House rejects $700B bailout plan

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By David R. Sands and Sean Lengell

Mr. Boehner, who made his own impassioned speech for bipartisan backing of a bill he called a mud sandwich, said Mrs. Pelosi's tone infuriated many in the House Republican caucus. He said her vote caused enough Republicans to reverse course and vote against the bailout.

Mrs. Pelosi's words, the Ohio Republican said, "poisoned our conference, caused a number of members that we thought we could get, to go south."

In the end, 140 Democrats and 65 Republicans voted for the bailout, while 95 Democrats and 133 Republicans joined together to defeat the bill. Democratic leaders said afterward they were counting on at least half of the Republican caucus to support the measure.

House Financial Services Committee Chairman Barney Frank, who helped craft the compromise bill, said the criticism of Mrs. Pelosi was a bid to conceal the fact that Republicans leaders could not deliver enough votes to ensure passage.

"Just because somebody hurt their feelings, [Republicans] decided to hurt their country," Mr. Frank said

The $700 billion bailout was designed to restore confidence in the banking system and prevent an implosion of the U.S. and global credit markets. Under Mr. Paulson's original plan, unveiled Sept. 18, the Treasury would buy huge numbers of bad mortgages and mortgage-based securities on the books of U.S. and foreign financial firms in order to get them lending again.

The proposal was significantly modified during 11 frantic days of hearings, caucuses and late-night bargaining sessions on Capitol Hill.

• Click here for a summary of the proposal

• Statements from President Bush, Henry Paulson

• Letter from Jim Nussle, director of the Office of Management and Budget (PDF)

Lawmakers demanded strict oversight of the program, and reserved the right to veto the second tranche of $350 billion the Treasury wants. The compromise bill also gives the government the right to take an ownership stake in the companies it rescues and limits golden parachute pay packets for banks and other financial firms that participate.

A House Republican alternative -- establishing a federal-backed mortgage insurance program troubled banks could use -- was included in the bill as an option Treasury workout specialists could use.

Mr. Paulson and Federal Reserve Board Chairman Ben S. Bernanke said the government could eventually sell the now-worthless mortgage-related assets on its books for a higher price as the market settles, and the ultimate cost to taxpayers was likely to be far below $700 billion.

It was a day of high drama and impassioned rhetoric ahead of the House vote. Conservative Republicans objected to the idea of a taxpayer-financed bailout of the private market, while liberal Democrats said the program wouldn't work and wouldn't help Main Street while it was rescuing Wall Street.