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Bailout plan rejected - Sep. 29, 2008
AMERICA'S MONEY CRISIS
National City's line in the sand
Wondering which bank is next
Bank bailouts sweep Europe
Stocks plunge as House votes 'No'
What got killed
Economy needs '...a prayer'
More VideosBuffett warns Congress
More Videos
Quick Vote
Does the bipartisan bailout proposal do enough to protect taxpayers?
YesNo or View results
NEW YORK (CNNMoney.com) -- The fate of the government's $700 billion financial bailout plan - a far-reaching attempt to stem a growing economic crisis - was thrown in doubt Monday as the House rejected the controversial measure.
The next steps were unclear. The abrupt defeat left the Bush administration and congressional leaders scrambling to put the bill up for another vote. A vote before Wednesday is very unlikely.
And stock markets reacted violently. Investors who had been counting on the rescue plan sent the Dow Jones industrial average down as much as 700 points while watching the measure come up short. The key stock reading was down nearly 600 points with about 15 minutes of trading left.
The measure, which is designed to get battered U.S. credit markets working normally again, needed 218 votes for passage. But it came up 13 votes short of that target, as the final vote was 228 to 205 against. About 60% of Democrats and fewer than 33% of Republicans voted for the measure.
President Bush, who earlier in the day said he was confident the bill would pass, is "very disappointed" by the House vote. He said the administration would continue to attack the nation's economic problems "head on."
The Treasury Department, which will work with regulators and "use all the tools at our disposal, as we have over the last several months, to protect our financial markets and our economy," according to a Treasury spokeswoman.
Paulson will be consulting with Bush, Bernanke and congressional leaders on the next steps, the spokeswoman said.
Republican leaders who had pushed their reluctant members for the bill blamed Speaker Nancy Pelosi, D-Calif., saying that her speech during the floor debate drove away about a dozen Republicans they thought they could get to support the measure.
"I do believe we could have gotten there today if it had not been for this partisan speech the speaker gave on the floor of the House," said Boehner.
Speaking to reporters, Pelosi said that both Democratic and Republican leaders had pledged to get more than half their members to support the package and that only the Democrats had lived up to that promise. She said the lines of communication with administration and Republican House leadership to try to pass the measure.
"The legislation may have failed, the crisis is still with us," she said.
Earlier, speaking on the House floor, Pelosi said "$700 billion [is a] a staggering number, but only a part of the cost of the failed Bush economic policies - policies that were built on budget recklessness ... combined with an anything goes economic policy, [that] have taken us to where we are today."
'Our time has run out'
The four-hour debate included impassioned pleas for and against the measure from Democrats and Republicans alike. The vote began with both Democratic and Republican leadership telling their members that the only way to protect the economy from a spreading credit crunch was to vote for the difficult to swallow measure.
"Our time has run out," said Rep. Spencer Bachus, the ranking Republican on the House Financial Services Committee. "We're going make a decision. There are no other choices, no other alternatives."
Added Barney Frank, D-Mass.: "Today is the decision day. If we defeat this bill today, it will be a very bad day for the financial sector of the American economy and the people who will feel the pain are not the top bankers and top corporate executives but average Americans."
Boehner told his members, many of whom objected the measure, that the had accept something he and many of them found distasteful.
"If I didn't think we were on the brink of an economic disaster it would be the easiest thing to say no to this," Boehner said during the debate. But he said lawmakers needed to do what was in the best interest of the country.
The debate followed a weekend of marathon negotiations between lawmakers and administration officials to hammer out legislation.
Leading House Republicans signed on to the proposal on Sunday after expressing earlier reservations.
Earlier on Monday, President Bush and Federal Reserve Chairman Ben Bernanke hailed the measure and urged Congress to move quickly to pass it.
Bush, speaking at the White House, called the proposed measure "an extraordinary agreement to deal with an extraordinary problem." He acknowledged that many voters were opposed to helping out Wall Street with tax dollars, but said there is little choice to move forward with the plan.
"Every member of Congress and every American should keep in mind - a vote for this bill is a vote to prevent economic damage to you and your community," Bush said.
Bernanke, who had spent hours before Congress last week testifying in favor of the measure, issued a brief statement promising that it would restore the flow of credit to households and businesses. "I look forward to swift passage of the legislation," he said.
Buying troubled assets
The core of the bill is based on Treasury Secretary Henry Paulson's request for authority to purchase troubled assets from financial institutions so banks can resume lending and so the credit markets, now virtually frozen, can begin to operate more normally.
But Democrats and Republicans - concerned about the potential cost - have added several conditions and restrictions to protect taxpayers on the down side and give them a chance at some of the potential upside if the companies benefit from the plan.
Key negotiators for the financial rescue plan were e busy trying to line up votes on Capitol Hill on Sunday. House Majority Leader Steny Hoyer, D-Md., told CNN he believes a majority of representatives on both sides of the aisle can and will support the bill.
On Sunday evening, the House Republican working group, which stringently opposed earlier drafts of the plan and offered a counterproposal, indicated it would support the bill, and its members are encouraging other Republicans in the House to do the same.
"Nobody wants to have to support this bill, but it's a bill that we believe will avert the crisis that's out there," House Minority Leader John Boehner, R-Ohio, told reporters.
But the bill did draw some opposition during the morning debate.
Rep. John Culberson, R-Texas, said the measure would leave a huge burden on taxpayers. "This legislation is giving us a choice between bankrupting our children and bankrupting a few of these big financial institutions on Wall Street that made bad decisions," he said.
Other conservative Republicans argued the bill would be a blow against economic freedom.
Thaddeus McCotter, R-Mich., said the bill posed a choice between the loss of prosperity in the short term or economic freedom in the long term. He said once the federal government enters the financial market place, it will not leave. "The choice is stark," he said.
But there were also Democrats who opposed the bill for not doing enough to help those who taxpayers facing foreclosure or needing unemployment benefits extended, or taxing Wall Street to pay for the rescue package.
"Like the Iraq war and patriot act, this bill is fueled by fear and haste," said Lloyd Doggett, D-Texas.
The crisis and a proposed fix
Banks and Wall Street firms, worried about both their own needs for cash and the condition of other institutions, essentially stopped loaning money to one another in recent weeks. That choked off the money being made available on Main Street in the form of mortgage loans, business loans and other consumer borrowing.
The crisis stems from problems in mortgage-backed securities, which saw their value plunge as home prices have gone into their worst slide since the Great Depression and foreclosures have soared to record levels. In turn, the market for trillion of dollars worth of those securities held by major firms evaporated, sending them down to fire sale prices and raising the risk of widespread failures among the nation's major financial firms.
Under the plan, Treasury will buy the mortgage backed securities, either directly from the firms or through an auction process. It may also arrange to provide guarantees for the securities up to their original values in return for premiums they would charge current holders of the securities.
To make the legislation more politically palatable, the bill calls for the government, as an owner of a large number of mortgage securities, to exert influence on loan servicers to modify more troubled loans to help prevent additional foreclosures. It also provides that the government will take equity in the firms that sell the securities to the government, and limits pay packages for top executives.
The legislation comes amid great upheaval in the nation's financial system. On Monday morning, the Federal Deposit Insurance Corp., which insures deposits at failed banks, arranged for the sale of the banking assets of Wachovia (WB, Fortune 500), the nation's No. 4 bank holding company, to Citigroup (C, Fortune 500) for $2.2 billion in stock.
That follows three weeks of other shocks: the Treasury Department's seizure of mortgage finance firms Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500); Wall Street firm Lehman Brothers' bankruptcy filing; rival Merrill Lynch (MER, Fortune 500) purchase by Bank of America (BAC, Fortune 500).
In addition, the Fed bailed out insurance giant American International Group (AIG, Fortune 500), loaning it $85 billion in return for a nearly 80% stake. while Washington Mutual (WM, Fortune 500), the nation's largest savings and loan, became the largest bank failure in history.
First Published: September 29, 2008: 7:56 AM ET
AMERICA'S MONEY CRISIS
National City's line in the sand
Wondering which bank is next
Bank bailouts sweep Europe
Stocks plunge as House votes 'No'
What got killed
Economy needs '...a prayer'
More VideosBuffett warns Congress
More Videos
Quick Vote
Does the bipartisan bailout proposal do enough to protect taxpayers?
YesNo or View results
NEW YORK (CNNMoney.com) -- The fate of the government's $700 billion financial bailout plan - a far-reaching attempt to stem a growing economic crisis - was thrown in doubt Monday as the House rejected the controversial measure.
The next steps were unclear. The abrupt defeat left the Bush administration and congressional leaders scrambling to put the bill up for another vote. A vote before Wednesday is very unlikely.
And stock markets reacted violently. Investors who had been counting on the rescue plan sent the Dow Jones industrial average down as much as 700 points while watching the measure come up short. The key stock reading was down nearly 600 points with about 15 minutes of trading left.
The measure, which is designed to get battered U.S. credit markets working normally again, needed 218 votes for passage. But it came up 13 votes short of that target, as the final vote was 228 to 205 against. About 60% of Democrats and fewer than 33% of Republicans voted for the measure.
President Bush, who earlier in the day said he was confident the bill would pass, is "very disappointed" by the House vote. He said the administration would continue to attack the nation's economic problems "head on."
The Treasury Department, which will work with regulators and "use all the tools at our disposal, as we have over the last several months, to protect our financial markets and our economy," according to a Treasury spokeswoman.
Paulson will be consulting with Bush, Bernanke and congressional leaders on the next steps, the spokeswoman said.
Republican leaders who had pushed their reluctant members for the bill blamed Speaker Nancy Pelosi, D-Calif., saying that her speech during the floor debate drove away about a dozen Republicans they thought they could get to support the measure.
"I do believe we could have gotten there today if it had not been for this partisan speech the speaker gave on the floor of the House," said Boehner.
Speaking to reporters, Pelosi said that both Democratic and Republican leaders had pledged to get more than half their members to support the package and that only the Democrats had lived up to that promise. She said the lines of communication with administration and Republican House leadership to try to pass the measure.
"The legislation may have failed, the crisis is still with us," she said.
Earlier, speaking on the House floor, Pelosi said "$700 billion [is a] a staggering number, but only a part of the cost of the failed Bush economic policies - policies that were built on budget recklessness ... combined with an anything goes economic policy, [that] have taken us to where we are today."
'Our time has run out'
The four-hour debate included impassioned pleas for and against the measure from Democrats and Republicans alike. The vote began with both Democratic and Republican leadership telling their members that the only way to protect the economy from a spreading credit crunch was to vote for the difficult to swallow measure.
"Our time has run out," said Rep. Spencer Bachus, the ranking Republican on the House Financial Services Committee. "We're going make a decision. There are no other choices, no other alternatives."
Added Barney Frank, D-Mass.: "Today is the decision day. If we defeat this bill today, it will be a very bad day for the financial sector of the American economy and the people who will feel the pain are not the top bankers and top corporate executives but average Americans."
Boehner told his members, many of whom objected the measure, that the had accept something he and many of them found distasteful.
"If I didn't think we were on the brink of an economic disaster it would be the easiest thing to say no to this," Boehner said during the debate. But he said lawmakers needed to do what was in the best interest of the country.
The debate followed a weekend of marathon negotiations between lawmakers and administration officials to hammer out legislation.
Leading House Republicans signed on to the proposal on Sunday after expressing earlier reservations.
Earlier on Monday, President Bush and Federal Reserve Chairman Ben Bernanke hailed the measure and urged Congress to move quickly to pass it.
Bush, speaking at the White House, called the proposed measure "an extraordinary agreement to deal with an extraordinary problem." He acknowledged that many voters were opposed to helping out Wall Street with tax dollars, but said there is little choice to move forward with the plan.
"Every member of Congress and every American should keep in mind - a vote for this bill is a vote to prevent economic damage to you and your community," Bush said.
Bernanke, who had spent hours before Congress last week testifying in favor of the measure, issued a brief statement promising that it would restore the flow of credit to households and businesses. "I look forward to swift passage of the legislation," he said.
Buying troubled assets
The core of the bill is based on Treasury Secretary Henry Paulson's request for authority to purchase troubled assets from financial institutions so banks can resume lending and so the credit markets, now virtually frozen, can begin to operate more normally.
But Democrats and Republicans - concerned about the potential cost - have added several conditions and restrictions to protect taxpayers on the down side and give them a chance at some of the potential upside if the companies benefit from the plan.
Key negotiators for the financial rescue plan were e busy trying to line up votes on Capitol Hill on Sunday. House Majority Leader Steny Hoyer, D-Md., told CNN he believes a majority of representatives on both sides of the aisle can and will support the bill.
On Sunday evening, the House Republican working group, which stringently opposed earlier drafts of the plan and offered a counterproposal, indicated it would support the bill, and its members are encouraging other Republicans in the House to do the same.
"Nobody wants to have to support this bill, but it's a bill that we believe will avert the crisis that's out there," House Minority Leader John Boehner, R-Ohio, told reporters.
But the bill did draw some opposition during the morning debate.
Rep. John Culberson, R-Texas, said the measure would leave a huge burden on taxpayers. "This legislation is giving us a choice between bankrupting our children and bankrupting a few of these big financial institutions on Wall Street that made bad decisions," he said.
Other conservative Republicans argued the bill would be a blow against economic freedom.
Thaddeus McCotter, R-Mich., said the bill posed a choice between the loss of prosperity in the short term or economic freedom in the long term. He said once the federal government enters the financial market place, it will not leave. "The choice is stark," he said.
But there were also Democrats who opposed the bill for not doing enough to help those who taxpayers facing foreclosure or needing unemployment benefits extended, or taxing Wall Street to pay for the rescue package.
"Like the Iraq war and patriot act, this bill is fueled by fear and haste," said Lloyd Doggett, D-Texas.
The crisis and a proposed fix
Banks and Wall Street firms, worried about both their own needs for cash and the condition of other institutions, essentially stopped loaning money to one another in recent weeks. That choked off the money being made available on Main Street in the form of mortgage loans, business loans and other consumer borrowing.
The crisis stems from problems in mortgage-backed securities, which saw their value plunge as home prices have gone into their worst slide since the Great Depression and foreclosures have soared to record levels. In turn, the market for trillion of dollars worth of those securities held by major firms evaporated, sending them down to fire sale prices and raising the risk of widespread failures among the nation's major financial firms.
Under the plan, Treasury will buy the mortgage backed securities, either directly from the firms or through an auction process. It may also arrange to provide guarantees for the securities up to their original values in return for premiums they would charge current holders of the securities.
To make the legislation more politically palatable, the bill calls for the government, as an owner of a large number of mortgage securities, to exert influence on loan servicers to modify more troubled loans to help prevent additional foreclosures. It also provides that the government will take equity in the firms that sell the securities to the government, and limits pay packages for top executives.
The legislation comes amid great upheaval in the nation's financial system. On Monday morning, the Federal Deposit Insurance Corp., which insures deposits at failed banks, arranged for the sale of the banking assets of Wachovia (WB, Fortune 500), the nation's No. 4 bank holding company, to Citigroup (C, Fortune 500) for $2.2 billion in stock.
That follows three weeks of other shocks: the Treasury Department's seizure of mortgage finance firms Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500); Wall Street firm Lehman Brothers' bankruptcy filing; rival Merrill Lynch (MER, Fortune 500) purchase by Bank of America (BAC, Fortune 500).
In addition, the Fed bailed out insurance giant American International Group (AIG, Fortune 500), loaning it $85 billion in return for a nearly 80% stake. while Washington Mutual (WM, Fortune 500), the nation's largest savings and loan, became the largest bank failure in history.
First Published: September 29, 2008: 7:56 AM ET
