Congress rejects historic bailout; Dow drops 778 pts.

The House dealt the Bush administration and leaders of both parties a stunning rebuke Monday by defeating a $700 billion taxpayer bailout of Wall Street, sending world financial markets into a tailspin and leaving the fate of the rescue package uncertain.

Conservative Republicans and liberal Democrats bucked their leadership on the 228-205 vote, ignoring desperate pleas to reconsider, and days of dire warnings from Treasury Secretary Henry M. Paulson Jr. and many private analysts that the U.S. credit markets may seize up if the government refuses to act.

House leaders left flat-footed held the 15-minute vote open for nearly 40 minutes, roaming the packed chamber floor in a futile bid to pressure members to change their vote as opponents yelled for the counting to conclude.

Leading U.S. stock indexes fell sharply as it became apparent that the measure was going down to defeat. The Dow Jones index of industrial stocks was down 778 points, 6.98 percent, the largest single-day point decline in the market’s history. The broader Standard & Poor’s index of 500 stocks fell 106.5 points, 8.81 percent, to its lowest level in four years.

President Bush told reporters at the White House that his strategy remained to “address the economic situation head-on,” and a senior administration official said that entails winning over Congress instead of figuring out a way to go it alone.

“I think there was a lot of skepticism that things could spill over from Wall Street to Main Street,” the official said. “I hope we don’t get to the point where members realize that their skepticism was unjustified.”

A low-key Mr. Paulson told reporters, “We need to work as quickly as possible. We need to get something done.”

Congressional leaders were still trying to figure their next steps, with lawmakers from both parties concerned about public opposition to bailing out “Wall Street” and anxious to adjourn with little more than a month until Election Day. Several said action was more likely if the markets accelerate their losses in the coming days.

House Democratic leaders said they were exploring that possibility of a second vote, either with the same bill or a slightly modified one. But a new vote may not come for several days.

Senate Minority Leader Mitch McConnell, Kentucky Republican, and Senate banking committee Chairman Sen. Christopher J. Dodd, Connecticut Democrat, both said Congress had to stay in session until a deal could be brokered.

“We don’t intend to leave here without this job being done,” said Mr. Dodd, the lead Senate Democratic negotiator on the bill.

The Senate had planned to vote on the package Wednesday evening, on the assumption it would pass the House. Congress will not meet Tuesday because of the Rosh Hashana holiday.

On Monday, 140 Democrats and 65 Republicans voted for the bailout, while 95 Democrats and 133 Republicans joined to defeat the bill. Lawmakers from both parties who are up for re-election in conservative districts were looking for political cover by bipartisan passage of the measure. Democratic leaders said afterward that they had been counting on at least half of the Republican caucus to support the measure.

House Minority Leader John A. Boehner and other Republican leaders were incensed at what they called a highly partisan speech by House Speaker Nancy Pelosi during the debate. While other Democratic leaders acknowledged the difficult vote and praised Republicans who worked for a compromise, the California Democrat said the bailout was “only part of the cost of failed Bush administration economic policies.”

“Those days are over. The party is over,” Mrs. Pelosi said.

Story Continues →