The bailout implodes

The historic $700 billion bill aimed at rescuing the ailing financial sector went down in a stinging defeat in the House on Monday, leaving Democrats and Republicans pointing fingers as worldwide markets plunged.

The 205-228 vote left Democratic leaders visibly stunned over what they said was the failure of House Republicans to shore up enough votes for the measure.

{mosads}Republicans blamed what they said was a partisan speech by Speaker Nancy Pelosi (D-Calif.) for turning away at least a dozen GOP votes; GOP standard-bearer John McCain charged the floor speech with torpedoing the bill. Sen. Barack Obama (D-Ill.) chastised Sen. McCain (R-Ariz.) for issuing “angry and hyper-partisan” comments.

Sixty-five Republicans voted in favor of the legislation to give the Treasury Department unprecedented powers to purchase bad debt from banks, while 133 Republicans voted no.

Democrats won 140 votes in favor of the bill, despite what Majority Leader Steny Hoyer (D-Md.) described as the “grave reservations” of a majority of his caucus. The Democrats lost 95 votes, including many from Congressional Black, Hispanic and Progressive caucus members.

The vote was a failure for leaders on both sides of the aisle and a harsh repudiation of President Bush, who on Monday was calling members to urge them to support the proposal crafted and negotiated by his Treasury secretary.

Before the bill was defeated, former House Speaker Newt Gingrich (R-Ga.) issued a statement that said the package signaled the “final collapse” of Bush’s administration. He also called for Treasury Secretary Henry Paulson to resign.

The Dow Jones Industrial Average, which was down about 250 points when the vote started, witnessed the steepest drop in its history. When it appeared that the bailout would fail, the Dow plunged another 400 points. After a brief recovery, the index closed down 777 points for the day.

Bush expressed deep disappointment with the vote, but said he would continue to reach out to members “on the way forward.”

Paulson, speaking to reporters outside the White House, urged immediate reconsideration by the House, saying that the stakes were dire.

“We need to get something done as soon as possible,” Paulson said. “We’re committed to working with congressional leaders to get it done.”

Where to go next was unclear. The House adjourned until Thursday in order to accommodate Jewish members celebrating Rosh Hashana.

“Stay tuned,” Pelosi told reporters Monday afternoon. “But what happened today cannot stand. We must move forward. And I hope the markets will take that message.”

Hoyer released a Monday night statement that said lawmakers would work ‘around the clock’ in a bipartisan manner to reach a solution. But the statement it was undertermined whether the House would consider a bill on the economic crisis when it resumes business.

The most important thing Congress must do to soothe a roiling market is signal that it will stay in session until something is completed, said Douglas Roberts, the chief investment strategist for New Jersey-based ChannelCapitalResearch.com. He said he “didn’t even want to contemplate” how markets would react if Congress left for the elections.

Rep. Chris Van Hollen (D-Md.), the chairman of the Democratic Congressional Campaign Committee,  said he still expects something to come together in the coming days. “There’s an urgency in the House about coming together around something that can happen,” he said.

Whether or not votes will change if House leaders try again was far from clear.

{mospagebreak}Rep. Patrick McHenry (R-N.C.), who voted against the bill, could only shake his head when asked what would happen if global markets collapse in response to Congress’s rejection of the bailout bill.

At the same time, a Democratic aide said that members of the caucus were by and large comfortable with their votes.

Despite a flurry of whipping late Sunday night and early Monday morning, Democratic leaders ultimately changed only one vote, despite holding the vote open for an extra 30 minutes. That belonged to Rep. Bobby Rush (D-Ill.), who then changed his vote back to no.

{mosads}Passions were high minutes before the historic vote, and while a handful of leaders worked the floor, the tension in the room was palpable as the majority of members simply stood still and watched the vote tally on the electronic board.

A visibly shaken Rep. Spencer Bachus (R-Ala.), who had been rumored to be an opponent of the bill going into Monday’s vote but who at the last minute announced his support, took to physically hushing Rep. Brad Sherman (D-Calif.), an opponent of the bill, who was handing out bright green flyers on the Republican side of the aisle.

Despite the pleas from Democratic leaders, few arms appeared to be twisted. And Republican leaders appeared less engaged with their rank and file than did the Democrats.

The tally was even or close for the first 10 minutes of voting, as a number of members held back. Thirteen minutes in, though, the vote slipped into negative territory at 162-166. It never regained a majority of support.

As the number of “no” votes passed the majority threshold of 220, Hoyer began shuttling back and forth between sides of the well, conferring with GOP Whip Roy Blunt (Mo.) and Pelosi, most of the time with Democratic Caucus Chairman Rahm Emanuel (Ill.) by his side.

After one trip, Hoyer had a brief, heated exchange with bill opponent Rep. Darrell Issa (R-Calif.), and then walked to the Democratic side, where he was immediately swarmed by Progressive Caucus members demanding regular order.

As the total dropped to 207-266, a scrum of leaders including Rep. Barney Frank (D-Mass.), Emanuel, Hoyer, GOP Leader John Boehner (Ohio), Blunt, Rep. Eric Cantor (R-Va.) and Appropriations Committee Chairman David Obey (D-Wis.) gathered on the Republican side.

When the vote appeared to be locked in place at 205-228, Hoyer returned to having his other-side-of-the-aisle consultations with Parliamentarian John Sullivan.

Pelosi, meanwhile, huddled near the well with Rep. George Miller (D-Calif.), one of her closest advisers, as well as Rep. Joseph Crowley (D-N.Y.). Crowley appeared visibly frustrated, while Pelosi looked almost despondent.

{mospagebreak}As the calls for regular order became louder and more frequent — and the vote never changed — Pelosi began to accept the bill’s fate

Despite some last-minute pleas from Crowley and Miller, Pelosi eventually looked at Hoyer and waved her hands.

Hoyer turned to the chair and signaled that time was, indeed, up.

{mosads}In an instant, the mood in the chamber shifted from that of a trading floor to a funeral home, as members silently stared up at the vote tally for a final time before the chair announced the outcome.

Rep. Joe Barton (R-Texas), who voted no, inquired with the chair about how quickly a motion to reconsider would be taken up.

The chair ruled that the question would be put to the floor for a vote, but Barton withdrew his inquiry and the motion to reconsider was tabled — a standard parliamentary move that gives the losing side the option of having the vote reconsidered.

Ashen-looking Democratic leaders scurried off the floor, with Pelosi even taking an exceptionally long route back to her office just to avoid the mob of reporters outside.

House Democrats said it was, indeed, up to Bush to patch together a working majority of congressional Republicans and continue to press them on the gravity of the situation facing global credit markets.

“I would hope that the administration would be willing to work more closely with members of their own party,” Frank said. “We’re ready.”

TIMELINE: How it happened (.PDF)

Jackie Kucinich, Mike Soraghan, Susan Crabtree, Sam Youngman and Michael O’Brien contributed to this story.