Paulson vows continued efforts on rescue plan

Monday September 29, 6:06 pm ET 
By Martin Crutsinger, AP Economics Writer

Paulson says administration will continue to work to get rescue package approved by Congress

WASHINGTON (AP) -- Treasury Secretary Henry Paulson said his agency would use "all the tools available to protect our financial system and the economy" in response to Monday's stunning defeat of the government's proposed $700 billion bailout.

Paulson, speaking with reporters after meeting with President Bush at the White House, said, "our toolkit is substantial but insufficient" without a bailout, and that the Bush administration will continue to seek congressional approval for a rescue package.

He warned that the same stresses overwhelming the banking industry, including last week's collapse of Washington Mutual Inc. -- the biggest bank failure in history -- and the purchase of troubled Wachovia Corp.'s banking operations by Citigroup on Monday, were also being felt by ordinary families.

"Families, too, feel the credit crunch as it becomes more difficult to get car loans or a student loan," Paulson said.

The Treasury secretary spoke after the House had rejected the $700 billion bailout plan on a 228-205 vote and after the Dow Jones industrial average had plunged by 777 points, the largest point-decline on record.

"We need to put something back together that works," Paulson said, facing reporters on the White House driveway. He said the administration still believed that its plan could work.

Treasury spokeswoman Michele Davis said Paulson would be consulting with President Bush, Federal Reserve Chairman Ben Bernanke and congressional leaders on what next steps to take.

Davis did not specify what the administration will do next to stabilize the economy.

Treasury was expected to continue working with other government agencies including the Federal Reserve and the Federal Deposit Insurance Corp. to deal with problems facing the financial system on a case-by-case basis.

At the White House, deputy press secretary Tony Fratto said the administration will talk with congressional leaders before deciding what to do.

Paulson had spent the day before the House vote on the telephone speaking to lawmakers, seeking their support.

Now What?

Joshua Zumbrun and Brian Wingfield 09.29.08, 2:45 PM ET

WASHINGTON, D.C. -

In a suspenseful vote of 205-228, the House of Representatives squashed a bill granting the Treasury $700 billion to shore up the U.S. financial system. Clearing the House was seen as the bill's biggest hurdle, and now the proposed bailout is thrown into disarray.

The bill had majority support from House Democrats, at around 140-95. It was killed by staunch opposition from House Republicans, 65-133. The voting was left open for several minutes, while congressional leaders tried to get members to change nay votes, and the tallies shifted slightly but not enough to pass.

On Wall Street, market response was swift and terrible. The Dow Jones Industrial Average, which had been trending down throughout the morning, plunged almost 7% in minutes before recovering somewhat. Prices for Treasury bonds soared into the stratosphere, pushing the yields down. The three-month Treasury yield sank to 0.68%, while the London interbank offer rate rose to 3.88%.

The Dow ended the day down 777.68 points, or 6.98%. The S&P 500 and Nasdaq plunged 106.59 points, or 8.79%, and 199.61, or 9.14%, respectively.

"This is bad," said Aaron Smith, senior economist at Moody's Investors Service's economy.com. "This starts messing with their credibility."

Though support for the bill was strong at the start of voting, it tapered off at the end, and the nays carried the day. A motion was made to reconsider the bill at an unspecified later time. 

"The legislation has failed, the crisis has not gone away," said House Speaker Nancy Pelosi, who added that legislators would go back to negotiations. "We must work in a bipartisan way to have another bite at the apple," she said. A new vote today or tomorrow, however, is unlikely as many Jewish members of the House will be away tomorrow to observe Rosh Hashanah.

"I don't know that we know the path forward at this point," said House Minority Leader John Boehner, R-Ohio, "We need everyone to calm down and relax and get back to work."

Rep. Roy Blunt, R-Mo., said "we did think we had a dozen more votes going to the floor than we had." Blunt and Rep. Eric Cantor, R-Va., blamed the collapse of support on a speech given by House Speaker Nancy Pelosi, D-Calif., shortly before voting, which they said stirred partisan tensions.

There was already a sense that the plan would not be enough to break the log jam in the credit markets, where banks are even refusing to lend to each other. Earlier Monday the Federal Reserve raised the amount of swap lines it has with foreign central banks to $650 billion from $290 billion. It also announced bigger and longer-term auctions totalling more than $400 billion, but the credit markets remained stuck.

Fixed-income strategists noted with alarm the string of bank failures and near-failures in the last three weeks, includingWachovia's (nyse: WB - news - people ) regulator-assisted takeover by Citigroup (nyse: C - news - people ) on Monday. Previous credit crises would be punctuated by one or two failures, tops; now, "it's one a day--it's shocking," said William O'Donnell, the head of U.S. interest-rate strategy at UBS(nyse: UBS - news - people ). "Armaggeddon it is."

Expectations are now for the Fed to cut interest rates by as much as 50 points before the next meeting at the end of October.

The vote came after more than three hours of floor debate and 10 days of intense negotiation since Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke warned that the economy was in crisis and urgent action was needed.

The House Republicans were the last block of Congress with reservations about the deal. And although on Sunday evening, the House Republican leadership threw their support behind a compromise draft of the bailout proposal, the support was not enough. "The risk in not acting is much greater than the risk in acting," said House Minority Leader John Boehner, R-Ohio, in a passionate plea on the House floor before the vote. "These are the votes that separate the men from the boys and the girls from the women," Boehner said.

Thinking they had enough support from both Democrats and Republicans in the House of Representatives, House leaders brought the bill to a vote.

In an address Monday morning, President George W. Bush acknowledged how tenuous the situation was. "Now I fully understand that this will be a difficult vote," Bush said before markets opened in the U.S. But he tried to sound reassuring. "With the improvements made in this bill I'm confident that members of both parties will support it," he said.

They were not enough.

The legislation was voted unchanged from the draft released on Sunday. But the modifications made to the bill since it was first proposed by Paulson were not great enough to overcome the reservations of House members.

Now it is back to the drawing board for the bailout, as congressional leaders must scramble to salvage the failed piece of legislation hammered out after 10 days of drama in the halls of Congress, including two lengthy congressional hearings on the matter, three nationally televised pitches by Bush in favor of the plan, a volatile and controversial meeting at the White House that included both presidential candidates, a full-fledged defection by a core block of Congress, and days of "deal or no deal?" The result: no deal.

Worst case scenario: dow under 8400

Jim Cramer detailed last week what he thought the impact on the Dow Jones Industrial Average would be if the bailout plan failed in Congress. We are rerunning that column today.

---

Without the Paulson plan, or if the plan is so watered down and delayed, I have been saying all bets are off and we could be in for a huge swoon. How huge?

I like to sit down and noodle on the actual components of the Dow Jones Industrial Average to give you a real sense of what can go wrong. And there is so much going wrong. The credit markets are vanishing, the earnings are vanishing and the only hope is a plan that ignites credit markets, forces money off the sidelines and gets this economy and the worldwide economy moving again.

Not long ago, I postulated that this market is literally repealing all of the moves since the Brazil-Russia-India-China emergence that gave us better markets to sell into than just the U.S. With the collapse of Chinese growth -- they have simply ceased to be importers since the summer -- the inflation in India, the war in Russia and a U.S.-led slowdown in Brazil (although that remains a robust market) BRIC is more like having a brick around your neck than a wind at your back.

Meanwhile, the peak in energy and the collapse of the financial system have left both of those groups in disarray with valuations simply too difficult to pin down, so you retreat to worst-case scenarios where you can at least find some terra firma -- mainly where stocks were last time things were this bad.

Given that most of these companies bought back stock at high prices and issued stock to executives, the actual value of the buybacks seems almost nonexistent, so the value that was created since those hard times is hard to see.

Finally, in a recession like we are having, one can only guess how badly the consumer will be scalded. This list of prices is about a scalded consumer.

I don't want to bury the punchline, but when you add these worst-case prices together you get Dow Jones 8378, which, reluctantly, I admit is where we are going if everything fails with the plan and the economies here and worldwide are left to their own devices.

Let's run through the Dow 30.

1. Caterpillar(CAT Quote - Cramer on CAT - Stock Picks) can retreat back to $43 where it started both before the housing boom and before the energy boom and before BRIC became a dominant force. All of its markets will be challenged with housing downturns worldwide and energy prices retreating from highs, something that I think will happen as economies slow.

2. Citigroup(C Quote - Cramer on C - Stock Picks) -- $14. This is where it traded before the short-selling rules were created on July 15, and this is where it is going without a financing and a big investment. It might not stop there if there is no relief at all. I am really bearish on this stock without a plan.

3. Du Pont(DD Quote - Cramer on DD - Stock Picks)has a lot of businesses that are less cyclical than people think and a safe dividend. I would be surprised if it went much below $40, where I would like to buy it.

4. American Express(AXP Quote - Cramer on AXP -Stock Picks) has turned into a terrible lender with a product that is viewed as something that is no longer indispensable, courtesy great marketing byMastercard(MA Quote - Cramer on MA - Stock Picks)and Visa(V Quote - Cramer on V - Stock Picks). This stock's headed to $31, maybe lower, as it is really a weak sister in the Dow now.

5. Disney(DIS Quote - Cramer on DIS - Stock Picks)traded at $25 when people thought there was nothing to it other than a declining advertising business and an expensive group of theme parks. This is a company I will buy for Action Alerts PLUS if it hits that downside target.

6. United Technologies(UTX Quote - Cramer on UTX -Stock Picks) is a BRIC derivative for certain with too much aerospace and a defense business that could be hurt by an Obama election. Knock it back to $51, which would be a repeal of the whole BRIC move.

7. Coca-Cola (KO Quote - Cramer on KO - Stock Picks)talked recently about how it is not immune from a retail sales slowdown; when it did, the stock retreated to about $48, where it would surely be headed again.

8. 3M(MMM Quote - Cramer on MMM - Stock Picks) is a play on worldwide growth in a number of industrial areas, and worldwide growth is on the decline beyond what this fine firm is ready for. It could have a huge decline in earnings, and I am putting it at $50.

9. General Motors(GM Quote - Cramer on GM - Stock Picks), without a plan and without a handle on Delphi and on the right kind of cars, will burn through the bailout money quickly and disappears. Yes, it goes bankrupt. Stocks don't get down to where they are like this one if something hasn't become out of control. This one's out of control.

10. General Electric(GE Quote - Cramer on GE - Stock Picks) -- I think it could trade down to $20. The decision to end the buyback, which was just wasting a gigantic amount of money, is now behind them, so all it would have to contend with is lower earnings and a less turbo-charged report.

11. McDonald's(MCD Quote - Cramer on MCD - Stock Picks): This one's going to suffer for pennies by a stronger dollar, but not much more, and it just boosted the dividend. I think it would be a gift below $57.

12. Home Depot (HD Quote - Cramer on HD - Stock Picks) retreats to where it was on that July 15 low, $21, where it finds buyers for that dividend.

13. Bank of America(BAC Quote - Cramer on BAC -Stock Picks): With the plan, this is the biggest winner in the Dow. Without the plan? Sorry, it revisits the low of July 15 as it has to get rid of these bad mortgages it is stocked with. Target is $18.

14. Chevron(CVX Quote - Cramer on CVX - Stock Picks): This is a slow-growth company with decent oil assets that would quickly go down to where its dividend made it compelling. Call it $54 as in a falling-oil environment -- perhaps down to $70. You will see price/earnings shrinkage continuing.

15. Hewlett-Packard (HPQ Quote - Cramer on HPQ -Stock Picks): This company's acquisition of EDS is going to work and help numbers for years, but the stock will still have to revisit at least its recent lows on fears of a worldwide tech slowdown; call it $41.

16. JPMorgan (JPM Quote - Cramer on JPM - Stock Picks): This company keeps doing everything right, but the plan would make this the best bank on earth other than Bank of America. Without the plan, it goes to its July 15 low of $31.

17. Pfizer (PFE Quote - Cramer on PFE - Stock Picks): Here's a company that can only make more money by firing people, which is a good strategy until you run out of people. Still, the dividend is safe for at least another two years, so I think the stock stays at $18.

18. Kraft (KFT Quote - Cramer on KFT - Stock Picks): A food company that is getting better run is nothing to rave about, but this new addition to the Dow sure beats the disastrous run AIG (AIG Quote - Cramer on AIG - Stock Picks) has had. I think it can drop a couple to $30 but not go much below that because it is so defensive.

19. Alcoa (AA Quote - Cramer on AA - Stock Picks) is a great mystery. During the great 21st-century commodity boom that say Phelps Dodge and Alcan disappear, this homely little aluminum company has done nothing! Now it is free to go to $19, as the boom is totally over.

20. Johnson & Johnson (JNJ Quote - Cramer on JNJ -Stock Picks) is a super stock. Well managed, great earnings, good pipeline, I think it goes up a couple from here.

21. Boeing (BA Quote - Cramer on BA - Stock Picks): Here's one that could get cut in half if the strike doesn't settle and the airlines around the world contract. It could go as low as $24. It's one of the most vulnerable stocks in the Dow because of its clients' stress and voracious need for hard-to-get capital.

22. Intel (INTC Quote - Cramer on INTC - Stock Picks)retreats back to where it was during the last tech recession -- $13. Think of it this way: It bought back a lot of stock. That money was wasted.

23. AT&T (T Quote - Cramer on T - Stock Picks) faces landline challenges and corporate weakness. In a disaster scenario, it could lose a third of its value. Call it $21. I only say that because look at what the competition, outfits likeQwest (Q Quote - Cramer on Q - Stock Picks) andWinstar are selling for with slackened to no growth. Bad geographies. At the bottom, there will be a lot of fretting about the dividend.

24. Verizon (VZ Quote - Cramer on VZ - Stock Picks)needs more phone lines, more frivolous texters and photo-senders and a heck of a lot of clients for FiOS. None is likely to happen in this environment. I could see the stock retreat back to $26. It didn't help that they bought Alltel ... for now. Same dividend worries as above.

25. Microsoft (MSFT Quote - Cramer on MSFT - Stock Picks) is like Intel. Bought back a lot of stock. Nothing to show for it, and it now goes to $21.

26. Wal-Mart (WMT Quote - Cramer on WMT - Stock Picks) either stays the same or goes up, because that's where everyone will shop -- they'll all be trading down in retail.

27. Merck (MRK Quote - Cramer on MRK - Stock Picks)is pretty much where it is going to go. It's a challenged company with safe yield. $31.

28. IBM (IBM Quote - Cramer on IBM - Stock Picks)could be facing a huge headwind of global recession, and I think that its business is far more economically sensitive than people realize. It could lose as much as 50 points -- it used to be that low for a long time -- sending it to $60. This and Boeing are probably the two most severe cuts, and the ones I am most likely going to be too pessimistic about if things get a little better.

29. Procter (PG Quote - Cramer on PG - Stock Picks)stays at $68 or goes a little lower, not much. The company is set up to win in this environment.

30. Exxon (XOM Quote - Cramer on XOM - Stock Picks): If you repeal the whole oil boom, which is what will happen in a worldwide recession or worse, Exxon's failed buyback strategy will be revealed for what it was: a giant money pit. The stock could retreat to $57, as it has minimal dividend support.

At the time of publication, Cramer was long GE, Wal-Mart, Procter & Gamble, JPMorgan and Hewlett-Packard.

European banks bailed out as crisis spreads

Monday September 29, 3:44 pm ET 
By Jane Wardell, AP Business Writer

Banks bailed out across Europe as contagion from US credit crisis spreads further

LONDON (AP) -- European governments announced a flurry of bank bailouts from Germany to Iceland on Monday, but the rescue deals only heightened fears that the contagion from the U.S. credit crisis has much further to spread before the financial system recovers.

European shares fell heavily and money markets remained frozen with banks refusing to lend to each other for all but the shortest periods amid concern that a planned U.S. government $700 billion bailout package would not be enough to stem the crisis. A few hours later, the U.S. House defeated the rescue package by a vote of 228-205.

"In the near term, it will be the weak ones that will be picked off," Global Insight chief European economist Howard Archer said before the congressional vote of the expectation that more banks would collapse or need rescue.

"But, obviously, the more the turmoil and dislocation continues, the further this could spread," he added. "We live in vicious times."

The governments of Belgium, the Netherlands and Luxembourg took partial control late Sunday of struggling bank Fortis NV, while Britain seized control of mortgage lender Bradford & Bingley early Monday.

Germany organized a credit lifeline for blue-chip commercial real estate lender Hypo Real Estate Holding AG, while Iceland's government took over Glitnir bank, the country's third largest.

Additionally, the European Central Bank joined with the U.S. Federal Reserve in doubling the credit swap line that makes dollars made available to cash-hungry banks from $120 million to $240 million. The Bank of England doubled dollar availability to $80 billion, while other central banks offered smaller amounts.

Renate Brand, a banking analyst at SNS Securities, said that "it's getting difficult for a lot of banks at once now, because mistrust is so great and so widespread."

Ton Gietman from Petercam Securities said that markets had become so jittery that rumor and fact were being treated about the same.

"Take a company like Fortis, whose management swears high and low that they don't have any solvency problem -- and it's still an open question whether they did or not -- this market doesn't care," he said. "If you can't stop your share price from falling with anything you say, you have to take some action to reassure investors and depositors."

Analysts are closely watching Dexia, a French-Belgian specialist in lending to local governments that ran up huge losses in its U.S. operations. The bank had no comment on a report it was planning a rapid capital increase but said the board would meet Monday night to assess the situation.

Belgian Prime Minister Yves Leterme was quick to assure savers -- and the stock market -- that the government was ready to stand behind the bank if needed.

"We will take the necessary measures to guarantee the interests of all the savers, all the customers," he told reporters, describing the bank as very important to the Belgian economy.

He called a cabinet meeting Monday to discuss Dexia and told VRT news earlier in the day that the government had been talking to Dexia management for several days and its problems were "fundamentally different" from Fortis.

Notably, the Fortis bailout took place across national lines. For months, European officials have been concerned whether governments would work together in a crisis. In this case they did, with European Central Bank president Jean-Claude Trichet attending the negotiations in Brussels on the euro11.2 billion euro ($16.4 billion) bailout package.

The three governments took a 49 percent stake in exchange and demanded Fortis sell the stake it had bought in ABN Amro a year ago for euro24 billion euros -- a move that many analysts believe started its troubles. However, , said some positive news was provided by the joint action taken by Belgium, the Netherlands and Luxembourg in agreeing

"The ability of the euro area fiscal authorities to co-ordinate on a bailout for a bank with not-only strong cross-boundary operations, but indeed with a strong multinational (almost supranational) identity was untested until today," Willem Buiter, a professor at the London School of Economics and a former Bank of England policymaker, said in his blog on http://www.ft.com.

"They passed the test."

The government took over Bradford & Bingley's 50 billion pound ($91 billion) mortgage and loan books and paid out 18 billion pounds (US$33 billion) to facilitate the sale of its savings business, including its entire retail branch network, to Spain's Banco Santander.

Britain earlier this year nationalized Northern Rock, but not until after the mortgage lender suffered a damaging run on its deposits by spooked customers. The government's desire to move quickly to avert any repeat was underscored by its swift action on Bradford & Bingley -- a systematically unimportant buy-to-let lender that is around half the size of Northern Rock at its peak.

In Iceland, the government took control of Glitnir bank, the country's third largest, buying a 75 percent stake for 600 million euros ($878 million) in a move it said was to ensure broader market stability. Central Bank of Iceland chairman David Oddsson said that Glitnir, which has operations in 10 countries, would have collapsed if the authorities had not intervened.

In Germany, Hypo Real Estate Holding AG, the country's No. 2 commercial property lender, became the first German blue chip company to seek a bailout in the global financial crisis, securing a line of credit of up to 35 billion euros ($51.2 billion).

Despite the concerted attempt by European authorities to shore up confidence, stock markets tumbled in response to the series of measures -- the London Stock Exchange FTSE 100 dropped 4.7 percent, Germany's DAX fell 3.7 percent and France's CAC 40 shed 4.6 percent.

"All banks are having difficulty with long term loans and short term financing. It's difficult to say which could be affected," said UniCredit economist Alexander Koch in Munich. "I see the problem flowing until late next year."

The biggest U.S. bailout in history, which goes to the House for a vote Monday and to the Senate later in the week, would give the administration broad power to use taxpayers' money to purchase billions of home mortgage-related assets held by cash-starved financial firms. Analysts said a decision to break up the total amount into smaller stages may have limited its effectiveness in reassuring markets.

AP Business Writers George Frey in Frankfurt, Emily Flynn Vencat in London, Toby Sterling in Amsterdam and Matt Moore in Berlin contributed to this report.

House Rejects Bailout Package, 228-205; Stocks Plunge

By CARL HULSE and DAVID M. HERSZENHORN

Published: September 29, 2008

WASHINGTON — In a moment of historic import in the Capitol and on Wall Street, the House of Representatives voted on Monday to reject a $700 billion rescue of the financial industry. The vote came in stunning defiance of President Bush and Congressional leaders of both parties, who said thebailout was needed to prevent a widespread financial collapse.

The vote against the measure was 228 to 205, with 133 Republicans joining 95 Democrats in opposition. The bill was backed by 140 Democrats and 65 Republicans.

Supporters vowed to try to bring the rescue package up for consideration again as soon as possible, perhaps late Wednesday or Thursday, but there were no definite plans to do so.

Stock markets plunged as it appeared that the measure would go down to defeat, and kept slumping into the afternoon when that appearance became a reality. By late afternoon the Dow industrials had fallen more than 5 percent, and other indexes even more sharply. Oil prices fell steeply on fears of a global recession; investors bid up prices of Treasury securities and gold in a flight to safety. House leaders pushing for the package kept the voting period open for some 40 minutes past the allotted time, trying to convert “no” votes by pointing to damage being done to the markets, but to no avail.

The vote was a catastrophic political defeat for President Bush, who was described as “very disappointed” by a spokesman, Tony Fratto. Mr. Bush had put the full weight of the White House behind the measure and had lobbied wavering Republicans in intensely personal telephone calls on Monday morning before the vote. Both presidential candidates also supported the plan.

Supporters of the bill had argued that it was necessary to avoid a collapse of the economic system, a calamity that would drag down not just Wall Street investment houses but possibly the savings and portfolios of millions of Americans. Moreover, supporters argued, a lingering crisis in America could choke off business and consumer loans to a degree that could prompt bank failures in Europe and slow down the global economy.

Opponents said the bill was cobbled together in too much haste and might amount to throwing good money from taxpayers after bad investments from Wall Street gamblers.

Immediately after the vote, many House members appeared stunned. Some Republicans blamed Speaker Nancy Pelosi, Democrat of California, for a speech before the vote that disdained President Bush’s economic policies, and did so, in the opinion of the speaker’s critics, in too partisan a way.

“Clearly, there was something lacking in the leadership here,” said Representative Eric Cantor, Republican of Virginia.

Democrats, meanwhile, blamed the Republicans for not coming up with enough support for the measure on their side of the aisle.

Members of both parties, doing a quick political post-mortem, said those who voted no had encountered too much hostility for the bill among their constituents, and were worried that a vote in favor would be political suicide.

The Senate had been expected to vote later in the week if the bill had cleared the House on Monday. Senate vote-counters had predicted that there was enough support in the chamber for the measure to pass. But the stunning vote in the House, coupled with the Jewish holidays, made it difficult to predict when other votes might be held. Many House members who voted for the bill held their noses, figuratively speaking, as they did so.

Representative John A. Boehner of Ohio, the Republican minority leader, called the measure “a mud sandwich” at one point, but he said that there was too much at stake not to support it. He urged members to reflect on the damage that a defeat of the measure could mean “to your friends, your neighbors, your constituents” as they might watch their retirement savings “shrivel up to zero.”

And Representative Steny Hoyer of Maryland, who as Democratic majority leader often clashes with Mr. Boehner, said that on this “day of consequence for America” he and Mr. Boehner “speak with one voice” in pleading for passage.

When it comes to America’s economy, Mr. Hoyer said, “none of us is an island.”

The House debate was heated and, occasionally, emotional up to the last minute, as illustrated by the remarks of two California lawmakers.

Representative Darrell Issa, a Republican, said he was “resolute” in his opposition to the measure because it would betray party principles and amount to “a coffin on top of Ronald Reagan’s coffin.”

But Representative Maxine Waters, a Democrat, said the measure was vital to help financial institutions survive and keep people in their homes. “There’s plenty of blame to go around,” she said, and attaching blame should come later.

The House vote came after a weekend of tense negotiations produced a rescue plan that Congressional leaders said was greatly strengthened by new taxpayer safeguards. “If we defeat this bill today, it will be a very bad day for the financial sector of the economy,” said Representative Barney Frank, Democrat of Massachusetts and the chairman of the Financial Services Committee. Earlier Monday, President Bush urged Congress to act quickly. Calling the rescue bill “bold,” Mr. Bush praised lawmakers “from both sides of the aisle” for reaching agreement, and said it would “help keep the crisis in our financial system from spreading throughout our economy.”

After long favoring a hands-off approach and deregulation of the financial industry, the Bush administration has found itself in recent weeks interceding repeatedly in the private market to try to avert one calamity after another.

Even before the House vote, European and Asian stock markets declined sharply on Monday, especially in countries where major banks have had significant problems with mortgage investments, like Britain and Ireland. In the credit markets, investors once again bid up prices of Treasury securities and shunned more risky debt.

Early in the House debate, Jeb Hensarling, Republican of Texas, said he intended to vote against the package, which he said would put the nation on “the slippery slope to socialism.” He said that he was afraid that it ultimately would not work, leaving the taxpayers responsible for “the mother of all debt.”

Another Texas Republican, John Culberson, spoke scathingly about the unbridled power he said the bill would hand over to the Treasury secretary, Henry M. Paulson Jr., whom he called “King Henry.”

A third Texan, Lloyd Doggett, a Democrat, said the negotiators had “never seriously considered any alternative” to the administration’s plan, and had only barely modified what they were given. He criticized the plan for handing over sweeping new powers to an administration that he said was to blame for allowing the crisis to develop in the first place.

The administration accepted limits on executive pay and tougher oversight; Democrats sacrificed a push to allow bankruptcy judges to rewrite mortgages. But Republicans fell short in their effort to require that the federal government insure, rather than buy, the bad debt.

The final version of the bill included a deal-sealing plan for eventually recouping losses; if the Treasury program to purchase and resell troubled mortgage-backed securities has lost money after five years, the president must submit a plan to Congress to recover those losses from the financial industry.

Presumably that plan would involve new fees or taxes, perhaps on securities transactions.

The deal would also restrict gold-plated farewells for executives of companies that sell devalued assets to the Treasury Department. But by mid-afternoon on Monday, no one could safely predict whether the provisions in the 110-page bill were strictly academic.

“The legislation has failed,” Speaker Pelosi said at a news conference after the vote. “The crisis has not gone away. We must continue to work in a bipartisan manner.”