House Rejects Bailout Bill; Stocks Tank
A weekend spent wrangling over the details of a historic financial bailout led to an unexpected rejection of a bi-partisan proposal in a key vote by the House of Representatives on Monday; House members voted against a proposed bailout package by a 228-205 vote, sending U.S. stock markets into one of the worst one-day tumbles in modern history. The 228 majority against the rescue bill included 133 Republicans and -- surprisingly -- 95 Democrats; the bill’s 205 supporters spanned 140 Democrats and 65 Republicans. House Republicans had led an earlier revolt against the bailout proposal late last week, and apparently rank-and-file members remained unswayed by the supposedly bipartisan bailout proposal hammered out by Congressional leaders this past week. Which means we can say goodbye to Black Tuesday and hello to Black Monday: word of the bailout bill’s rejection sent stocks plunging to an historic one-day loss, with the Dow Industrials closing down 777 points. Supporters may be able to bring the bailout package back into consideration as early as Wednesday, although no date is set, according to a report in the New York Times. It's not currently known if supporters will attempt another vote this week, or look to make major changes going forward. More than a few of HW's key sources cheered the House rejection, however, calling it a victory for free markets. "This shows that our government still works," said one jubilant source, a bank manager. "This was an ill-conceived idea, the result of federal panic at the unexpected effects of Lehman's collapse." Blame continues to be the subject of finger-pointing between both parties, with some Republicans quick to point the finger at House Speaker Nancy Pelosi. In a pre-vote speech said by some to have been too partisan, Pelosi called President Bush’s economic policy a “right-wing ideology of anything goes, no supervision, no discipline, no regulation” of the financial markets, according to a report in The Roanoke Times. Our sources suggested that did not sit well with the largely conservative House Republicans. () The bailout proposal would have essentially nationalized much of the nation’s outstanding mortgage debt — at least, any remaining mortgages not already owned or insured via Fannie Mae (FNM), Freddie Mac (FRE), and Ginnie Mae. Lawmakers had arrived at a compromise on the terms of the final bill on Sunday. The bill sought to split the Treasury’s $700 billion proposal into $350 billion parcels, with the second $350 billion available unless Congress chose to vote against funding it. It also provided for strong executive compensation limitations, pushed for by Democrats — including so-called “claw backs” that would have seen previous bonuses pushed back if based on misleading financial reporting — and would have given the Treasury warrants to preferred equity on nonvoting common equity in the firms participating in the bailout program. The legislation did not specify how the Treasury would price assets, or how it would select assets to purchase; it also did not specify how the government would select and hire asset managers for the mortgages and mortgage securities it purchased. Bush had pushed for the bill’s passage early on Monday, suggesting that the passage of the bill was critical to the country’s ability to “remain the most dynamic and productive economy in the world.” Come Monday afternoon, however, Bush’s call for urgent action in passing the bill wasn’t enough. Most experts suggested to HW on Monday morning, prior to the house’s rejection of the bill, that the legislation faced a stiff test in a key House of Representatives vote. And they proved right. With reports from Kelly Curran and Diana Golobay, and contributions from Paul Jackson.