NEW YORK - (AP) - In a vote that shook the government, WallStreet and markets around the world, the House on Monday defeated a$700 billion emergency rescue for the nation's financial system,leaving both parties' lawmakers and the Bush administrationscrambling to pick up the pieces. Dismayed investors sent the DowJones industrials plunging 777 points, the most ever for a singleday.
"We need to put something back together that works," agrim-faced Treasury Secretary Henry Paulson said after he andFederal Reserve Chairman Ben Bernanke joined in an emergencystrategy session at the White House. On Capitol Hill, Democraticleaders said the House would reconvene Thursday, leaving open thepossibility that it could salvage a reworked version.
Senate leaders showed no inclination to try to bring the measureto a vote before they could determine its fate in the House.
All sides agreed the effort to bolster beleaguered financialmarkets, potentially the biggest government intervention since theGreat Depression, could not be abandoned.
But in a remarkable display on Monday, a majority of Housemembers slapped aside the best version their leaders and theadministration had been able to come up with, bucking presidentialspeeches, pleading visits from Paulson and Federal Reserve ChairmanBen Bernanke and urgent warnings that the economy could nosedivewithout the legislation.
In the face of thousands of phone calls and e-mails fiercelyopposing the measure, many lawmakers were not willing to take thepolitical risk of voting for it just five weeks before theelections.
The bill went down, 228-205.
The House Web site was overwhelmed as millions of people soughtinformation about the measure through the day.
The legislation the administration promoted would have allowedthe government to buy bad mortgages and other sour assets held bytroubled banks and other financial institutions. Getting thosedebts off their books should bolster those companies' balancesheets, making them more inclined to lend and ease one of thebiggest choke points in a national credit crisis. If the planworked, the thinking went, it would help lift a major weight offthe national economy, which is already sputtering.
Hoping to pick up enough GOP votes for the next try, Republicansfloated several ideas. One would double the $100,000 ceiling onfederal deposit insurance. Another would end rules that requirecompanies to devalue assets on their books to reflect the pricethey could get in the market.
In the meantime, Paulson said he would work with otherregulators "to use all the tools available to protect ourfinancial system and our economy."
"Our tool kit is substantial but insufficient," he said,indicating the government intended to continue piecemeal fixeswhile pressing Congress for broader action.
Stocks started plummeting on Wall Street even before Monday'svote was over, as traders watched the rescue measure going down ontelevision. Meanwhile, lawmakers were watching them back.
As a digital screen in the House chamber recorded a cascade of"no" votes against the bailout, Democratic Rep. Joe Crowley ofNew York shouted news of the falling Dow Jones industrials. "Sixhundred points!" he yelled, jabbing his thumb downward.
The final stock carnage far surpassed the 684-point drop on thefirst trading day after the Sept. 11, 2001, terror attacks.
In the House, "no" votes came from both the Democratic andRepublican sides of the aisle. More than two-thirds of Republicansand 40 percent of Democrats opposed the bill. Several Democrats inclose election fights waited until the last moment, then wentagainst the bill as it became clear the vast majority ofRepublicans were opposing it.
Thirteen of the 19 most vulnerable Republicans and Democrats inan Associated Press analysis voted against the bill despite thepleas from President Bush and their party leaders to pass it.
In all, 65 Republicans joined 140 Democrats in voting "yes,"while 133 Republicans and 95 Democrats voted "no."
The overriding question was what to do next.
"The legislation may have failed; the crisis is still withus," said House Speaker Nancy Pelosi, D-Calif., in a newsconference 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, butin light of the potential consequences for the economy and allAmericans, "We need to renew our efforts to find a solution thatCongress can support."
Sen. Chris Dodd, D-Conn., said there was scant time to reopenlegislation that was the product of hard-fought bipartisannegotiations.
"What happened today was not a failure of a bill, it was afailure of will," said Dodd, the Banking Committee chairman. "Ourhope is that cooler heads will prevail, people will think aboutwhat they did today and recognize that this is not just scaretactics - it's reality."
A brutal round of partisan finger-pointing followed the vote.
Republicans blamed Pelosi's scathing speech near the close ofthe debate - which assailed Bush's economic policies and a"right-wing ideology of anything goes, no supervision, nodiscipline, no regulation" of financial markets - for the defeat.It was not much different from her usual tough words against thepresident and his party.
"We could have gotten there today had it not been for thepartisan speech that the speaker gave on the floor of the House,"Boehner said.
Rep. Roy Blunt, R-Mo., the whip, estimated that Pelosi's speechchanged the minds of a dozen Republicans who might otherwise havesupported the plan.
That amounted to an appalling accusation by Republicans againstRepublicans, said Rep. Barney Frank, D-Mass., chairman of theFinancial Services Committee: "Because somebody hurt theirfeelings, they decide to punish the country."
More than a repudiation of Democrats, Frank said, Republicans'refusal to vote for the bailout was a rejection of their ownpresident.
Indeed, many GOP lawmakers spurned Bush's urgent calls foraction. "We have a gun to our head," said Rep. Ginny Brown-Waite,R-Fla., who opposed the bill. "This isn't legislation - it'sextortion."
The two men campaigning to replace Bush watched the situationclosely - from afar - and demanded action.
In Iowa, Republican John McCain said his rival Barack Obama andcongressional Democrats "infused unnecessary partisanship into theprocess. Now is not the time to fix the blame; it's time to fix theproblem."
Obama said, "Democrats, Republicans, step up to the plate, getit done."
Lawmakers were under extraordinary pressure from powerfuloutside groups, which gave notice they considered the legislation a"key vote" - one they would consider when rating members ofCongress.
The U.S. Chamber of Commerce said opponents of the bailout wouldpay for their stance.
"Make no mistake: When the aftermath of congressional inactionbecomes clear, Americans will not tolerate those who stood by andlet the calamity happen," said R. Bruce Josten, the Chamber's toplobbyist, in a letter to members.
The conservative Club for Growth made a similar threat tosupporters of the bailout.
"We're all worried about losing our jobs," Rep. Paul Ryan,R-Wis., declared in an impassioned speech in support of the billbefore the vote. "Most of us say, 'I want this thing to pass, butI want you to vote for it - not me."'
"We're in this moment, and if we fail to do the right thing,Heaven help us," he said.
If Congress doesn't come around on a bailout, more pressurewould fall on the Federal Reserve.
The Fed, which has been providing billions in short-term loansto squeezed banks to help them overcome credit stresses, could keepexpanding those loans to encourage lending. And, it could keepworking with other central banks to inject billions into financialmarkets overseas.
It also has the power to expand emergency lending to other typesof companies and even to individuals if they are unable to secureadequate credit.