Dow sets record with 777-point plunge

WASHINGTON – In a vote that shook the government, Wall Street and markets around the world, the House defeated a $700 billion emergency rescue for the nation’s financial system Monday, leaving both parties’ lawmakers and the Bush administration scrambling to pick up the pieces.

The bill went down 228-205.

“We need to put something back together that works,” a grim-faced Treasury Secretary Henry Paulson said after he and Federal Reserve Chairman Ben Bernanke joined in an emergency strategy session at the White House. On Capitol Hill, Democratic leaders said the House would reconvene Thursday, leaving open the possibility that it could salvage a reworked version.

Senate leaders showed no inclination to try to bring the measure to a vote before they could determine its fate in the House.

All sides agreed the effort to bolster beleaguered financial markets, potentially the biggest government intervention since the Great Depression, could not be abandoned.

But in a remarkable display on Monday, a majority of House members slapped aside the best version their leaders and the administration had been able to come up with, bucking presidential speeches, pleading visits from Paulson and Federal Reserve Chairman Ben Bernanke and urgent warnings that the economy could nosedive without the legislation.

In the face of thousands of phone calls and e-mails fiercely opposing the measure, many lawmakers were not willing to take the political risk of voting for it just five weeks before the elections.

The two men campaigning to replace Bush watched the situation closely – from afar – and demanded action.

In Iowa, Republican John McCain said his rival Barack Obama and congressional Democrats “infused unnecessary partisanship into the process. Now is not the time to fix the blame; it’s time to fix the problem.”

Obama said, “Democrats, Republicans, step up to the plate; get it done.”

The legislation promoted by the administration would have allowed the

government to buy bad mortgages and other sour assets from troubled banks and other financial institutions. Getting those debts off their books should 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 help lift a major weight off the national economy, which is already sputtering.

Paulson said he would work with other regulators “to use all the tools available to protect our financial system and our economy.”

“Our tool kit is substantial but insufficient,” he said, indicating the government intended to continue piecemeal fixes while pressing Congress for broader action.

The final stock carnage far surpassed the 684-point drop on the first trading day after the Sept. 11, 2001, terror attacks.

In the House, “no” votes came from both the Democratic and Republican sides of the aisle. More than two-thirds of Republicans and 40 percent of Democrats opposed the bill. Several Democrats in close election fights waited until the last moment, then went against the bill as it became clear the vast majority of Republicans were opposing it.

“The legislation may have failed; the crisis is still with us,” said House Speaker Nancy Pelosi, D-Calif., in a news conference after the defeat. “What happened today cannot stand.”

Republican leader John Boehner, R-Ohio, the minority leader, said he and other Republicans were pained to back the measure, but in light of the potential consequences for the economy and all Americans, “We need to renew our efforts to find a solution that Congress can support.”

Rep. Barney Frank, D-Mass., chairman of the Financial Services Committee, said Republicans’ refusal to vote for the bailout was a rejection of their own president.

Indeed, many GOP lawmakers spurned Bush’s urgent calls for action. “We have a gun to our head,” said Rep. Ginny Brown-Waite, R-Fla., who opposed the bill. “This isn’t legislation — it’s extortion.”