- The Washington Times - Tuesday, September 30, 2008

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.

Mr. Boehner, who reluctantly backed a bill that he called a “mud sandwich,” said afterwards that Mrs. Pelosi’s tone infuriated many in the House Republican caucus. Other leaders said her speech caused at least a dozen 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.”

House Financial Services Committee Chairman Barney Frank of Massachusetts, 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.

“This is squarely on [the Republicans] - they did not meet their responsibility,” said Rep. Joseph D. Crowley, New York Democrat. “They only lived up to half of it.”

“They knew how they were going to vote when the came to the floor. They were just playing it out to see how forcefully their leadership would propose it.”

Republican presidential nominee Sen. John McCain and Democratic rival Sen. Barack Obama had urged passage of the bailout bill and lobbied lawmakers on its behalf. The two campaigns clashed after the House vote, with Mr. McCain accusing Mr. Obama and congressional Democrats of torpedoing the bill with partisan attacks.

“Now is not the time to fix the blame, it’s time to fix the problem,” Mr. McCain told reporters while campaigning in Ohio.

The Obama campaign said it was Mr. McCain who had injected partisan politics into the delicate bargaining to reach a deal.

The $700 billion bailout is 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.

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.

Some conservative Republicans who voted against the measure complained that not enough of their proposal was incorporated into the final draft.

“What we voted on today was basically the Paulson plan from last Thursday night. It wasn’t a whole lot different,” said Rep. Peter Hoekstra, Michigan Republican.

Mr. Hoekstra added the measure failed largely because House Republicans weren’t convinced that Mr. Paulson would act on the insurance provisions that were included in the bill.

“Paulson was never a supporter of the insurance plan,” he said. “He’ll write the rules and the rights [to implement it] in his sweet old time and he’ll write them in such a way that no one will ever use them.”

It was a day of high drama and impassioned rhetoric on the House floor, with even the usually empty press galleries above the floor packed with reporters for the 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.

“Madame Speaker, this bill is a huge cow patty with a little marshmallow in the middle of it,” said Rep. Paul C. Broun, Georgia Republican, said during the debate. “I’m not going to eat that cow patty.”

Even many supporters offered only the faintest praise for the massive bailout package, which is proving hugely unpopular with constituents.

“We don’t have a perfect bill,” said Rep. Paul E. Kanjorski, Pennsylvania Democrat, “but we do have a perfect storm” of economic crises that had to be dealt with.

Mrs. Pelosi’s sharp tone stood out even more compared to impassioned appeals for bipartisanship from House Majority Leader Steny H. Hoyer, Mr. Boehner and House Minority Whip Roy Blunt, to close the debate. All three won standing ovations from lawmakers of both parties.

Perhaps no member was under more pressure during the four-hour session than Rep. Spencer Bachus of Alabama. As ranking Republican on the House Financial Services Committee, Mr. Bachus played a critical backroom role in cutting a deal that many of his longtime conservative allies vehemently opposed.

Mr. Bachus said his vote in support of the bill was “the most difficult decision I have had to make in my 16 years in this body,” but he was convinced it was too risky for the government not to step in.

“I’m not willing to put that bullet in the revolver and spin. … I’m not willing to subject the American people to the worst-case scenario,” Mr. Bachus said.

Jon Ward contributed to this report.

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