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House Defeats Financial Rescue Plan; Proponents to Offer Alternative Package

00:00AM Sep 30, 2008

via a special arrangement with Informa Economics, Inc.

A renewed bipartisan effort underway to get enough votes for passage

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

In a stunning 205-228 vote, the House of Representatives on Monday afternoon rejected the financial system rescue package pushed by the Bush administration and congressional leaders from both political parties. The House does not return until Thursday, but Capitol Hill leaders and Bush administration officials said they will work on an alternative approach to eventually receive enough votes for passage.

The vote count. House Democrats voted 140-95 for the package, while the breakdown for House Republicans was 65-133, with 67 percent of Republicans voting against it. One Republican, Jerry Weller of Illinois, did not vote.

A breakdown of the votes clearly showed lawmakers facing tight congressional races voted against the bill – all of the GOP freshmen members voted no, while nearly half of the Democratic freshmen voted against the proposal. Far-right Republicans were joined by some Blue Dog Democrats, and members from black and Latino districts, in declining to support the measure.

House Minority Leader John Boehner (R-Ohio) said he tried repeatedly and unsuccessfully to sway a handful of holdouts, but eventually gave up. “You can’t break their arms, you can’t put your whole relationship on the line with them and ask them to do something they do not want to do and have that member regret that vote for the rest of their life,” said Boehner, who added he could not remember a time when the muscle of both parties and the White House failed to produce a victory.

Some House Republicans blamed House Speaker Nancy Pelosi (D-Calif.) for the bill’s failure, saying she had given a partisan floor speech that caused many Republicans to vote against the measure.

But Democrats mocked that charge, with Financial Services Chairman Barney Frank (D-Mass.) saying, “I would not have imputed that degree of pettiness and hypersensitivity,” to Republicans, he said. “Somebody hurt my feelings so I will punish the country. I mean, that’s hardly plausible.”

Pelosi pledged further bipartisan action in the near future. “The crisis has not gone away. We must work in a bipartisan way in order to have another bite at the apple in terms of some legislation,” she said.

“We are ready to continue to work on this,” said Frank. “As a practical matter, the (new) initiative will probably come from the administration,” he added.

While some House members signaled they want the Senate to act on the coming revised bill first, Senate Banking Chairman Chris Dodd (D-Conn.) said, “I think our job in the Senate now is to let the House resolve its difficulties and then let us know what the resolution is and whether or not we can live with it,” he said.

As for interim measures, until financial system rescue legislation is enacted, Treasury Secretary Paulson said he and other federal regulators would continue using their existing authorities to address problems in the financial sector.

“I and my colleagues at the Fed and the SEC continue to address the market challenges we are facing on a daily basis,” Paulson said. “Our toolkit is substantial, but insufficient. Therefore, I will continue to work with congressional leaders to find a way forward to pass a comprehensive plan to stabilize our financial system and protect the American people by limiting the prospects of further deterioration in our economy.” But Paulson added, “We need to put something back together that works.”

Comments: While I was also surprised about Monday's vote, our previous prediction that the issue would eventually pass and be signed into law (“some way, some how”) still stands.

The way forward appears murky, and may be determined largely by the response in the financial markets during the next few days.

Changes to woo enough House members are already being discussed. GOP Conference Chairman Adam Putnam (R-Fla.) provided some of the possibilities ahead when he said negotiators could tweak the existing proposal to win more Republican votes. “There are issues out there that are appealing to Republicans,” he said. “Doubling FDIC insurance, things like [accounting] changes, are appealing to Republicans without being revolting to Democrats.”

“We're going to stay here until we get this job done,” said Senate Minority Leader Mitch McConnell (R-Ky.). “The reaction from the market (on Monday) makes it clear that simply taking no action at all is not acceptable.”

The House left town Monday for the Jewish holidays and will not meet again until Thursday. In a statement Monday evening, House Majority Leader Steny Hoyer (D-Md.) said that although the House will be meeting on Thursday, “it has not been determined” whether financial system rescue language will be considered. Some congressional sources said it may take until Friday to reach a new consensus bill that could garner enough votes for passage.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.