Why the bailout bill went down

Washington – A sweeping rescue plan for US financial markets foundered in the US House Monday on a combination of doubts about the plan, reelection concerns, disdain for bailing out Wall Street bankers, and a deep philosophical distaste for massive government intervention in the private sector among conservatives.

The Dow Jones stock index plunged a record 777.68 points on the day ­a reaction that Democrats say could pave the way for a new vote, as early as Thursday.

Despite opinion polls showing that the public was warming to the idea of a rescue plan – and efforts by congressional leaders on both sides of the aisle to round up support – the measure failed 205 to 228, with 95 Democrats and 133 Republicans voting to scuttle the proposed $700 billion bailout. Most lawmakers had been deluged with calls and e-mail from voters angry that, as they see it, taxpayer dollars would be used to bail out Wall Street fat cats.

It was clear from lawmakers’ post-vote comments, especially among conservative Republicans, that the bill represented nothing short of a repudiation of values – such as faith in small government and market mechanisms – that they have cherished since the days of Ronald Reagan.

“Inaction has never been an option, but [Treasury chief Henry] Paulson’s plan should never have been our only option,” said Rep. Jeb Hensarling (R) of Texas, who heads the conservative Republican Study Group. “I fear that under this plan ultimately the federal government will become the guarantor of last resort, and that does put us on the slippery slope to socialism.”

Despite Monday’s loss, major players in the effort to prevent the credit crisis from worsening vowed to have another try at it later this week.

“The legislation has failed. The crisis is still with us,” said House Speaker Nancy Pelosi, in a briefing after the vote. “The lines of communication remain open.”

Secretary Paulson reaffirmed the need for a rescue plan for the US financial system, pledging to keep talking to lawmakers to come up with “a plan that works.”

“We’ve got much work to do and this is much too important to simply let fail,” Paulson told reporters after meeting President Bush to discuss the bill’s rejection. “We need to work as quickly as possible.”

House conservatives had clashed last week with the White House over the shape of the proposed rescue plan, which proposed that the Treasury Department buy up “troubled assets” from financial institutions, including foreign banks. They favored charging Wall Street to fund its own bailout through a government-backed insurance program – elements of which were included in the final rescue plan.

But for most GOP conservatives, the plan would still leave the Treasury secretary picking winners and losers in the US economy.

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