$US700b bailout deal voted down
Anne Davies, Washington, smh
September 30, 2008 - 7:11AM
Wall Street's benchmark Dow index has suffered its worst single-day points hit ever after a $860 billion ($US700 billion) financial bailout package failed to pass the US House of Representatives.
The Dow lost about 778 points, or 6.98%, posting its biggest daily percentage decline since the October 1987 stock market crash, while the benchmark S&P 500 also had its worst day in 21 years after the House sent the bailout plan to defeat by a vote of 228 to 205.The tech-heavy Nasdaq had its worst day since April 2000 when the Internet bubble collapsed.
Market fear was deep and widespread, as investors dumped stocks for the relative safety of US government bonds. The Chicago Board Options Exchange Volatility Index, Wall Street's main barometer of investor fear, jumped 39% to 48.40, a nearly six-year high, and was at 46.72 at the close.
''I am shocked. Credit markets were struggling even with the prospect this bill was going to get passed. Now the bill doesn't get passed and it just throws one more monkey wrench into the mix,'' said Bob Doll, global chief investment officer of equities at BlackRock Inc, one of the world's largest asset managers.
The failure of the bailout bill means the US Treasury now has very limited capacity to bailout firms in the future, and economists are predicting that credit markets will seize up, preventing businesses and people from getting loans for ordinary day-to-day business activities, for college fees, for cars, and for appliances as well as for housing. Consumer and business interest rates are likely to rise sharply.
House leaders from both parties warned members that without the bill, America was standing on a financial precipice, which could send the US economy into a deep recession.The defeat of the bill came despite impassioned pleas by the leadership of both Republican and Democrat parties to vote for it. But 132 Republicans and 94 Democrats voted against it. Most had expected that more Republicans would support it as it was an administration bill.
The House leaders were scrambling to find a procedural way to bring the bill back before Congress before the members go home later today to begin campaigning for re-election.The overriding question for congressional leaders was what to do next. Congress has been trying to adjourn so that its members can go out and campaign. And with the November 4 Election Day looming, there was no clear indication of whether the leadership would keep them in Washington. Leaders were huddling after the vote to figure out their next steps.
A White House spokesman said that US President George Bush was ''very disappointed" the bill had failed.''There's no question that the country is facing a difficult crisis that needs to be addressed,'' Tony Fratto told reporters. He said the president will be meeting with members of his team later in the day ''to determine next steps.''''Obviously we are very disappointed in this outcome,'' Fratto said. ''There's no question that the country is facing a difficult crisis that needs to be addressed. The president will be meeting with his team this afternoon to determine the next steps and will also be in touch with congressional leaders.''
The mind-numbing vote had been preceded by unusually aggressive White House lobbying, and spokesman Tony Fratto said Bush had used a call list of people he wanted to persuade to vote yes as late as just a short time before the vote.Lawmakers shouted news of the plummeting Dow Jones average as lawmakers crowded on the House floor during the drawn-out and tense call of the roll, which dragged on for roughly 40 minutes as leaders on both sides scrambled to corral enough of their rank-and-file members to support the deeply unpopular measure.They found only two.Bush and his economic advisers, as well as congressional leaders in both parties had argued the plan was vital to insulating ordinary Americans from the effects of Wall Street's bad bets. The version that was up for vote today was the product of marathon closed-door negotiations in Congress over the weekend.
''We're all worried about losing our jobs,'' Rep. Paul Ryan, a Republican, declared in an impassioned speech in support of the bill before the vote.
''Most of us say, 'I want this thing to pass, but I want you to vote for it - not me.''
With their dire warnings of impending economic doom and their sweeping request for unprecedented sums of money and authority to bail out cash-starved financial firms, Bush and his economic chiefs have focused the attention of world markets on Congress, Ryan added.''We're in this moment, and if we fail to do the right thing, Heaven help us,'' he said.Asked whether majority Democrats would try to reverse the stunning defeat, House Majority Leader Steny Hoyer said, ''We're certainly not going to abandon our responsibility. We'll continue to focus on this and see what actions we can take.''Several Republican aides said the leader of the House, Speaker Nancy Pelosi, a Democrat, had torpedoed any spirit of bipartisanship that surrounded the bill with her scathing speech near the close of the debate that blamed Bush's policies for the economic turmoil.Without mentioning her by name, Representative Adam Putnam, the No. 3 Republican, said: ''The partisan tone at the end of the debate today I think did impact the votes on our side.''Putnam said lawmakers were working ''to garner the necessary votes to avoid a financial collapse''.But the defeat was already causing a brutal round of finger-pointing.
''We could have gotten there today had it not been for the partisan speech that the speaker gave on the floor of the House,'' House minority leader John Boehner said. Pelosi's words, the Republican said, ''poisoned our conference, caused a number of members that we thought we could get, to go south.''
Representative Roy Blunt, the Republican No. 2, estimated that Pelosi's speech changed the minds of a dozen Republicans who might otherwise have supported the plan.Representative Barney Frank, a Democrat, scoffed at the explanation.''Well if that stopped people from voting, then shame on them,'' he said. ''If people's feelings were hurt because of a speech and that led them to vote differently than what they thought the national interest (requires), then they really don't belong here. They're not tough enough.''More than a repudiation of Democrats, Frank said, Republicans' refusal to vote for the bailout was a rejection of their own president.''The Republicans don't trust the administration,'' he said. ''It's a Republican revolt against George Bush and John McCain.''In her speech, Pelosi had assailed Bush and his administration for reckless economic policies.''They claim to be free market advocates when it's really an anything-goes mentality: No regulation, no supervision, no discipline. And if you fail, you will have a golden parachute and the taxpayer will bail you out. Those days are over. The party is over,'' Pelosi said.''Democrats believe in a free market,'' she said. ''But in this case, in its unbridled form, as encouraged, supported, by the Republicans - some in the Republican Party, not all - it has created not jobs, not capital. It has created chaos.''