Congress Rejects Bailout; Stocks Plunge Nearly 800 Points

WASHINGTON (AP) -- In a stunning vote that shocked the capital and worldwide markets, the House of Representatives on Monday defeated a $700 billion emergency rescue for the U.S. financial system, ignoring urgent warnings from President George W. Bush and congressional leaders of both parties that the economy could nosedive without it. The Dow Jones industrials plunged nearly 800 points, the most ever for a single day.
Democratic and Republican leaders alike pledged to try again, though the Democrats said Republican lawmakers needed to provide more votes. Bush huddled with his economic advisers about a next step. The House was to reconvene on Thursday instead of adjourning for the year as planned.
Stocks began falling even before the 228-205 vote to reject the bill was officially announced on the House floor. The 777-point decline for the day surpassed the 721-point previous record, on the day after the Sept. 11, 2001, terror attacks, though in percentage terms it was well short of the drops on Black Monday of October 1987 and at the start of the Depression in the 1930s.
Treasury Secretary Henry Paulson looked grim afterward, if not shaken. "We need to work as quickly as possible," he said. "We need to get something done." He went on: "We need to put something back together that works." Looking to inject a note of confidence into a day of high anxiety, he offered: "Our banking system has been holding up very well, considering all of the pressures."
In the House chamber, as a digital screen recorded a cascade of "no" votes against the bailout, Democratic Rep. Joe Crowley shouted news of the falling stocks. "Six hundred points!" he yelled, jabbing his thumb downward.
Bush and a host of leading congressional figures had implored the lawmakers to pass the legislation despite loud protest from their constituents back home. Not enough members were willing to take the political risk just five weeks before an election.
More than two-thirds of Republicans and 40 percent of Democrats opposed the bill.
The overriding question for congressional leaders was what to do next. Congress has been trying to adjourn so that its members can go out and campaign for the election that is just five weeks away.
"The legislation may have failed; the crisis is still with us," said the leader of the House, Speaker Nancy Pelosi, a Democrat, in a news conference after the defeat.
"What happened today cannot stand," Pelosi said. "We must move forward, and I hope that the markets will take that message."
At the White House, Bush said, "I'm disappointed in the vote. ... We've put forth a plan that was big because we've got a big problem." He pledged to keep pressing for a measure that Congress would pass.
Republicans blamed Pelosi's scathing speech near the close of the debate -- which attacked Bush's economic policies and a "right-wing ideology of anything goes, no supervision, no discipline, no regulation" of financial markets -- for the vote's failure.
"We could have gotten there today had it not been for the partisan speech that the speaker gave on the floor of the House," Minority Leader John Boehner said. Pelosi's words, the Republican said, "poisoned our conference, caused a number of members that we thought we could get, to go south."
Rep. Roy Blunt, the party's No. 3, estimated that Pelosi's speech changed the minds of a dozen Republicans who might otherwise have supported the plan.
That was a remarkable accusation by Republicans against Republicans, said Rep. Barney Frank, a Democrat and chairman of the House Financial Services Committee: "Because somebody hurt their feelings, they decided to punish the country."
The presidential candidates kept close track -- from afar.
In Colorado, Democrat Barack Obama said, "Democrats, Republicans, step up to the plate, get it done."
Republican John McCain spoke with Paulson and Federal Reserve Chairman Ben Bernanke before leaving Ohio for a campaign stop in Iowa, a spokeswoman said.
The legislation the administration promoted would have allowed the government to buy bad mortgages and other rotten assets held by troubled banks and financial institutions. Getting those debts off their books should bolster those companies' balance sheets, making them more inclined to lend and easing one of the biggest choke points in the credit crisis. If the plan worked, the thinking went, it would help lift a major weight off the national economy that is already sputtering.
Monday's action had been preceded by unusually aggressive White House lobbying, and Fratto said that Bush had been making calls to lawmakers until shortly before the vote.
Bush and his economic advisers, as well as congressional leaders in both parties had argued the plan was vital to insulating ordinary Americans from the effects of Wall Street's bad bets. The version that was up for vote Monday was the product of marathon closed-door negotiations in Congress over the weekend.
"We're all worried about losing our jobs," Rep. Paul Ryan, a Republican, declared in an impassioned speech in support of the bill before the vote. "Most of us say, 'I want this thing to pass, but I want you to vote for it -- not me."'
Said Boehner, after the vote: "Americans are angry, and so are my colleagues. They don't want to have to vote for a bill like this. But I have concerns about what this means for the American people, what it means for our economy, and what it means for people's jobs. I think that we need to renew our efforts to find a solution that Congress can support."