Economy bailout fails in House; Wisconsin delegation votes 5-3 for the measure

Sep 30, 2008 (The Wisconsin State Journal - McClatchy-Tribune Information Services via COMTEX) -- DJ | Quote | Chart | News | PowerRating -- In a vote that shook the government, Wall Street and markets around the world, the House on Monday defeated a $700 billion emergency rescue for the nation's financial system, leaving both parties and the Bush administration struggling to pick up the pieces. The Dow Jones industrials plunged nearly 800 points, the most points ever for a single day.

"We need to put something back together that works," a grim-faced Treasury Secretary Henry Paulson said after he and Federal Reserve Chairman Ben Bernanke joined in an emergency strategy session at the White House. On Capitol Hill, Democratic leaders said the House would reconvene Thursday in hopes of a quick vote on a reworked version.

All sides agreed the bill could not be abandoned.

On Monday, not enough lawmakers from either party were willing to take the political risk -- just five weeks before the elections -- of backing a deeply unpopular measure that many voters see as an undeserved bailout for Wall Street. Wisconsin's delegation voted 5-3 in support of the measure, with at least one Democrat and one Republican on both sides of the issue.

Rep. Paul Ryan, R-Janesville, a key player in the negotiations and critic of the original Bush plan's lack of protections for taxpayers, made an impassioned call on lawmakers to support the revised bill Monday, saying "if we fail to do the right thing, heaven help us." After the vote, he issued a sharp criticism of both his fellow lawmakers and the way the Bush administration "mishandled" the bailout plan.

"With an election looming, my colleagues in Congress thought first and foremost of their own jobs at the expense of the jobs of those they serve," Ryan said. "I am outraged that we find ourselves in this situation, and I have grave concerns for the state of our economy."

The bill went down, 228-205, even though Paulson and congressional leaders proclaimed a day earlier that they had worked out an acceptable compromise in marathon weekend talks.

Lawmakers were caught in the middle. On one side were the dire predictions from Bush, his economic team, and their own party leaders of an all-out financial meltdown if they failed to approve the rescue. On the other side: a flood of protest calls and e-mails from voters threatening to punish them at the ballot box.

The legislation the administration promoted would have allowed the government to buy bad mortgages and other sour assets held by troubled banks and other financial institutions. Getting those debts off their books should bolster those companies' balance sheets, making them more inclined to lend and easing one of the biggest choke points in a national credit crisis. If the plan worked, the thinking went, it would help lift a major weight off the national economy, which is already sputtering.

Wall Street plunge

Stocks started plummeting on Wall Street even before Monday's vote was over, as traders watched the rescue measure going down on television. The final stock carnage was 777 points, far surpassing the 684-point drop on the first trading day after the Sept. 11, 2001, terror attacks, and the largest in percentage terms since October 1987.

In the House, "no" votes came from both the Democratic and Republican sides of the aisle. More than two-thirds of Republicans and 40 percent of Democrats opposed the bill. Several Democrats in close election fights waited until the last moment, then went against the bill as it became clear the vast majority of Republicans, including vulnerable lawmakers, were opposing it.

In all, 65 Republicans joined 140 Democrats in voting "yes," while 133 Republicans and 95 Democrats voted "no."

Rep. Steve Kagen, D-Appleton, voted against the plan. Kagen, who faces a tough re-election campaign against Republican and bailout critic John Gard, said he's heard from hundreds of angry constituents opposed to the bailout.

Michael Kraft, a political scientist at UW-Green Bay, said the bailout plan was a tough vote for lawmakers like Kagen, posing the threat of an economic downturn against that of angry taxpayers and voters.

"It's not win-win. It's lose-lose. There's nothing you can do to make anybody happy," Kraft said.

Baldwin supported bill

Supporters of the bill like Rep. Tammy Baldwin, D-Madison, said they sought to avoid a breakdown in the credit markets that could leave even solid local businesses unable to get the regular loans they need to pay their workers and buy inventories. They noted that many protections for taxpayers had been added since the Bush administration's plan was unveiled.

"We needed to take responsible steps given how dangerous the economic situation is right now, both in the credit system and the banking system," Baldwin said in a telephone interview.

But Baldwin and other lawmakers face skepticism from voters like retired Madison schoolteacher Mike Sederquist, 62, who accepts some kind of bailout may be necessary but doesn't like the idea of it.

"I don't think taxpayers should be buying up that junk. I don't understand that," he said. "Whoever did it are the ones who should have to pay for it, not me."

Sederquist said elected officials hadn't explained the problem or the proposed solution in a way that made sense. "There isn't 1 percent of the population that understand this stuff, and why would you?"

Seeking to capitalize on the difficult vote, Baldwin's opponent, Republican Peter Theron, attacked her in a statement Monday for giving "a bailout to the biggest failures on Wall Street" at the expense of taxpayers.

Now what?

The overriding question remains what to do next.

"The legislation may have failed; the crisis is still with us," said House Speaker Nancy Pelosi, D-Calif., in a news conference after the defeat. "What happened today cannot stand."

Republican leader John Boehner, R-Ohio, said he and other Republicans were pained to vote for such measures, but he agreed that in light of the potential consequences for the economy and all Americans, "I think that we need to renew our efforts to find a solution that Congress can support."

Those positive comments aside, a brutal round of partisan finger-pointing followed the vote.

The two men campaigning to replace Bush watched the situation closely -- from afar -- and demanded action.

In Iowa, Republican John McCain declared, "Now is not the time to fix the blame; it's time to fix the problem."

In Colorado, Democrat Barack Obama said, "Democrats, Republicans, step up to the plate, get it done."

-- State Journal reporter Jason Stein contributed to this article.

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