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. The plan's defeat sent U.S. stocks down sharply, with the Dow Jones industrial average briefly falling more than 700 points, its biggest intraday drop ever.NEW
YORK/WASHINGTON (Reuters) - U.S. 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.
The plan's defeat sent U.S. stocks down sharply, with the Dow Jones
industrial average briefly falling more than 700 points, its biggest
intraday drop ever.
Shares had already been under pressure following sharp declines in
Asian and European shares on fears the crisis was spreading. Global
money markets remained frozen, even as central banks poured in cash in
an attempt to boost liquidity.
Capping three hours of debate on Capitol Hill, House Majority Leader
Steny Hoyer of Maryland had warned lawmakers that the cost of inaction
would be an economic calamity beyond Wall Street.
"A meltdown would begin, it is true, on a few square miles of
Manhattan, but before it was over, all of us know, no city or town in
America would be untouched," Hoyer said.
When the contentious bailout plan was announced by the Bush
administration last week, some House Republicans balked at spending so
much taxpayer money just before U.S. elections.
Republican House members voted against the bailout by a more than 2-to-1 margin. A majority of Democrats voted in favor.
President George W. Bush had urged lawmakers to pass the bailout
package quickly, saying it was needed to keep the financial crisis from
spreading.
The showdown on the bailout proposal came too late for Wachovia
Corp, which agreed to sell most of its assets to Citigroup Inc in a
deal brokered by the Federal Deposit Insurance Corp.
The Dow Jones industrial average was down more than 4 percent and
the broader S&P 500 index was down nearly 6 percent. Oil fell $8 a
barrel.
Earlier, European shares dropped to a three-and-a-half year closing low with bank shares weighing heavily.
"Investors are fearful, frenetic, especially when it comes to
banking shares. They want to get out now and see the after effects from
afar," said Frank Geilfuss, head analyst at Bankhaus Loebbecke.
Around the world, investors were dumping assets they regarded as
risky. World stocks were down sharply, while gold and U.S. Treasuries
surged in the rush to safety.
The world's central banks, led by the U.S. Federal Reserve,
announced a $330 billion expansion of currency swap arrangements, which
allows them to increase the amount of money they can provide in their
home markets, effectively throwing more money at the crisis.
Earlier, the governments of Belgium, the Netherlands and Luxembourg
moved to partly nationalize Belgian-Dutch group Fortis NV with an
injection of more than $16 billion, and German lender Hypo Real Estate
Holding AG secured a credit line from the German government and banks
of up to 35 billion euros.
British mortgage lender Bradford & Bingley Plc was brought under
the government's wing, shares of French bank Dexia tumbled on a report
that it might need emergency capital, and bank rescue deals also
emerged in Iceland, Russia and Denmark.
"The contagion is spreading to mainland Europe and everyone's
asking, 'Who's next?'" said Mark Sartori, head of European sales
trading at Fox-Pitt, Kelton in London.
The Wachovia deal is the latest in a series of events that has
transformed the American financial landscape and wiped out hundreds of
billions of dollars of shareholder wealth.
The changes include the government takeover of mortgage finance
companies Fannie Mae and Freddie Mac, the bankruptcy of Lehman Brothers
Holdings Inc, the failure of giant savings and loan Washington Mutual,
and Bank of America Corp's purchase of Merrill Lynch & Co Inc.
(Additional reporting by Patrick Rucker in Washington, Philip
Blenkinsop in Brussels, Reed Stephenson in Amsterdam, Jan Dahinten in
Singapore, Andrew Callus in London, and Krista Hughes in Frankfurt;
editing by John Wallace and Jeffrey Benkoe)
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