House votes down financial rescue plan

The House on Monday defeated a $700 billion emergency rescue for the nation’s financial system, ignoring urgent warnings from President Bush and congressional leaders of both parties that the economy could nosedive into recession without it

Stocks plummeted on Wall Street even before the 228-205 vote to reject the bill was announced on the House floor.

Bush and a host of leading congressional figures had implored the lawmakers to pass the legislation despite howls of protest from their constituents back home. Despite pressure from supporters, not enough members were willing to take the political risk just five weeks before an election.

Ample 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.

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 only five weeks left until Election Day, 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 President Bush was "very disappointed."

"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."

Monday’s mind-numbing vote had been preceded by unusually aggressive White House lobbying, and spokesman Tony Fratto said that 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 Monday was the product of marathon closed-door negotiations on Capitol Hill over the weekend.

"We’re all worried about losing our jobs," Rep. Paul Ryan, R-Wis., 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.

The legislation the administration promoted would have allowed the government to buy bad mortgages and other rotten assets held by troubled banks and financial institutions. Getting those debts off their books should bolster those companies’ balance sheets, making them more inclined to lend and easing one of the biggest choke points in the credit crisis. If the plan worked, the thinking went, it would help lift a major weight off the national economy that is already sputtering.

The fear in the financial markets send the Dow Jones industrials cascading down by over 700 points at one juncture. As the vote was shown on TV, stocks plunged and investors fled to the safety of the credit markets, worrying that the financial system would keep sinking under the weight of failed mortgage debt.

"As I said on the floor, this is a bipartisan responsibility and we think (Democrats) met our responsibility," said House Majority Leader Steny Hoyer, D-Md.

Asked whether majority Democrats would try to reverse the stunning defeat, 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 House Speaker Nancy Pelosi, D-Calif., 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, Rep. Adam Putnam, R-Fla., 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 Ohio Republican said, "poisoned our conference, caused a number of members that we thought we could get, to go south."

Rep. Roy Blunt, R-Mo., the whip, estimated that Pelosi’s speech changed the minds of a dozen Republicans who might otherwise have supported the plan.

Rep. Barney Frank, D-Mass., 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."


  1. Flapsaddle

    Was it principle or posturing that led Republican and Democrat spines to stiffen? NO was a safe vote – the public sentiment was largely against it. Few NO votes cast were by representatives in danger in the elections. Was it Pelosi’s ad lib finger-pointing? That sad figure has little power and is largely considered a cipher even by her fellow Democrats.

    Or was it just that, in a rare flash of actually carrying out their constitutional duty, the House realized that this was a deal to reward the very same people and institutions whose arrogant disregard for the remorseless rules of economics had largely created the problem?

    Whatever their motivation, thank Heaven that they had the stones to do it.

    Most sincerely,

    T. J. Flapsaddle

  2. Mark65Baja

    Bail out Wall Street, NO WAY. Thank you to all the congressional leaders who had the balls to stand up for the American People. It’s fianally time to stop the insane greed that has ripped this country apart for the last 8 years. Montana’s was one of them who voted against it and I’m damned proud of him.

    Why has an economic package that would divide this money evenly and give it to the 200,000 or so over 18 y/o American citizens as an economic stimulus package. That would enable people to get out of debt, pay their mortgages, etc.. the money would still end up at with the banks to help them. Only thing is, this way it would actually help the American taxpayer.

    Superior, MT

  3. gazelle1929


    With all due respect, I think you need to rethink this.

    Banks can not lend money they do not have. Yes, banks can lend out 94 percent (not 940 percent) of their cash assets, holding 6 percent in reserve. Here’s how it works. The Snow Bank of Colorado (used to be one!) opens its doors and attracts $100 million in deposits. This is other people’s money (OPM). This OPM is CASH. It shows up as both an asset and a liability. It’s an asset because they have it in hand, but a liability since it really is OPM. But the books are in balance.

    Currently the Fed allows these banks to lend 94 percent of OPM; the rest is kept in cash so if there’s a small run on the bank they can cover it. But the money does no one any good sitting there, so the bank lends the money to borrowers.

    Let’s say they lend all $94 million to 94 different borrowers, at $1 million each. They decrease their cash asset by $94 million and increase their loans outstanding by the same $94 million. They still have $100 million in assets, but $94 million is in the form of mortgage notes, with $6 million cash. But their liabilities remain $100 million, the money from the depositors. The books still balance.

    I’m wondering if you are talking about what happens to the mortgage proceeds (that $94 million paid out above). Some of it may be deposited by the sellers of the houses, but it just becomes more deposits which are a liability for the bank. Let’s say $50 million comes back to the bank as deposits. Their assets are $56 million in cash, $94 million in mortgages, for a total of $150 million. Their liabilities (amounts owed depositors) is the original $100 million plus the $50 million representing the money deposited by the sellers.

    The books are still in balance, and there is now $50 million dollars more cash. Where did it come from? It came from the equity that existed in the 94 properties prior to sale. It’s real money. Truly. It just seems unreal, but if it looks like a buck and quacks like a buck and walks like a buck, then it’s still a buck. Or in this case 50 million of them.

    Money is not being created. It’s merely being converted from equity to cash.

    It looks like a multiplier effect, but it really isn’t.

  4. Direct Democracy

    Congress, the White House and the Fed already HAD oversight responsibility for the US economy.

    Maybe giving them more money and power isn’t the answer.



  5. Malibu

    JerryG I agree that our actions actually set up the mailing of letters, faxes, emails and phone calls that stunned our House of Representatives. I sent emails out to many old internet pals who are Republicans and was stunned that they blamed the Democrats for the problem and surge of Republican votes against the bailout. Their hatred for Liberals has caused them to forget what honest legislation is all about. It is not based on either party but what is right and within the Constitution. I am hearing Fox, Rove and Limbaugh in their logic and is probably why the GOP cannot locate a decent candidate.

    I have no problem voting outside the party or even writing in Ron Paul. I am a traitor to these folks and I will never understand it.

    McCain’s reaction to the loss of the bail out has been very sad as he makes no sense in any of his comments. He blames Obama. I think we will see a reaction in November against the GOP and they deserve thsir coming loss.

    I have doubts about Pelosi as she acted almost childish today. What a day! This old man is tired and will have beer and relax. I like working with this group here and feel I’m among good Americans.


  6. ekaton

    “I was ready to hammer out out one of my tomes on the same… : )”

    Carl, please do so. Yours would be more articulate as usual!!

    “If Congress had been smart they’d mandate that banks have to reconstitute all ARMS and short term, highly “creative” loans to simple, fixed mortgages that the homeowner can afford predicated on their ability to pay. This would preclude massive defaults and the hazards of having vacant properties nationwide. Although there would still be losses on paper it would still prevent the real world damage that we are now suffering as a nation.”

    ABSOLUTELY! Thats all it would take.

    — Kent Shaw

  7. Carl Nemo

    Thankyou Kent Shaw for your excellent tutorial concerning “fractional reserve banking”. I was ready to hammer out out one of my tomes on the same… : )

    It allows our readers and hopefully those that simply monitor CHB to see the criminal ludicrousness to this boohoo bailout for the banks.

    The only glitch in their scam is that real property is not liquid in these times and also represents an asset that’s shrinking in perceived market value.

    If Congress had been smart they’d mandate that banks have to reconstitute all ARMS and short term, highly “creative” loans to simple, fixed mortgages that the homeowner can afford predicated on their ability to pay. This would preclude massive defaults and the hazards of having vacant properties nationwide. Although there would still be losses on paper it would still prevent the real world damage that we are now suffering as a nation.

    “The borrower is expected to repay the bank with real money earned by labor or other means or the bank will foreclose and evict the borrower.” …extract from Kent’s post

    I thought I’d extract the above from your commentary. To even add insult to injury the payments that homeowners pay is “after tax” money”;ie., meaning that had to earn much more than the net to even come up with the payment as they do on all the bills they must pay monthly.

    The entire banking cabal from the Federal Reserve down to your local “unfriendly” bank; ie., if you default, is an incestuous relationship spawned in hell itself!

    Thanks for your fine post concerning this scam.

    Carl Nemo **==

  8. JerryG

    The failure of the “bailout” to pass the House is, without a doubt, directly attributable to the tremendous volume of opposition emails, letters, faxes and phone calls from the constituents. Like it or not, this is one of those occasions where a majority of the will of the people has prevailed!

    I firmly believe this is one of those instances where enough Congressman actually listened and did their due diligence!

  9. ekaton

    Banks are allowed to loan 940% of their cash assets. This means they must hold an amount of cash equal to 6% of the value of their outstanding loans. This is called fractional reserve banking.

    A bank may have $6 million in cash and $99 million loaned out. This means that it can still loan out another million dollars. Every time the bank writes a loan it literally creates “money” out of thin air. This is allowed by law. It is literally “pretend money” but the law regards it as “real money”. The bank, however, demands “real money” in return, real cash that it can add to the real $6 million dollars it already has. This is money that someone has to work to earn, unlike the bank which can legally create “money” by simply writing a check.

    Let’s say an individual borrows $200 thousand from a bank to purchase a house. The bank writes a pretend money check and takes title to the real hard assets — the real estate. The bank has just received hard assets in exchange for pretend money. The borrower is expected to repay the bank with real money earned by labor or other means or the bank will foreclose and evict the borrower.

    Let’s say the borrower cannot make the payments. The bank forecloses and keeps title to the house. Let’s also say that for whatever reason, the reason does not matter, that the repossessed house is said to be worth less than the $200 thousand dollars originally borrowed. Let’s say the house could be resold for $100 thousand dollars. Even though the bank has acquired real, hard assets using only pretend money to do so, the bank is legally allowed to claim a loss of $100K.

    The bank then literally asks the U.S. taxpayers to give them real money, in this case $100K, to cancel their loss of $100K pretend money. This is money the taxpayers worked to earn; they cannot simply write a check to create money as can the bank. The hard assets are there, but according to the bank they have lost $100K in value even though they were originally purchased with pretend money.

    If the taxpayers give in to the politicians and their big money backers this time to the tune of 3/4 of a trillion dollars, then they DESERVE to lose EVERYTHING for being so STUPID.

    NO BAILOUT! Let the bankers and their stockholders suck it up.

    — Kent Shaw