House defeats $700 billion financial markets bailout - Spokane, North Idaho News & Weather KHQ.com

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House defeats $700 billion financial markets bailout

WASHINGTON. - The House on Monday defeated a $700 billion emergency rescue package, ignoring urgent pleas from President Bush and bipartisan congressional leaders to quickly bail out the staggering financial industry.

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

As the vote was shown on TV, stocks plunged and investors fled to the safety of the credit markets on fears that the financial system would keep sinking under the weight of failed mortgage debt.

When the critical vote was tallied, too few members of the House were willing to support the unpopular measure with elections just five weeks away. Ample no votes came from both the Democratic and Republican sides of the aisle.

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.

Even as the electronic roll call began, Democratic and Republican leaders were uncertain about having enough votes to pass the politically unpopular plan. It's the most sweeping government intervention in markets since the Great Depression.

Most Democrats voted for it, but most Republicans voted against it. Lawmakers who voted no ignored urgent warnings from President Bush and congressional leaders of both parties that the economy could nosedive without the plan. Responding, the Dow Jones industrials plunged 777 points, the most ever for a single day.

Democratic and Republican leaders alike are pledging to try again. President Bush is huddling with his economic advisers about a next step. The House will reconvene Thursday instead of adjourning for the year as planned.

Monday's 777-point decline surpasses the 684-point drop on the first day of trading after the 9/11 terror attacks.

The bailout would have put in place an unprecedented federal program to buy up rotten assets from cash-starved firms. The goal is to free up choked credit that was threatening to cause broader market turmoil.

(MSNBC.com)


Key provisions of the failed bill

Doling the money out: The $700 billion would be disbursed in stages, with $250 billion made available immediately for the Treasury's use.

  • Limiting executive pay: Curbs will be placed on the compensation of executives at companies that sell mortgage assets to Treasury. Among them, companies that participate will not be able to deduct the salary they pay to executives above $500,000.

    They also will not be allowed to write new contracts that allow for "golden parachutes" for their top 5 executives if they are fired or the company goes belly up. But the executives' current contracts, which may include golden parachutes, would still stand.

  • Overseeing the program: An oversight board will be created. The board will include the Federal Reserve chairman, the Securities and Exchange Commission chairman, the Federal Home Finance Agency director and the Housing and Urban Development secretary.

    Protecting taxpayers: One provision requires the president to propose legislation to recoup losses from the financial industry if the rescue plan results in net losses to taxpayers five years after the plan is enacted.

    In addition, Treasury will be allowed to take ownership stakes in participating companies.

    Far-reaching program

  • Insuring against losses: Treasury must establish an insurance program - with risk-based premiums paid by the industry - to guarantee companies' troubled assets, including mortgage-backed securities, purchased before March 14, 2008.

    The amount the Treasury would spend to cover losses minus company-paid premiums would come out of the $700 billion the Treasury is allowed to use for the rescue plan.

    Treasury Secretary Henry Paulson first announced the administration would seek an economic bailout plan on Sept. 18, after meeting with key lawmakers in the House and Senate - a meeting that left lawmakers looking ashen when they spoke to the press afterwards.

    If enacted, the rescue plan would be the most dramatic and extensive government intervention in the economy since the Great Depression. President Bush on Sept. 24 gave a prime-time address to the nation in which he urged lawmakers to pass his plan and warned that the "entire economy is in danger."

    The aim of the rescue is to unfreeze the credit markets - short-term lending among banks and corporations. The core of the problem is bad real estate loans that have led to record foreclosures when the housing bubble burst and home prices declined.

    Pain on Main Street, risk to taxpayers

    In the past two weeks, the banking world and Wall Street have been reordered by a wave of collapses and corporate mergers. The most recent development was the seizure by federal regulators on Thursday night of Washington Mutual, once the nation's largest thrift and a major mortgage lender.

    The chill of the credit freeze has been felt far beyond Wall Street, as well. Businesses large and small have seen the cost of borrowing spike higher.

    At the same time, the scale of the administration's plan - and the quick pace of the debate over it - has given pause to many Americans and lawmakers worried about its potential cost to taxpayers.

    "We begin with a very important task, a task to stabilize the markets, to protect all Americans - and do it in a way that protects the taxpayer to the maximum extent possible," Paulson said early Sunday morning.

    (CNNMoney.com)

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