US bailout plan rejected

WASHINGTON - US lawmakers rejected a $700 billion bailout plan for the financial industry in a shock vote that sent global markets sliding as the world credit crisis claimed more banks.

By a vote of 228-to-205 the House of Representatives rejected a compromise plan that would have allowed the Treasury Department to buy up toxic debt from struggling banks in what was a moment of historic drama in the Capitol and on Wall Street.

Supporters vowed to try to bring the rescue package up for consideration again as soon as possible.

Stock markets plunged sharply at midday as it appeared that the measure would go down to defeat.

House leaders pushing for the package kept the voting period open for some 40 minutes past the allotted time, trying to convert "no" votes to "yes" votes by pointing to damage being done to the markets, but to no avail.

Supporters of the bill had argued that it was necessary to avoid a collapse of the economic system, a calamity that would drag down not just Wall Street investment houses but possibly the savings and portfolios of millions of Americans. Opponents said the bill was cobbled together in too much haste and might amount to throwing good money from taxpayers after bad investments from Wall Street gamblers.

Should the measure somehow clear the House on a second try, the Senate is expected to vote later in the week. The upcoming holidays and potential procedural obstacles made a vote before Wednesday virtually impossible, but Senate vote-counters predicted that there was enough support in the chamber for the measure to pass.

President Bush has urged passage and spent much of the morning telephoning wavering Republicans to plead for their support.

Congressman John Boehner, the Republican minority leader, said there was too much at stake not to support it. He urged members to reflect on the damage that a defeat of the measure could mean "to your friends, your neighbors, your constituents" as they might watch their retirement savings "shrivel up to zero."

And Congressman Steny Hoyer, who as Democratic majority leader often clashes with Boehner, said that on this "day of consequence for America" he and Boehner "speak with one voice" in pleading for passage.

When it comes to America's economy, Hoyer said, "none of us is an island."

The House debate was heated and, occasionally, emotional up to the last minute, as illustrated by the remarks of two California lawmakers.

Cngressman Darrell Issa, a Republican, said he was "resolute" in his opposition to the measure because it would betray party principles and amount to "a coffin on top of Ronald Reagan's coffin."

But Congressman Maxine Waters, a Democrat, said the measure was vital to help financial institutions survive and keep people in their homes. "There's plenty of blame to go around," she said, and attaching blame should come later.

The House vote came after a weekend of tense negotiations produced a rescue plan that Congressional leaders said was greatly strengthened by new taxpayer safeguards. "If we defeat this bill today, it will be a very bad day for the financial sector of the economy," Congressman Barney Frank, Democrat of Massachusetts and the chairman of the Financial Services Committee, said as the debate began and the stock market opened sharply lower. The Standard & Poor's 500 index was down almost 3.4 percent at midmorning.

Earlier Monday, President Bush urged Congress to act quickly. Calling the rescue bill "bold," Mr. Bush praised lawmakers "from both sides of the aisle" for reaching agreement, and said it would "help keep the crisis in our financial system from spreading throughout our economy."

He said the vote would be difficult, but he urged lawmakers to pass the bill promptly. "A vote for this bill is a vote to prevent economic damage to you and your community," he said.

He addressed concerns about the high cost of the legislation to taxpayers, but he said he expected that "much if not all of the tax dollars will be paid back."

Despite Mr. Bush's urgings, investors around the world continued to demonstrate doubts that the bill would fully address the financial crisis. European and Asian stock markets declined sharply on Monday, especially in countries where major banks have had significant problems with mortgage investments, like Britain and Ireland. In the credit markets, investors once again bid up prices of Treasury securities and shunned more risky debt.

The 110-page rescue bill, intended to ease a growing credit crisis, was shaped by a frenzied week of political twists and turns that culminated in an agreement between the Bush administration and Congressional leaders early Sunday morning.

The measure faced stiff resistance from Republican and Democratic lawmakers who portrayed it as a rush to economic judgment and an undeserved aid package for high-flying financiers who chased big profits through reckless investments.

AFP adds: The Dow Jones industrials suffered its worst single-day point decline ever Monday, losing some 738 points.

Shares on Wall Street tumbled by nearly 700 points as the bill appeared headed to defeat and then recovered some 200 points as the vote was finalised.

Meanwhile, US President George W Bush was "very disappointed" by lawmakers' rejection of an emergency Wall Street bailout and has summoned top aides to plan the next steps, the White House said Monday.

"Obviously, we're very disappointed in the outcome this afternoon," spokesman Tony Fratto told reporters after the House of Representatives voted down the emergency legislation by a margin of 228 votes to 205.

US President George W Bush said Monday he would meet with top advisers and work with lawmakers to tackle the US financial crisis "head on" after lawmakers rejected an emergency bailout plan.

"I was disappointed in the vote with the United States Congress on the economic rescue plan. We've put forth a plan that was big because we've got a big problem," Bush said as he met with Ukraine President Viktor Yushchenko.

Democratic White House contender Barack Obama expressed confidence Monday that a rejected bailout package would still get through Congress and urged markets to stay calm.

At a rally, Obama also scorned Republican rival John McCain's claims of leadership over the financial crisis and said his very philosophy of economic management had been exposed as bankrupt.

Crude oil plunged more than 10 dollars a barrel Monday in New York after the US House of Representatives rejected a 700-billion-dollar bailout of the financial sector.

Investors panicked as the countdown on the House vote signaled the lawmakers would reject the plan that President George W. Bush's administration argued was crucial to avert a wider economic collapse.

New York's main contract, light sweet crude for November delivery, tumbled 10.52 dollars a barrel to close at 96.37 dollars.

It had fallen earlier as low as 11.85 dollars.