by Ronald J. Hansen - Sept. 30, 2008 12:00 AM
The Arizona Republic
With nervous financial markets around the world watching, the U.S. House of Representatives rejected the $700 billion Wall Street bailout plan Monday, touching off the largest single-day drop for the Dow Jones industrials and throwing more turmoil into the presidential campaign.
The bill unexpectedly collapsed on a 228-205 vote. Most Republicans and many Democrats voted against the plan, which has met stiff opposition from the public.
No members of Arizona's congressional delegation voted for the bill, despite tepid support for the legislation from presidential candidates John McCain and Barack Obama and an urgent plea last week from President Bush.
With alternative plans already circulating, many in Washington predicted the House would tackle the issue again after Rosh Hashana, the Jewish new year. The Senate could vote on its own legislation later this week.
Democrats voted 140-95 in favor of the bailout. Republicans rejected it by a 68-vote margin; their vote was 65-133.
Wall Street reacted with a 777-point drop in the Dow Jones industrial average, a $1.2 trillion loss in market value. It was the biggest point loss in history and among the steepest single-day declines as a percentage of the Dow.
Problems with bad mortgage debt have been cascading for more than a year. Wall Street had counted on rising home values as it created ever-more complex securities out of ever-more-risky mortgages. As home values fell and borrowers began to default, financial companies and insurers sustained heavy losses, prompting federal intervention. The continuing fear that a huge, but unknown amount, of mortgage securities has to be written off has frozen the lending markets. The economic crisis is widely viewed as the most serious since the Great Depression.
"We've got much work to do, and this is much too important to simply let fail," Treasury Secretary Henry Paulson said. "We need to put something back together that works."
Opponents cited the bill's haste and its lack of adequate protections for taxpayers for its failure to pass.
With all 435 seats in House up for grabs in five weeks, both parties immediately blamed the other after the bailout plan unraveled. Democrats said they delivered the votes needed to support a bill that all agreed was painful but necessary.
Republican leaders said a heavily political speech by House Speaker Nancy Pelosi, D-Calif., just before voting began poisoned the outcome. In her speech, Pelosi blamed Bush for the economic freefall and said the price tag on the bailout "tells us only the costs of the Bush administration's failed economic policies - policies built on budgetary recklessness, on an anything-goes mentality, with no regulation, no supervision and no discipline in the system."
"We put everything we had into getting the votes to get there today, but the speaker had to give a partisan voice that poisoned our conference and caused a number of members we thought we could get to go south," said Republican Leader John Boehner of Ohio. Republican Whip Roy Blunt of Missouri said it cost the GOP about 12 votes.
"Because somebody hurt their feelings they decided to punish the country," said Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee and one of the main architects of the proposed legislation.
Rep. John Shadegg, R-Ariz., said Pelosi's remarks hurt, but he didn't know of any members who changed their votes as a result.
"I am frankly disappointed in her speech because it set the wrong tone," Shadegg said in an interview. "I don't think it changed other votes. Some members were, if I can use a phrase, probably driven further into cement because of her remarks."
The legislation would have allowed the government to buy bad mortgages and other sour assets held by troubled banks and other financial institutions. Letting the companies wipe the bad debts off their books would, leaders say, bolster those companies' balance sheets, making them more inclined to lend and ease one of the biggest choke points in a national credit crisis. If the plan worked, the thinking went, it would have helped lift a major weight off the national economy, which was already sputtering.
The cascading crisis overshadowed the presidential campaign, though McCain and Obama also pinned blame on the other for the lack of a solution.
McCain, who last week said he was leaving the campaign trail to help broker a bipartisan deal in Washington, pointed a finger across the aisle and blamed Democrats for the bill's collapse.
"Our leaders failed to act. I share the anger and frustration that many Americans feel toward reckless and corrupt management on Wall Street and in Washington," McCain said in a prepared statement from Iowa later in the day. "I was hopeful the improved rescue plan would have had the votes needed to pass. . . . Senator Obama and his allies in Congress infused unnecessary partisanship into the process. Now is not the time to fix the blame. It's time to fix the problem."
Obama, who participated in a White House meeting on the bailout last week but has otherwise monitored the progress from afar, attributed the economic crisis to Republicans.
"This is the consequence of eight years of irresponsibility, and it is time we had some adult supervision in the White House," Obama said at a campaign rally in Denver. "They wanted to let the market run free and instead they let it run wild."
Obama promised that, if elected, he would review any bailout upon taking office in January.
For Shadegg, the bill lacked a revision that he said could help struggling homeowners dealing with rising mortgage payments and falling home values. An accounting rule he wants amended effectively assigns values based on current property values, which in a down market makes property seem especially undervalued.
That rule, he said, has forced banks to dramatically mark down home values, exacerbating the problem.
But critics of this approach have said allowing banks to presume higher property values would only invite unrealistic spikes that helped create the problem in the first place.
Rep. Trent Franks, R-Ariz., said Pelosi was willing to allow the economy to suffer to score political points.
"I think liberal Democrats see financial crisis as favorable to them in the upcoming election," he said.
Rep. Gabrielle Giffords, D-Ariz., was bothered by the haste involved in considering the bailout.
"It was rushed to the House floor Monday morning. As the most expensive economic program in the history of the country, I believe Congress needs to take more time to fully consider the implications of such legislation," she said in a written statement.
"I am concerned that this bill did not have adequate taxpayer protections to ensure a fair, long-term return on our investment."
Rep. Harry Mitchell, D-Ariz., also balked at a quick vote. He said the resistance from his constituents was "overwhelming."
"This was the most calls on any one subject since I've been there," he said.
No one in the Democratic leadership tried to change his vote, Mitchell said.
He said he favors a bill that would make permanent cuts on capital-gains and estate taxes to create more confidence in the markets.
In the end, lopsided public opposition, the kind that clogged congressional phones, Web sites and e-mail across the country over the past week made a difference, too.
"Honesty compels me," Franks said, "to say the voice of the people was indeed heard."
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