(AP) - The House on Monday defeated a $700 billion emergency rescue package, ignoring urgent pleas from President Bush and bipartisan congressional leaders to quickly bail out the staggering financial industry.
Stocks plummeted on Wall Street even before the 228-205 vote to reject the bill was announced on the House floor.
When the critical vote was tallied, too few members of the House were willing to support the unpopular measure with elections just five weeks away. Ample no votes came from both the Democratic and Republican sides of the aisle.
Bush and a host of leading congressional figures had implored the lawmakers to pass the legislation despite howls of protest from their constituents back home.
The vote had been preceded by unusually aggressive White House lobbying, and spokesman Tony Fratto said that Bush had used a "call list" of people he wanted to persuade to vote yes as late as just a short time before the vote.
Lawmakers shouted news of the plummeting Dow Jones average as lawmakers crowded on the House floor during the drawn-out and tense call of the roll, 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.
They found only two.
Even as the electronic roll call began, Democratic and Republican leaders were uncertain about having enough votes to pass the politically unpopular plan. It's the most sweeping government intervention in markets since the Great Depression.
"Many of us feel that the national interest requires us to do something which is, in many ways, unpopular," said Rep. Barney Frank, the Financial Services Committee chairman. "It is hard to get political credit for avoiding something that has not yet happened."
President Bush had once again urged the bill's passage, saying in a White House appearance Monday morning that "every member of Congress and every American should keep in mind that a vote for this bill is a vote to prevent economic damage to you and your community."
"With this strong and decisive legislation," he said, "we will help restart the flow of credit so American families can meet their daily needs and American businesses can make purchases, ship goods and meet their payrolls."
As debate opened, Frank, D-Mass., called the measure "a tough vote," but a necessary one to stave off a financial meltdown. It lets the government buy sour assets - mostly mortgage-backed securities - from struggling financial institutions in a bid to clear out clogged avenues of credit for businesses and individuals alike.
With their dire warnings of impending economic doom and their sweeping request for unprecedented sums of money and authority to bail out cash-starved financial firms, Bush and his economic chiefs have focused the attention of the world and the markets on Congress, said Republican Rep. Paul Ryan of Wisconsin. Without the bill, Ryan added, "the worst is yet to come."
"We're in this moment, and if we fail to do the right thing, Heaven help us," he said.
As Democratic and Republican leaders hunted for votes, leaning on lawmakers to take a political hit for the good of the country, Ryan said, "We're all worried about losing our jobs. ... Most of us say, 'I want this thing to pass, but I want you to vote for it - not me.'"
Two leading players also spoke early Monday, lobbying on morning television news shows for approval of a package deeply unpopular with a public angry that taxpayer money will save Wall Street firms from heavy risk-taking.
Thousands of angry phone calls, e-mails and letters have poured into Capitol Hill from constituents. Supporters essentially acknowledged that it was a hold-your-nose-and-vote matter.
Critics on the left and right said Congress was being stampeded into hasty action on a plan that wouldn't make a dent in the nation's economic woes, which have at their root a subprime mortgage meltdown and the bursting of the housing bubble, followed by a wave of foreclosures.
The legislation does not require any federal action to prevent foreclosures, although it mandates that the government try renegotiating the bad mortgages it acquires with the aim of lowering borrowers' monthly payments so they can keep their homes.
"Like the Iraq war and the Patriot Act, this bill is fueled on fear and hinges on haste," said Democratic Rep. Lloyd Doggett of Texas.
Republican Jeb Hensarling of Texas, a leading conservative, said the bill puts the country "on the slippery slope to socialism. If you lose your ability to fail, soon you will lose your ability to succeed."
Sen. Chris Dodd, D-Conn., said that failure to act would spread the contagion of frozen credit markets even further. "This is not just about Wall Street," said the Banking Committee chairman.
Sen. Judd Gregg, R-N.H., told The Associated Press: "It's one of those situations where if it passes and works, people will never know how close we were to the brink."
Still, both men said the necessity of such massive government action is a sad day for the nation. They were speaking not just to rank-and-file lawmakers who are under a spotlight in the contentious, dramatic congressional debate, but to U.S. and global markets which have displayed nervousness about Washington's determination to act.
Investors worldwide and in early trading in the United States continued to show doubt about whether the bill would go through, much less go a long way toward curing the systemic problems that have unnerved financial markets across the globe for weeks.
There was a further sign of general economic deterioration Monday as the Commerce Department reported that consumer spending was unchanged in August - even worse than the small 0.2 percent gain that economists had anticipated. It was the weakest showing since spending was also flat in February.
Federal Reserve Chairman Ben Bernanke said the bill "should help to restore the flow of credit to households and businesses that is essential for economic growth and job creation."
Bush said he "fully understands" the bailout bill was a difficult vote. He and Vice President Dick Cheney took to the phones to corral individual members of Congress.
Lawmakers wrote a number of restrictions into the pending legislation, including oversight over the operation of the program, curbs on "golden parachutes" for top executives of firms getting help, and assurances that taxpayers would ultimately be reimbursed by the companies for any losses. But the government would have broad discretion to decide how to implement the rescue.
The legislation also requires that the government take ownership stakes in companies that receive federal infusions, so it could share a piece of potential future profits.
Bush said the ultimate cost of the bailout will be much less than the $700 billion authorized.
Treasury Secretary Henry Paulson sought the unprecedented amount of money with little supervision.
Instead, the bill lets Congress block half the money and force the president to jump through some hoops before using it all.
The government could get at $250 billion immediately, $100 billion more if the president certified it was necessary, and the last $350 billion with a separate certification - and subject to a congressional resolution of disapproval. Still, the resolution could be vetoed by the president, meaning it would take extra-large congressional majorities to stop it.
(Copyright 2008 by The Associated Press. All Rights Reserved.)