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September 30, 2008, 12:53 PM IST

Brace For The Collapse: House Rejects $700-B Bailout Plan

BY TEAM VCC

Now US House of Representatives may revote on the plan as they convene on Thursday, leaving some hope.

Photo Credit: India Today Group

This is not exactly great news for the financial markets worldwide. The $700-billion bailout plan envisaged by the Bush Administration has been defeated on the floor of the house. The 205-228 vote against the plan resulted in stocks crashing in Wall Street. The Dow Jones Industrial Average were down around 500 points as the news broke.

There were 205 in favor of the legislation and 228 against. Among Democrats, 140 voted in favor and 95 against. Among Republicans, 65 voted in favor and 133 against.

The defeat has come as a "massive setback" for the Bush administration, specifically the Treasury Department, as well as lawmakers who have been working throughout the last week on the legislation in the wake of the collapse of Lehman Brothers Holdings as well as the government's bailout of American International Group Inc. and its takeover of Fannie Mae and Freddie Mac, WSJ reported.

Apparently the law makers were very wary of voting for a plan that risked so much of tax payer's money. Especially when the elections are fast approaching.

What the 109-page bill would do is to authorise the government in phases to buy $700 billion of illiquid mortgage assets, mostly from Wall Street financial institutions. The bill also has curbs on executive compensation for executives, equity stake and capital distribution control provisions to protect taxpayers.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson have said the plan is necessary to avert serious consequences for markets and the economy.