Bailout vote stuns Washington, markets

World financial markets reeled as stunned lawmakers groped for their next move Monday after House Republicans abandoned President Bush in droves to help kill his $700 billion proposal to rescue the financial services industry.

Even before the vote was announced, stocks began tanking on Wall Street. The Dow Jones Industrial Average nose-dived by more than 777 points, its worst fall ever, in a sell-off that swept markets around the globe.

As fears rose that the credit crisis was spreading, Asian and European markets closed sharply down, and governments in at least eight European countries took steps to begin rescuing large banking institutions.

Democrats and Republicans argued bitterly over who was at fault for the 228-205 vote that torpedoed a compromise bailout plan that would have allowed the Treasury Department to buy up toxic assets from struggling banks.

Lawmakers shouted news of the plummeting Dow as they crowded on the House floor during the roll call, which dragged on for roughly 40 minutes as leaders on both sides scrambled to corral enough of their rank-and-file members to support the deeply unpopular measure.

Ample “no” votes came from both sides of the aisle, but Democratic leaders managed to persuade more than 60 percent of their members to back the measure, while more than two-thirds of Republicans balked at spending so much taxpayer money just before the Nov. 4 elections.

The House canceled plans for a pre-election recess and was scheduled to reconvene Thursday, although no plan of action had yet been worked out.

Bush vows to keep working

The defeat of the measure was a severe loss for Bush, who personally led lobbying efforts to bring Republican lawmakers on board.

The president told reporters at the White House that he was disappointed by the vote and promised that “we’ll be working with leaders of Congress on the way forward.”

Administration officials were described as “shellshocked” by the defeat. They planned meetings Monday night to plan their next step, but officials told NBC News that there seemed to be no clear path forward.

Treasury Secretary Henry Paulson, saying the statutory tools at his disposal were “substantial but insufficient,” likewise vowed to “work with congressional leaders to find a way forward to pass a comprehensive plan to stabilize the financial system and protect the American people.”

“We’ve got much work to do, and this is much too important to simply let fail,” he said.

But the overriding question for was what to do next as Congress tries to adjourn so members can go home and campaign for re-election.

“We’re certainly not going to abandon our responsibility,” said House Majority Leader Steny Hoyer, D-Md. “We’ll continue to focus on this and see what actions we can take.”

Rep. Barney Frank, D-Mass., chairman of the Financial Services Committee and a leading negotiator in crafting the compromise bill, blamed breakaway Republicans for killing the plan.

Frank noted comments by some Republicans who said a floor speech shortly before the vote by House Speaker Nancy Pelosi, D-Calif., was needlessly partisan and said he had not “computed that level of pettiness” across the aisle.

“Sixty-seven percent of Republicans decided to put political ideology ahead of this nation,” he said. “The numbers of deeply offended Republicans turned out to be the number you would need to defeat the vote.”

Republicans defend 'no' votes
But Republicans who voted against the bill objected, saying the measure did not do enough to protect individual investors and bank account holders.

“New York city fat-cats expect Joe Sixpack to suck it up and foot the bill for their excesses. I think not,” said Rep. Ted Poe, R-Texas.

An msnbc.com-NBC News special report Adam Aigner-Treworgy, Patty Culhane, Domenico Montanaro, Mike Viqueira and John Yang of NBC News and the following NBC stations contributed to this report: KHQ of Spokane, Wash.; KXAS of Dallas; WALB of Albany, Ga.; and WNBC of New York.

Rep. Jack Kingston, R-Ga., said he had three insurmountable problems with the bill: It was too expensive, it rewarded Wall Street firms by guaranteeing private profits with public funds and it did not address an antiquated regulatory system.

“This throws a life jacket to Wall Street, but it doesn’t teach them to swim and prevent this from happening again,” Kingston said.

Rep. Cathy McMorris Rodgers, R-Wash., called her decision to vote no “one of the most difficult I have faced.”

“I agree this bill is much better than the one we started with,” McMorris Rodgers said. But “committing 700 billion of our tax dollars requires a longer, more thoughtful debate.”

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