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.
“I’m resolute in my opposition,” said Rep. Darrell Issa (R) of California. “Today we are ending the Reagan era if we vote for this, and we can't come back and fix it next year.” The bill was also a tough call for Democrats, who resented being seen as lining up to bail out Wall Street just before an election, as their GOP challengers claimed to side with Main Street.
“We could lose seats over this,” said Rep. Carolyn Maloney (D) of New York, who nonetheless voted for the plan.
Some Democrats on the left wing of the party repudiated the plan. “What we are considering today is still built on the Paulson-Bush premise that buying up Wall Street’s bad bets will solve the liquidity problem. I don’t buy it,” said Rep. Peter DeFazio (D) of Oregon.
There are less expensive, less risky ways to solve the problem, he said. “We can do better. We should start again on a new package.”
Rep. Emanuel Cleaver (D) of Missouri, a member of the House Finance Committee, delayed his vote until the last minute to see if GOP leaders could deliver a majority of their own caucus. They did not, and he voted against the bill. “There’s no reason for us to go in and bail Bush out if his own party rejects him,” he said.
Monday’s vote marked the sharpest repudiation ever of the Bush White House by House Republicans, who voted against the plan by a margin of 2 to 1.
In a press briefing after the bill failed, House GOP leader John Boehner said Speaker Pelosi’s floor speech before the vote “poisoned” the GOP caucus and cost as many as a dozen Republican votes that had previously been committed to the rescue plan. In her speech, Pelosi blamed America’s financial woes on eight years of the Bush administration’s “reckless economic policies.”
Responding to the bill’s failure, Mr. Bush said: “Our strategy is to continue to address this economic situation head on, and we will be working to develop a strategy that will enable us to continue to move forward.”
Meanwhile, Monday’s vote sent the US Senate back to intraparty and interparty discussions on how to proceed.
“We need to have conversations. We don’t know what the next steps are,” says Jim Manley, a spokesman for Senate majority leader Harry Reid. The Senate had planned to vote on the bill on Thursday.
“The problem is not going away. We’re going to stay here until we find a solution,” said Senate Republican leader Mitch McConnell. “It’s time to fix the problem, not the fix the blame.”
Associated Press material was used in this report.