Wall Street Bailout: What's Next?

The House leadership is left wondering what can possibly bring enough votes to pass a financial rescue

by Jane Sasseen and Theo Francis

Once again, it is back to the drawing board for the Treasury's proposed $700 billion rescue plan for the financial industry.

In a development that stunned Washington after more than a week of intensive negotiations (BusinessWeek.com, 9/28/08), the bailout bill failed in a vote in the House early Monday afternoon, Sept. 29.

The vote started at 1:30 p.m. and was supposed to have been completed quickly. And, given the bipartisan support the reworked measure got over the weekend—with Treasury Secretary Henry Paulson and President George W. Bush winning the backing of key Democrats like Speaker of the House Nancy Pelosi and the likely support of Presidential candidates Barack Obama and John McCain—the House leadership was counting on a positive outcome. But by a little after 2 p.m., only 205 House members had backed the bill, vs. 228 against. The bill needed 218 to pass.

Rebellious Band of Republicans

Most of the shortfall came from the President's own party. Only 66 House Republicans voted for the bill, with 132 against. Congressional leaders predicted they needed at least 80 supporters from the GOP and at one point hoped to get 100. Among Democrats, 141 backed the bill and 94 voted against. The legislation, as has been obvious since Secretary Paulson and Federal Reserve Chairman Ben Bernanke first told congressional leaders help was needed 11 days ago, lacked support from a rebellious band of conservative Republicans who are dead set against the plan and the notion of the government taking such an extensive role in fixing the private sector's woes.

Even before the final votes were tallied. the stock market started tumbling. The Dow Jones industrial average initially sank 705 points on the news—the Dow recovered somewhat, but plunged again in late trading to finish down 778 points, or 7%, to 10,365.45 (BusinessWeek.com, 9/29/08). The Nasdaq index, loaded with big-name technology stocks, suffered even worse, falling nearly 200 points, or 9%, to 1,983.73.

The debacle in the House left lobbyists and Congress members alike scrambling for an explanation. "The legislation may have failed, but the crisis is still with us," said Pelosi in a press conference held soon after the vote. While she pledged to go back "for another bite at the apple," it was far from clear how the bill could be revived.

No Plan B

Lobbyists from both sides of the aisle were equally stunned. "I can't quite think there's been anything like this, ever," said Damon Silvers, associate general counsel for the AFL-CIO. One well-connected—and exhausted—business lobbyist pointed out there is no Plan B.

By the end of the afternoon, however, the search for alternatives had begun. Some suggested that a vote be held in the Senate rather than continuing in the House; a victory there would put pressure on recalcitrant House members. Following a meeting at the White House, Paulson told reporters that the agency's toolkit is "substantial but insufficient." He added that Treasury would do what it could given the tools it has "to protect our financial system and the economy" in light of the bill's failure.

Still, he said, "we need to put something back together that works." He added that ordinary Americans and small businesses were suffering from the financial system's stresses. "Families, too, feel the credit crunch as it becomes more difficult to get car loans or a student loan," Paulson said.

Looking for a Way

Congressional leaders also held a series of meetings to try to find a way forward, in hopes of getting a revised deal passed by week's end. While few specifics about those talks emerged, analysts and lobbyists closely following the talks said they faced a series of difficult choices. Conservative Republicans, who see the costly bailout as an affront to their free-market values, remain the most strongly opposed to it.

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