened? Is there such a disconnect on Capitol Hill? This becomes a problem because Wall Street is very uncomfortable with uncertainty," said Gordon Charlop, managing director with Rosenblatt Securities.

"The bailout not going through sends a signal that Congress isn't willing to do their part," he added.

While investors didn't believe that the plan was a cure-all and it could take months for its effects to be felt, most market watchers believed it was at least a start toward setting the economy right and unlocking credit.

"Clearly something needs to be done, and the market dropping 400 points in 10 minutes is telling you that," said Chris Johnson, president of Johnson Research Group. "This isn't a market for the timid."

Before trading even began came word that Wachovia Corp., one of the biggest banks to struggle from rising mortgage losses, was being rescued in a buyout by Citigroup Inc.

That followed the recent forced sale of Merrill Lynch Co. and the failure of three other huge banking companies — Bear Stearns Cos., Washington Mutual Inc. and Lehman Brothers Holdings Inc., all of them felled by bad mortgage investments.

And it raised the question: Which banks are next, and how many? The Federal Deposit Insurance Corp. lists more than 110 banks in trouble in the second quarter, and the number has probably grown since.

Wall Street is contending with all of it against the backdrop of a credit market — where bonds and loans are bought and sold — that is barely functioning because of fears that anyone lending money will never be paid back.

More evidence could be found Monday in the Treasury's three-month bill, where investors were stashing money, willing to accept the tiniest of returns simply to be sure that their principal would survive. The yield on the three-month bill was 0.15 percent, down from 0.87 percent and approaching zero, a level reached last week when fear was also running high.

Analysts said the government needs to find a way to help restore confidence in the markets. 

"It's probably fair to say that we are not going to see any significant stability in the credit markets or the stock market until we see some sort of rescue package passed," said Fred Dickson, director of retail research for D.A. Davidson Co. 

The bailout bill failed 228-205 in the House, and Democratic leaders said the House would reconvene Thursday in hopes of a quick vote on a revised bill. 

"We need to put something back together that works," Treasury Secretary Henry Paulson said. "We need it as soon as possible." 

The Dow fell 777.68 points, just shy of 7 percent, to 10,365.45, its lowest close in nearly three years. The decline also surpasses the record for the biggest decline during a trading day — 721.56 at one point on Sept. 17, 2001, when the market reopened after 9/11. 

In percentage terms, it was only the 17th-biggest decline for the Dow, far less severe than the 20-plus-percent drops seen on Black Monday in 1987 and before the Great Depression. 

Broader stock indicators also plummeted. The Standard Poor's 500 index declined 106.62, or nearly 9 percent, to 1,106.39. It was the S&P's largest-ever point drop and its biggest percentage loss since the week after the October 1987 crash. 

The Nasdaq composite index fell 199.61, more than 9 percent, to 1,983.73, its third-worst percentage decline. The Russell 2000 index of smaller companies fell 47.07, or 6.7 percent, to 657.72. 

A huge drop in oil prices was another sign of the economic chaos that investors fear. Light, sweet crude fell $10.52 to settle at $96.36 on the New York Mercantile Exchange as investors feared energy demand would continue to slide amid further economic weakness. And gold, where investors flock when they need a relatively secure investment, rose $23.20 to $911.70 on the Nymex. 

Marc Pado, U.S. market strategist at Cantor Fitzgerald, said investors are worried about the spread of troubles beyond banks in the U.S. to Europe and other markets. 

"Things are dying and breaking apart," he said. 

The federal Office of Thrift Supervision, one of the government's banking regulators, indicated that the market was overreacting to the House vote and that its fears about the financial system are misplaced. 

"There is an irrational financial panic taking place today, and we support and applaud the continuing efforts of Secretary Paulson and congressional leadership to restore liquidity and public confidence," John Reich, Director of the federal Office of Thrift Supervision, said in a statement. 

The plan would have placed caps on pay packages of top executives that accepted help from the government, and included assurances the government would ultimately be reimbursed by the companies for any losses. 

The Treasury would have been permitted to spend $250 billion to buy banks' risky assets, giving them a much-needed cash infusion. There also would be another $100 billion for use at the president's discretion and a final $350 billion if Congress signs off. 

But Wall Street found further reason for worry overseas. Three European governments agreed to a $16.4 billion bailout for Fortis NV, Belgium's largest retail bank, and the British government said it was nationalizing mortgage lender Bradford Bingley, which has a $91 billion mortgage and loan portfolio. It was the latest sign that the credit crisis has spread beyond the U.S. 
___ 

Business Writers Joe Bel Bruno in New York and Christopher S. Rugaber in Washington contributed to this report. 



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