(CBS/AP) A divided Congress narrowly rejected a highly anticipated, and wildly unpopular, $700 billion plan to bail out Wall Street banks in an attempt to revive a struggling U.S. economy.
The vote was 205-228.
The vote followed more than three hours of passionate debate during which one lawmaker exclaimed, "America, you should be outraged by what Washington is about to do, because Washington is not listening to you."
Republicans and Democrats were equally divided: many Democrats voted against the bill, many citing lack of protections for homeowners facing foreclosure; many Republicans voted for using taxpayer dollars to shore up a private market, despite concerns it would usurp the free market.
The deal comes amid further signs of general economic deterioration Monday, as the Commerce Department reported that consumer spending was unchanged in August - worse than anticipated, and the weakest showing since spending was also flat in February.
CBS News senior White House correspondent Bill Plante said the deal agreed to by Congress and the Bush administration to help relieve the credit crisis is expected to be voted on this morning.
"It's a bill we've come to and worked on together," said House Minority Leader John Boehner, R-Ohio. "It's a bill that we believe will avert the crisis that's out there."
Plante reports that the Emergency Economic Stabilization Act of 2008 will give the Treasury Secretary $700 billion to buy up bad mortgages from banks, but with conditions: Instead of handing over all of the money at once, the bill allocates $250 billion now and requires the president to certify that the next $100 billion is needed.
Congress can hold up delivery of the final $350 billion.
Companies whose bad loans are purchased must give the government an ownership stake so that taxpayers will benefit from their future growth.
The bill requires the Treasury to help the people whose mortgages and purchases keep their homes, something on which Democrats insisted. And in a provision Republicans fought for, it also sets up a program under which banks could buy government insurance for some of the loans, rather than selling them outright.
There will be restrictions on companies who sell those bad loans to the treasury, as well as limits on executive compensation, and on golden parachutes, and the bill sets up oversight: The Treasury Secretary, the Federal Reserve Chairman and other government officials must review what's done under the new law.
President Bush this morning called the legislation a bold bill "that will help keep the crisis in our financial system from spreading throughout our economy."
He said it was an improved version over what his administration first proposed to Congress a week ago. "The bill provides strong bipartisan oversight, so Americans can be certain that their tax dollars are used carefully and wisely.
"We'll make clear that the United States is serious about restoring confidence and stability in our financial system."
Mr. Bush sought to reassure angry taxpayers and nervous congressional members who will soon be facing re-election that "Both the nonpartisan Congressional Budget Office and the Office of Management and Budget expect that the ultimate cost to the taxpayer will be far less than [$700 billion]. In fact, we expect that, over time, much if not all of the tax dollars we invest will be paid back."
"I fully understand that this will be a difficult vote. But with the improvements made to this bill, I'm confident that members of both parties will support it. Congress can send a strong signal to markets at home and abroad by passing this bill promptly.
However, if Congress was listening, you might not know it from the anger that came out on the House floor this morning from those opposed to the bill.
A Raucous Debate
Democrats were quick to insist that they weren't bailing out Wall Street tycoons, but protecting communities beyond lower Manhattan that would be affected by the tightening of credit.
Sen. Judd Gregg, R-N.H., who represented Republicans in the negotiations, likened the bill to "putting a tourniquet on an extremely difficult situation."
But a number of people in both parties do not like it.
The final 110-page bill was released Sunday evening after a final weekend of intense negotiating, and Republicans and Democrats huddled for hours in private meetings Sunday night to learn its details and voice their concerns.
Lawmakers in both parties who are facing re-election are particularly nervous about embracing such a costly plan proposed by a deeply unpopular president that would benefit perhaps the most publicly detested of all: companies that got rich off bad bets.
Democratic Rep. Elijah Cummings said he was inclined to oppose the bill. But he added: "A lot of people are going to hold their nose and vote for it, because they've been put in a bad position and they don't have any other option."
"This is a huge cow patty with a piece of marshmallow stuck in the middle of it and I'm not going to eat that cow patty."
Rep. Paul Broun, R-Ga.
As lawmakers debated the bill this morning - some ruing that the pressures of bank failures and credit stresses are forcing their hands - Rep. Mel Watt, D-N.C., said, "I wish we had a president that had enough communication skills and enough credibility with the American people to convince them there is a real problem. Unfortunately that burden hasn’t been carried sufficiently by the administration. But I'm convinced that the odds are bad enough that if we don’t do something today we will regret it for a long, long time."
Standing in opposition to the bill, Rep. Thaddeus McCotter, R-Mich., said the government intrusion into the free market marked would, like the Bolshevik slogan of "Peace, Land, and Bread," promise short-term prosperity at the sacrifice of liberty. "The people on Main Street have said they prefer their freedom, and I stand with them," McCotter said.
Likewise, Rep. Lynn Woolsey, D-Calif., said the bill failed to address the root causes of the financial crisis by neglecting to provide, among other factors, foreclosure relief. "Stability should come from the bottom up," she said.
"Why isn’t Wall Street paying for the mess they created?" Woolsey asked, suggesting a surcharge on stock trades. "We can raise $150 billion a year from those who caused this mess and profited from it."
She also questioned the wisdom of giving discretion over the use of hundreds of billions of taxpayer dollars to the outgoing administration.
"Why are we willing to even make available $700 billion to this administration? Bush and Paulson have been wrong from the start on just about everything. If you think they will be responsible with this money, think again."
"Like the Iraq War and the Patriot Act, this bill is fueled by fear and hinges on haste," said Rep. Lloyd Doggett, D-Tex., who noted the bill does not require Wall Street to pay even a dime in recompense. "All of us want to avoid further economic deterioration, but action or inaction today is a false choice.
"The vultures have now come home to roost," Doggett said.
Meanwhile, his fellow Texan, Republican John Culberson, blasted the legal protections impinging oversight of the Treasury Secretary's discretionary use of the funds. He suggested other means (including reducing the capital gains tax to zero) would work better.
Rep. Brad Sherman, D-Calif., who is opposed, said, "Just because this bill is unpopular doesn’t mean we have to pass it immediately."
Rep. Carolyn Maloney, D-N.Y., who called the current crisis "the financial equivalent of a heart attack," said the bill is not popular but is necessary.
"I know we're tempted to see this as just another train wreck of the Bush administration," said Rep. Chaka Fattah, D-Penn., who said the crisis actually threatens constituents' 401(k)s, pension funds, the ability to borrow and establish businesses, and the security of community banks.
Rep. Ted Poe, R-Tex., decried the bailout of "Wall Street moneygrabbers," and wondered why it is that, the bigger the business, the more government feels it should "swoop in and save them," whereas mom-and-pop business that make bad financial decisions just fail.
"They expect Joe Six-Pack to buck it up and reward this nonsense," he said. "It's sad time to be an American taxpayer.
"Wall Street should pay for Wall Street's mistakes," said Rep. Judy Biggert, R-Ill., who said she was reluctantly opposed to the bill.
Rep. Peter DeFazio, D-Ore. denounced the "trickle-down" economics behind the bill, and called the mammoth funds involved "sort of like the financial surge strategy, and just like the surge going into Iraq we know it's not sustainable."
He also said the golden parachutes for executives were merely switched for "camouflaged parachutes."
"If we vote for this bill it is the end of the Reagan era," said Rep. Darrell Issa, R-Calif.
Rep. Paul Broun, R-Ga., who called the bill a gift to Secretary Paulson's "friends," said it was merely a stop-gap measure that did nothing to prevent further economic catastrophe.
"This is a huge cow patty with a piece of marshmallow stuck in the middle of it and I'm not going to eat that cow patty."
"I have no matching metaphor," Rep. Barney Frank responded.
Rep. Maxine Waters D-Calif. said she was voting for the bill, but called for the prosecution of financial titans who violate the law and ignore their fiduciary responsibility. "We will tighten the screws on Wall Street."
Rep. John Tanner, D-Tenn. said, "This is no longer about bailing out anyone; it is about trying to put together a plan that will do less harm than we would do otherwise by our inaction to every American's financial security."
Rep, Earl Blumenauer, D-Ore. said, "We cannot continue to bail out with borrowed money."
Rep. Louie Gohmert, R-Tex. was angered that management of the assets purchased from failing banks would be outsourced "to the people who caused this problem.
"Let’s save America from Congress."
Many complained of the speed of the process, and the fact that hearings and committee deliberations were not held on the legislation. "We need to take out time on this," said Rep. Carolyn Kilpatrick, D-Mich., who noted that the Senate will not be taking up the bill until later this week. "There is a better process. I hope that we can slow down this train. I urge a 'no' vote."
Rep. Paul Ryan, R-Wis., said he was offended when Paulson offered a three-page proposal asking for a bank account with $700 billion in it for him. "So what happened since then, we added 107 pages of taxpayer protection to this bill.
"This bill offends my principles but I'm going to vote for it in order to preserve my principles, to preserve our financial system." He urged others to vote for it, even though, "We're one month away from an election &30151; we're all worried about losing out jobs."
"The White House brought this to a crescendo, to a crisis, so that all eyes of the world are on Congress. It’s a heavy load to bear. We have to deal with this panic, we need to deal with this fear … and if we fail to do the right thing, heaven help us. If we fail to pass this, I fear the worst is yet to come."
Rep. Ginny Brown-Waite, R-Fla., said taxpayers had a gun pointed to their heads. "This isn’t legislation, this is extortion.
"Do you like ten trillion dollars of debt? With one stroke of the pen Congress will have extended that an additional trillion.
"Make no mistake: a vote for this bailout is a vote to ratify business as usual in Washington."
Like many speaking today, Rep. Steven LaTourette, R-Ohio, praised Rep. Frank (the key House member in demanding alterations to the administration proposal) for his "noble work in being handed a pile of garbage and making it better."
But LaTourette said the taxpayer should pay for it. He also called for the repatriation of offshore funds.
House Speaker Nancy Pelosi said the "staggering" cost of the $700 billion package was "only a part of the cost of the failed Bush economic policies to our country.
"They claim to be free market advocates when it is an 'anything goes' mentality," she said, saying the administration's budget recklessness turned around the budget surpluses of the Clinton administration, and if a crisis got so bad, "you will have a golden parachute and the taxpayer will bail you out.
"Those days are over. The party is over in that respect."
Rep. Dennis Kucinich, D-Ohio, said $700 billion spent trying to save home could really stimulate the economy, "but that's not what this bill is about," as the Treasury secretary would not have power to stop foreclosures and keep people in their homes.
Rep. Todd Tiahrt, R-Kan., called the legislation "the biggest corporate welfare bill in history," and said fear was driving members away from reason.
Rep. Joseph Crowley, R-N.Y., confessed, "Everyone is angry," but said companies and families will suffer from a lack of credit - and said financial executives should be given metal ankle bracelets and not golden parachutes.
Marilyn Musgrave, R-Colo., said she "simply cannot stomach" transferring wealth from Colorado families to the benefit of Wall Street figures "whose avarice and greed put us in this situation in the first place."
She also castigated Congress for failing to take seriously the crisis of gas prices this past summer, "and yet when Wall Street faced the consequences of its actions we worked around the clock" to bail them out.
Rep. Spencer Bachus, R-Ala., said he was confident that the protections put in during negotiations would mean that taxpayers stand to get their money back.
Bachus said he was not willing to take no action. "I'm not willing to put that bullet in the revolver and spin it. I'm not willing to take that gamble. I'm not willing to pull that trigger because I'm not willing to subject the American people to the worst-case scenario.
"I will take the political risk but I will not take the risk on the American people and their future and their prosperity and their children and grandchildren."
Rep. Rose DeLauro, D-Conn. said, with the prospect of the worst financial crisis since the Great Depression, "I have a responsibility to avert it."
Minority Whip Roy Blunt, R-Mo., said, "If anything we may have overdone the oversight, but none of us want to have underdone the oversight."
"When the markets go up, Wall Street cleans up; when the markets go down, Main Street gets cleaned out," said Rep. Edward Markey, D-Mass. "We must protect Main Street across this country: Vote 'yes.'"
In confronting the opposition to the bill, particularly from the left, and the compromise needed to Rep. Barney Frank, D-Mass., said, "Meeting a national crisis does not give us the luxury of doing everything we want.
"You have got to accept reality. I wish this was a bill that more reflected my priorities. I wish I could eat more and not gain weight.
"The poor people will get nothing if we don’t compromise," he said. "This bill can put in the president's hands the power to do good; please don’t throw it out."
Minority Leader John Boehner, R-Ohio., admitted the unpopularity of the bill: "No one wants to be anywhere around it. I don’t want to be around it.
"These are the votes that we have to look into our soul and understand and ask, 'What is in the best interest of our country?'
"While imperfect, while not having everything everybody wants, I believe we have to vote for this bill and keep ourselves from the brink of an economic disaster that would harm all of our constituents."
Majority Leader Steny Hoyer, D- Md., called it "a day of consequence for the American people. This is a day of consequence to our country. This is a day when the Democratic leader, myself, rises to follow the Republican leader and they speak with one voice as America faces crisis. That’s what Americans want us to do.
"Why should taxpayers loan out their own money to solve a crisis brought on by someone else's greed? Because when it comes to our economy, none of us is an island; we're all bound together, in boom or bust."
"Inaction will result in greater pain for our people and our country," he said.
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"This is a huge cow patty with a piece of marshmallow stuck in the middle of it and I'm not going to eat that cow patty."
