By Chris Cermak Sep 29, 2008, 22:40 GMT
Washington - The US House of Representatives on Monday rejected a massive government plan to rescue the economy from the brink of financial meltdown, sending Wall Street stocks to one of their biggest slides in history amid widespread uncertainty over the future.
South Korea benchmark KOSPI plummets below the 1,400 mark, losing 63.74 points or 4.37 percent, early 30 September 2008 as US stock markets plunged overnight. The Dow Jones Industrials lost over 700 points after the US House of Representative rejected a 700 billion dollars bailout proposal for ailing financial institutions. EPA/STR
Democratic and Republican legislators traded blame for the failure but promised to head back to the drawing board in the coming days. It was unclear just what new concessions could get the legislation passed.
The House voted 228-205 against the 700-billion-dollar bail-out plan. Minority Republicans in the House led the opposition, voting 2- 1 against the bill. About 40 per cent of Democrats were also opposed.
The rejection came despite dire warnings of an economic collapse and support for the bill from congressional leaders of both political parties, as well as US President George W Bush.
Bush said he was disappointed in the vote and would be consulting with his economic advisors in the coming days to work out a way forward.
'We put forth a plan that was big because we got a big problem,' the president said. 'Our strategy is to continue to address this economic situation head on.'
The Dow Jones Industrial Average had its largest point-drop in history on the failed vote, shedding 777.68 points, or 6.98 per cent. The broader Standard & Poor's 500 Index fell 8.79 per cent, the most since a 1987 crash, while the Nasdaq high-tech index dropped more than 9 per cent for its third-largest one-day drop ever.
US Treasury Secretary Henry Paulson, the principle architect of the rescue plan, warned that the federal government does not have the means to address the massive financial crisis arresting the US economy.
'Our tool kit is substantial, but insufficient,' Paulson told reporters at the White House, and promised to head back into negotiations with Congress to work out some sort of solution.
Congressional leaders and White House officials thought they had forged an agreement Sunday after nine days of tough negotiations. But lower-level legislators in both parties derailed the process, resenting the need to put taxpayer money on the line to bail out greedy Wall Street investors.
'The legislation has failed, the crisis has not gone away, we must work in a bipartisan way in order to have another bite at the apple,' Democratic House Speaker Nancy Pelosi said.
The bill was intended to free up credit availability for US consumers with the government purchase of up to 700-billion-dollars worth of soured mortgage-backed securities.
John Boehner, the top Republican in the lower chamber, promised to go back and find a compromise in the coming days.
'We need everybody to calm down and relax and get back to work,' he told reporters after the vote.
But it was unclear exactly when or how another compromise would come about. Many legislators opposed the measure on a principle that Wall Street must carry more of the burden and called it an unnecessary intervention into the free market.
'This vote today in my mind was a vote between bankrupting my daughter and our kids and bankrupting a few Wall Street banks that made bad decisions,' Texas Republican John Culberson told US broadcaster CNBC.
Leaders from both parties had recognized the legislation was an incredibly bitter pill to swallow and one of the most difficult decisions Congress would ever make, coming just one month before the US general election.
But the bill's supporters, during a spirited four-hour debate in the chamber, said it was the only means of preventing credit - the backbone of the US economy - from drying up completely.
During week-long negotiations on the 700-billion-dollar proposal, legislators reduced the initial cost to 350 billion dollars with the remainder to be authorized later.
Other changes to the Paulson's original plan included curbs on executive pay, greater oversight and a variety of methods for the government to recover the taxpayer funds from Wall Street banks in the coming years.
Bush, who has less than four months left in office, has little remaining clout with his fellow Republicans in Congress, who already blame his low approval ratings for their loss of a majority in congressional elections two years ago.
Democrats were also worried about the political fallout of the unpopular Wall Street bailout as expressed by constituents via angry e-mails and phone calls to legislators.
Meanwhile, the financial turmoil continued. The Federal Reserve announced fresh moves to inject liquidity into the market, while Citigroup Inc agreed to take over the banking operations of fourth- largest US bank Wachovia Corp.
The financial crisis has already led to two of the largest bankruptcies in US history - Lehman Brothers Holdings Inc and Washington Mutual Inc - as well as a series of government takeovers in the US and Europe.
Your Talkback on this Story