House Voices Concerns After Defeat of Financial Rescue Bill

By Katalina M. Bianco, Law Analyst, Wolters Kluwer Banking and Finance Group

The House of Representatives defeated the Emergency Economic Stabilization Act of 2008, popularly known as the “bailout plan,” by a vote of 228-205 on Monday, Sept. 29, 2008. The Senate expected to take action on Wednesday, October 1, 2008.

The rescue plan has been controversial since its inception, with critics citing lack of oversight, the steep cost of the plan, executive compensation and inadequate protection for taxpayers as drawbacks to the proposal. Congressional leaders responded to some of these criticisms by adding oversight boards to monitor and supervise the spending of the $700 billion, limiting compensation for executives of troubled institutions and providing taxpayers a stake in the troubled institutions in the form of warrants to buy stock from institutions seeking to sell distressed debt, however, resistance to the plan and strong doubts about its viability of the plan remained.

After the measure failed in the House, some legislators spoke of their concerns about the bill. Some Republicans cited ideological objections to the idea of government intervention, while more liberal Democrats voiced their reluctance to provide aid to “Wall Street tycoons.” Critics also noted that the haste in assembling the measure was troubling.

A number of legislators voted for the measure despite their concerns, taking a “better than nothing” position to the bill. Rep. Jim Marshall, D-Ga., who voted for the measure, said that he would prefer to see a bill that focuses less on acquiring mortgage-backed securities and more on minimizing foreclosures and home vacancies, two factors in the lowering of property values in communities. Marshall indicated that he would give bankruptcy courts the power to modify mortgage payments. He also would like to limit the pay of traders as well as top executives.

Lawmakers on both sides pointed to the flood of opposition coming from angry constituents just five weeks before every seat in the House is up for election as a fundamental reason that the measure was defeated. Rep. Roy Blunt, R-Mo., the Republican whip, said that before the vote on Monday, he had tallied 75 votes in his conference in favor of the bill. By the time the measure was put to a vote, only 65 of those votes were delivered.