U.S. lawmakers reject bailout plan
9/30/2008 10:17:03 AM -
U.S. lawmakers in the House of Representatives on Monday voted against the biggest proposed government intervention in the U.S. economy since the Great Depression of 1929.
The news board delivers the bailout defeat to New York streets on Monday.
Government officials, Treasury chiefs and political leaders from both sides of the political divide thought they had agreed Sunday on the details of a $700 billion rescue plan that would prop up the nation's ailing financial system -- and be supported in the House of Representatives.
As it became apparent the vote was lost, the Dow Jones plunged.
Preliminary tallies had the Dow losing 777 points -- the worst single-day point loss ever, topping even the loss following the September 11 terrorist attacks.
Monday's plummet knocked out approximately $1.2 trillion in market value, the first post-$1 trillion day ever, according to a drop in the Dow Jones Wilshire 5000, the broadest measure of the stock market. However the 7 percent decline does not rank among the top 10 percentage declines.
Republicans and Democrats blamed each other for the result -- 205 to 228 against the bailout.
President George W. Bush was "very disappointed," his spokesman, Tony Fratto said. Bush will be meeting with his advisors and will be calling congressional leaders, Fratto added.
Treasury Secretary Henry Paulson said he will continue to work with congressional leaders to draft a plan that does pass.
Before the vote, Bush said the plan was of "tremendous importance to all Americans." Bailout explainer: What's in the bill?
The Democratic candidate for U.S. president, Sen. Barack Obama, blasted Congress for not passing a financial rescue package, while the Republican candidate, Sen. John McCain's campaign accused Obama and Democrats of putting "politics ahead of country."
A four-hour debate included impassioned pleas for and against the measure from Democrats and Republicans alike. Even some of those arguing for the legislation were quick to point out problems with it.
But the vote began with both Democratic and Republican leadership telling their members the only way to protect the economy from a spreading credit crunch was to vote for the difficult to swallow measure.
After the defeat, Republican leaders accused Nancy Pelosi, the Democratic speaker of the House, of giving a partisan speech which "poisoned" Republican support. Video Watch Republicans lay the blame at Democratic feet »
Pelosi said the $700 billion "is a number that is staggering, but tells us only the costs of the Bush administration's failed economic policies."
But Barney Frank, the top Democrat on the House Financial Services Committee, demanded: "Because somebody hurt their feelings, they decided to punish the country?" He said he did not think the Republican leadership was able to get enough colleagues to support the bailout and was diverting attention to Pelosi.
When leading House Republicans signed on to the proposal Sunday after earlier reservations, the bill was expected to pass.
Governments, markets and businesses around the world were watching developments in Washington closely amid fears that failure to tackle the crisis on Wall Street could have disastrous repercussions for the entire global economy.
Markets tumbled again on Monday, affected by uncertainty earlier in the day over the U.S. bailout plan and fresh anxiety over the longterm consequences of so-called "toxic debts" which have already brought many established financial names to their knees.
On Wall Street, the Dow Jones plunged almost 780 points as it became apparent the bailout was rejected. It recovered slightly to about 500 points down but closed at 777 down according to preliminary figures.
Light, sweet crude oil for November fell $10.52, or 8.9%, to $96.37 on the New York Mercantile Exchange.
Argentina's principal index -- the Merval -- tumbled nearly 10 percent. "This is going to affect the whole planet. It's not a problem of the United States alone. The United States is the world's foremost economy and this is going to affect everyone," said one person in Buenos Aires.
European and Asian markets were closed by the time the bailout was rejected.
In Europe, London's FTSE 100 closed down about 4.16 percent, Paris' CAC-40 was down 4.9 percent and Frankfurt's DAX fell 3.87 percent.
In Asia, Hong Kong's benchmark Hang Seng Index shed 4.31 percent to 17,876.41 while Tokyo's Nikkei closed down 1.3 percent at 11,743.61.
In other developments Monday, federal regulators said they had brokered a deal for Wachovia, the fourth largest bank in the U.S., to sell its banking assets to Citigroup. Shares in Wachovia crashed on Friday amid concerns over its exposure to subprime mortgage debt. (Full story)
The UK's Bradford & Bingley mortgage lender became the second British bank to be taken into public ownership as a consequence of the fallout from the credit crunch. (Full story)
Troubled Dutch-Belgian insurance giant Fortis also received an 11.2 billion euros ($16.4 billion) lifeline to protect it from insolvency over the weekend from the governments of Belgium, the Netherlands and Luxembourg. (Full story)
The U.S. bailout bill, released Sunday and endorsed by Bush after days of intense negotiations, is based on Treasury Secretary Henry Paulson's request for authority to purchase bad debts from financial institutions so banks can resume lending to enable credit markets, now virtually frozen, to resume operating normally.
Concerns among some politicians over potential costs to taxpayers led to several amendments inserted to protect them from risk while giving them a chance to share in any profits if companies on Wall Street benefit from the plan.
Pelosi said Sunday the provisions added by Congress -- which include a restriction on salary packages for senior executives whose companies benefit from the rescue plan -- will protect taxpayers from having to foot the bill for the bailout.
The aim of the rescue plan, which Paulson has been pushing since September 18, is to unfreeze the credit markets -- short-term lending among banks and corporations. The core of the problem is bad real estate loans that led to record foreclosures when the housing bubble burst and home prices declined.
In the past two weeks, the banking world and Wall Street have been reordered by a wave of collapses and corporate mergers.
The U.S. government has already intervened to protect key mortgage lenders Fannie Mae and Freddie Mac and insurance giant AIG. Investment bank Lehman Brothers filed for bankruptcy while Merrill Lynch was forced to sell itself to Bank of America.