WASHINGTON - The historic effort to rescue the U.S. financial system was thrown into doubt yesterday after the House rejected a $700 billion emergency plan, sending stocks to their deepest one-day point loss ever. Stunned leaders of both parties and the White House scrambled to put together a new effort to bolster confidence in the U.S. financial system after the legislation that was widely expected to pass the House fell victim to partisan acrimony.
Officials and lawmakers said they hope ailing financial institutions and frightened markets could hold on until Thursday, when the House might take up the legislation again after a two-day break for observance of Jewish holidays.
Senate leaders showed no inclination to try to bring the measure to a vote before they could determine its fate in the House. President Bush, meanwhile, was scheduled to make a statement on the rescue plan this morning, the White House said.
"We need to work as quickly as possible," Treasury Secretary Henry M. Paulson Jr. said after briefing Bush at the White House. "We need to get something done."
The vote was seen as a defeat for an outgoing administration with waning powers of persuasion and as a product of a congressional culture so soured by years of rancor that it has become dysfunctional even at moments of national crisis. Public opposition to a bailout was the reason most frequently cited by Republicans and Democrats who voted "no."
The rescue plan would have permitted the Treasury Department to buy or insure up to $700 billion in mortgage-related assets in an effort to jump-start credit markets. In recent days, banks have stopped providing loans to each other, and officials warned that credit for small businesses and households would become unavailable.
"Markets around the world are under stress, and that reduces the availability of credit that businesses across America depend on to meet payroll and to purchase inventories," Paulson said. "Families, too, feel the credit crunch as it becomes more difficult to get car loans or a student loan."
The leaders of both parties had endorsed the bill, warning that Wall Street's woes were about to affect the pocketbooks of ordinary Americans.
"The legislation has failed. The crisis has not gone away," said House Speaker Nancy Pelosi, a California Democrat.
The drama was palpable in the House chamber when, as "no" votes were outpacing "aye" votes, a Democratic leader began to circle the chamber repeating: "The market is falling. The market is falling." On the floor of the New York Stock Exchange, meanwhile, traders fell silent as they watched television screens showing the House vote falter.
In the end, the rescue plan failed 228-205. The Dow Jones industrial average plummeted 777.68 points to close at 10,365.45 - not only a record point drop but also the stock index's lowest level since 2005. Chastened, leaders of both sides pledged to keep working to pass the bill. Senate leaders said they hoped to vote by the end of the week.
"The bottom line is this: If we don't act promptly around here, and effectively, then a lot of people are going to lose their jobs," said Sen. Judd Gregg of New Hampshire, the top Republican on the Senate Budget Committee and a lead negotiator of the legislation.
Some strategists suggested that Democratic leaders try to pass the bill solely with Democratic support. But Pelosi and other Democrats have said that the plan is not theirs but the Bush administration's and that both parties should share in the outcome's blame or credit.
Hoping to pick up enough GOP votes for the next try, Republicans floated several ideas. One would double the $100,000 ceiling on federal deposit insurance. Another would end rules that require companies to devalue assets on their books to reflect the price they could get in the market.
Paulson said the government would continue to act to try to contain the crisis using its existing powers. The Federal Reserve took one such step yesterday, announcing that it would more than double the cash available to banks with shaky assets by adding hundreds of billions of dollars to existing loan programs.
"Our tool kit is substantial but insufficient," he said.
In what has become a familiar routine, Democratic and Republican leaders blamed each other for the failure. Ultimately, 60 percent of the chamber's Democrats supported the bill, but only 33 percent of Republicans did.
Republican leaders said they lost 12 votes at the last minute.
"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," said Minority Leader Rep. John Boehner of Ohio.
Rep. Joe Barton, a Texas Republican, said Bush called him early in the day to ask him to vote for the measure. But Barton said he decided to oppose it because of other phone calls, hundreds of them, from constituents who expressed opposition.
"This was no easy vote," and the compromise bill "wasn't all bad," Barton said. "But in its final version, it failed to give taxpayers the protection they deserve."
Bush did his best to promote the plan, starting the day with a televised statement designed to calm the markets and rally votes.
"With this strong and decisive legislation, 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," the president said.
But his words appeared to have little effect on either the markets or lawmakers.
"It was a revolution by the troops," said Michael A. Genovese, director of the Institute for Leadership Studies at Loyola Marymount University in Los Angeles. "The generals were saying, 'Follow me,' and they didn't."
The Associated Press contributed to this article.
HANCOCK Congress' resistance will drop as markets do likewise. PG 10