House rejects President Bush's $700B
bailout plan; Stocks plummet on news
Updated Monday, September 29th 2008, 2:55 PM
Kamm/Getty Treasury Secretary Henry Paulson had urged passage of the bailout bill.
The stock market suffered one of its biggest plunges ever Monday after a rebellious Congress killed President Bush's $700 billion Wall Street bailout.
The Dow Jones was down as much as 734 points in the hour before the closing bell - worse even than the historic 684 point drop in the wake of 9/11 - but rebounded slightly to be 573 points down five minutes before trading ended.
The market chaos came after the stunning populist rebellion in the House, where rank-and-file members defied their party leaders and defeated the measure 228-205.
RELATED: SEE HOW NY HOUSE MEMBERS VOTED ON THE BAILOUT
"This is a huge cow patty with a piece of marshmallow stuck in the middle and I'm not going to eat that cow patty," declared Rep. Paul Broun (R-Ga.).
Congress is supposed to recess this week and lawmakers were unsure if they could revive a bill they said was vital to save an failing economy.
RELATED: CITIGROUP TO BUY WACHOVIA BANKING OPERATIONS
"I don't know that we know the path forward at this time," House Minority Leader John Boehner said.
"I'm disappointed in the vote," said Bush, stung by the defections in his own party. "We will work with leaders of Congress on a way forward."
Markets around the world also too big slides.
RELATED: STOCKS SHARPLY LOWER AHEAD OF BAILOUT VOTE
During the roll call vote, lawmakers began shouting news of the Dow, which was falling dramatically.
"Six hundred points!" yelled Rep. Joe Crowley (D-Queens), holding up a thumbs down.
When it was over, partisan squabbling immediately broke out.
Boehner blamed House Speaker Nancy Pelosi, saying she pushed some wavering Republicans off the fence with a last-minute speech blistering Bush and the GOP. He said she "poisoned" the delicate debate.
Democrats countered that Republicans should have mustered enough votes to back the President and mocked the idea that an insulting speech could sway a principled vote.
"Because somebody hurt their feelings, they decided to punish the country?" said Rep. Barney Frank (D-Mass), chairman of the House Financial Services Committee.
The bill was backed by the President, leaders of both parties in the House and Senate, and the two presidential candidates.
Bush warned of dire financial chaos on Main Street if Wall Street didn't get immediate help.
Treasury Secretary Henry Paulson even went down on his knees - literally - to Pelosi, begging her to pass his bill.
Rank-and-file members were always leery.
It would have been the most sweeping government interference in the free market since President Franklin Roosevelt rewrote the American economy in the 1930s.
Party leaders were convinced by the warnings of onrushing doom, but ordinary Americans could only see a monstrous handout to the same high-flying Wall Street fat cats who made the mess in the first place.
Lawmakers were deluged with angry calls from constituents who didn't buy the scare tactics.
Leaders of both parties said they hated the bill but said the choice was to vote for the bailout or see ordinary Americans lose their jobs and homes.
"The meltdown would begin, it is true, in a few square miles of downtown Manhattan. But before it was over, no small town in America would be untouched," said Rep. Steny Hoyer (D-Md.), the majority leader.
Boehner's voice cracked when he made an emotional plea to his members. "These are the votes that separate the men from the boys and the girls from the women," he said. "These are the kind of votes where we have to look into our souls."
Dozens of congressmen just said no.
Rep. Jeb Hensarling (R-Tex.) warned America was on a "slippery slope toward socialism."
Broun questioned why more government money should be thrown after the $200 billion given to Fannie Mae and Freddie Mac, the $85 billion used to save AIG and $30 to save Bear Stearns.
"This is the same old story. We're just going further down the road," he said.
The effect of the bill's failure will be hard to gauge.
Even before the dramatic reversal in Washington, Wachovia sold itself to Citigroup this morning, another huge bank failure that means most of America's deposits are now in the hands of just three banks: Citigroup, JP Morgan Chase and Bank of America.
In the last two weeks, Wall Street titans have fallen like dominos, from Lehman Brothers to Merrill Lynch to AIG to Washington Mutual.
The credit crisis was spreading across the world.
In London, regulators swooped in with a $280 billion seizure of mortgage lender Bradford & Bingley, sending UK stocks to a three-year low.
The sprawling Belgian-Dutch financial group Fortis also needed a massive bailout from Benelux.
Washington's big bailout aims to unfreeze short-term lending between banks and corporations by buying up the widespread housing-related bad debts that are paralyzing financial companies.
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