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Bailout Defeat Sends Stocks Crashing

Dow falls 700 points

September 29, 2008

By MortgageDaily.com staff

The Bush administration's mortgage bailout bill has been defeated in the House -- sending the stock market crashing. Republicans blamed a viscous partisan speech by House Speaker Nancy Pelosi for the collapse.

By a vote of 228 to 205, the Emergency Economic Stabilization Act of 2008 was defeated in the U.S. House of Representatives today.

Both Republicans and Democrats were among those voting against the legislation, which included provisions for the Troubled Asset Relief Program -- a plan for the U.S. Treasury to purchase up to $700 billion in mortgage assets.

"I do believe that we could have gotten there today had it not been for this partisan speech that the speaker gave on the floor of the House," Rep. John Boehner said in a press conference. "The speaker had to give a partisan voice that poisoned our conference -- caused a number of members that we thought we could get to go South."

"When was the last time that anyone ever asked you for $700 billion," House Speaker Nancy Pelosi said in her late speech. "A staggering number. But only a part of the cost of the failed Bush economic policies to our country. Policies that were built on budget recklessness. When President Bush took office, he inherited President Clinton's surpluses ... with his reckless economic policies, within two years he had turned that around.

"And now eight years later, the foundation of that fiscal irresponsibility combined with an anything goes economic policy has taken us to where we are today."

The vote represents a blow for Bush, who had called for passage of the bill to avoid dire consequences in the financial markets. Bush, normally an advocate for no government intervention in the free markets, broke with Republicans on this mostly conservative principle due to the severity of the situation.

U.S. Treasury Secretary Henry M. Paulson Jr. had worked through the weekend with members of Congress to iron out a package acceptable to both major political parties. It appeared by Sunday that a deal had been struck that would propel the legislation into law.

The stock market reacted violently -- with the Dow Jones Industrial Average initially tumbling more than 700 points. By the market's close, the widely watch index was down nearly 800 points to 10365. The Nasdaq was down more than 7 percent.

"The House GOP leadership blamed Speaker Pelosi (D-CA) for the defeat of the $700 billion financial intervention bill," government owned C-SPAN reported. "Minority Leader John Boehner (R-OH) said members must 'find a true middle ground to avert a crisis.'"

On the Bush administration's policies, Pelosi added, "The party is over."


Agreement Reached on Bailout
The White House and lawmakers say they have reached an agreement on legislation to establish a program for the U.S. Treasury to purchase up to $700 billion in toxic mortgage assets infecting U.S. financial institutions. The latest version significantly strengthens oversight of the program, breaks up the $700 billion in acquisitions into at least three installments and enables the potential suspension of mark-to-market accounting. A vote could come as early as today.

Bailout Deal Possible by Next Week
Lawmakers' discussions on the housing bailout package remain fluid, and all sides are now negotiating and making public statements indicating that they are working together. So, it appears that some sort of agreement will eventually be reached and passed -- possibly by this Sunday.

800 Pound Gorilla Entering Secondary Market
As the U.S. government positions itself to become the biggest secondary mortgage market player in the history of the universe, recent entrants to the market who had hoped to capitalize on bargain basement prices may find the game more expensive to play. But at least one private equity firm sees opportunity in the government's participation.

Paulson Sees Bank Failures Ballooning Without Plan Approval
The secretary of the U.S. Department of the Treasury warned Congress today that if his mortgage bailout plain isn't passed -- the credit markets will freeze up and the country will see a stream of bank failures.

Paulson Sees Bank Failures Ballooning Without Plan Approval

Bailout Legislation Bogged Down
House Democrats have drafted their own mortgage bailout plan that calls for more oversight of the Treasury in its purchase of mortgage assets. As Congress grapples with the legislation, Republican presidential nominee John McCain is suspending his campaign to return to Washington, D.C., to deal with the crisis.

Mortgage Bankers Warn of Cramdown Consequences
Mortgage bankers have sent a letter to Congress warning that a proposal to allow bankruptcy judges the ability to modify mortgages could raise the cost of mortgages and stifle the recovery effort.

Bailout Goals Clouded
There is a significant controversy ensuing between the administration and various factions in Congress over warrants and related issues such as executive compensation.

More Details Emerge on Mortgage Bailout
More details have emerged on the Bush administration's legislative proposal to acquire mortgage assets and prevent a full-scale collapse of the U.S. financial system. The latest move is the biggest yet among a host of historical actions by the government this year.

Plan calls for U.S. purchase of up to $700 billion in mortgage assets

Paulson Announces Major Steps to Restore Mortgage Liquidity
The Bush administration announced major steps in unclogging mortgage securities in the U.S. financial system and said legislation may be passed as early as next week to relieve financial institutions of illiquid mortgage assets.

Paulson says GSEs, Treasury to step up MBS purchases

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