Defying President Bush and the leaders of both parties, rank-and-file lawmakers in the House rejected a $700-billion economic rescue plan Monday in a rebellion that rocked the Capitol, sent markets plunging and left top lawmakers groping for a resolution.
The stunning defeat, 228-205, came after protracted talks by senior lawmakers and Bush administration officials and cast a fog of uncertainty over economies around the globe.
House Democratic and Republican leaders vowed to go back into negotiations to find compromise legislation to stabilize the credit markets, but no talks were scheduled.
Dismayed investors sent the Dow Jones industrials plunging 777.68 points, the biggest point drop ever for a single day, including a terrifying decline of nearly 500 points in mere minutes as the vote took place.
"We need to put something back together that works," a grim-faced Treasury Secretary Henry Paulson said after he and Federal Reserve Chairman Ben Bernanke joined in an emergency strategy session at the White House.
Democratic leaders said the House would reconvene Thursday, leaving open the possibility that it could salvage a reworked version. Bush is scheduled to make a statement on the rescue plan this morning.
All sides agreed that the effort to bolster beleaguered financial markets, potentially the biggest government intervention since the Great Depression, could not be abandoned.
Hoping to pick up enough GOP votes for the next try, Republicans floated several ideas. One would double the $100,000 ceiling on federal deposit insurance. Another would end rules that require companies to devalue assets on their books to reflect the price they could get in the market.
Congressional leaders in both parties said they did not know how they would proceed but were examining options, including having the Senate, where there was more support for the bailout, advance a bill after the Jewish New Year today. But Senate leaders showed little inclination to try to bring the measure to a vote before they could determine its fate in the House.
What went wrong?
In the House on Monday, "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. Several Democrats in close election fights waited until the last moment, then went against the bill as it became clear the vast majority of Republicans were opposing it.
There has been an outpouring of opposition among constituents. "People's re-elections played into this to a much greater degree than I would have imagined," said Rep. Deborah Pryce of Ohio, a former member of the Republican leadership who is retiring this year and voted for the plan.
A brutal round of partisan finger-pointing followed the vote.
"The Democratic side more than lived up to its side of the bargain," said House Speaker Nancy Pelosi, D-Calif.
House Republican leaders acknowledged that they let Pelosi put the bill on the floor with at least a dozen Republican votes still needed but said they thought they could win them over.
GOP leader John Boehner of Ohio, the minority leader, said he tried repeatedly and unsuccessfully to sway a handful of holdouts, but eventually gave up. In light of the potential consequences for the economy and all Americans, he said, "we need to renew our efforts to find a solution that Congress can support."
The failure marked an amazing turnabout from early Sunday morning, when congressional leaders joined Paulson to trumpet the bill during a 12:30 a.m. news conference.
Among the opponents, some Republicans cited ideological objections to government intervention; liberal Democrats said they were of no mind to race to aid Wall Street tycoons. Other critics complained about haste and secrecy in assembling the plan.
The outcome after a slightly more than 40-minute House vote left lawmakers almost speechless. Even the strongest opponents of the measure had anticipated they would not prevail. At the White House, the deputy press secretary, Tony Fratto, said just before the vote: "We're confident that it will pass."
Under the proposal, the Treasury Department could tap up to $700-billion in taxpayer money in installments to buy troubled debt from financial firms, in the hopes of freeing up credit to fuel normal economic activity.
In the final stages of negotiations, new provisions intended to stem any taxpayer losses were added. They helped the measure win support from Boehner and some other House Republican leaders, who had strongly opposed an earlier version of the bill. But they did not put the package over the top.
The bottom falls out
At the New York Stock Exchange, traders watched with mouths agape as TV screens showed the House vote rejecting the plan. By 1:42 p.m., the decline was 292 points. Then the bottom fell out. Within five minutes, the index was down about 700 points as it became clear the bill was doomed.
In percentage terms, it was only the 17th-biggest decline for the Dow, far less severe than the 20-plus percent drops seen on Black Monday in 1987 and before the Great Depression.
Even before the vote on Capitol Hill, central bankers tried to jump-start the credit markets by offering hundreds of billions of dollars in loans to banks around the world. But neither the stock nor the credit markets appeared to respond.
While investors didn't believe that the plan was a cure-all and it could take months for its effects to be felt, most market watchers believed it was at least a start toward righting the economy and freeing up credit.
Information from the Associated Press, New York Times and Washington Post was used in this report.