House Republicans shocked the White House -- and the stock market -- by rejecting the Bush administration's gargantuan Wall Street bailout today.
The House vote for the $700 billion rescue plan had been expected to be close, but the chance of it passing was doomed when 132 Republican House members voted against it. Only 66 Republicans backed their president's plan.
The impact of the vote was felt even before the voting concluded. The Dow Jones industrial average plunged as the votes were being counted and it became apparent that passage was unlikely. As the voting continued, the Dow plummeted 700 points and ended the day down 777 points.
Even after the voting was over, congressional leaders kept the vote open for another 20 to 25 minutes for some final arm-twisting in an effort to get members to switch their votes. It was soon apparent that the effort to flip votes was futile, and the final vote was 228 against, with only 205 for the bill.
Most Democrats supported the White House on the issue, with 138 of them voting for it, but even among the Democrats 95 opposed the measure.
Key to the defeat, however, was the Republican rebellion against the White House plan. The GOP rebuff came despite serious lobbying by President Bush and his top team. Bush appeared on television early today to encourage Congress to vote for the package and to give lawmakers cover with angry voters back home.
A White House spokesman said that Bush was "very disappointed."
"There's no question that the country is facing a difficult crisis that needs to be addressed," White House deputy press secretary Tony Fratto told reporters. He said the president will be meeting with members of his team later in the day "to determine next steps."
Barack Obama, the Democratic candidate for president, quickly addressed the issue during a campaign rally in Colorado, promising, "We are going to get this done."
"I'm confident we are going to get there, but it's going to be a little rocky," said the Illinois senator. "It's like flying into Denver. It's not always fun going over those mountains, but you're confident you're going to get there."
A spokesman for John McCain blamed the bill's defeat on Obama and the Democrats.
"Barack Obama failed to lead, phoned it in, attacked John McCain, and refused to even say if he supported the final bill," McCain's senior economic adviser Doug Holtz-Eaken said in a statement. He said the Democrats attacked McCain as soon as he suspended his presidential campaign to get involved in the talks last week and kept up the criticism during the negotiations.
"This bill failed because Barack Obama and the Democrats put politics ahead of country," Holtz-Eaken said.
Republicans Point to Pelosi Speech
The bickering over the vote began immediately with Republicans alleging that a speech by House Speaker Nancy Pelosi blaming the crisis on the policies of the Bush administration prompted wavering Republicans to vote against the bill.
"We could have gotten there today had it not been for this partisan speech by the speaker on the floor of the House," said Rep. John Boehner, R-Ohio, the House minority leader. He said Pelosi's speech "poisoned" efforts to get Republicans to back the bill.
During a news conference by House Democrats, Rep. Barney Frank of Massachusetts said he was "appalled" by the accusation.
"Because somebody hurt their feelings, they're going to hurt the country?" he asked. Frank said the argument was really "covering up the [GOP] embarrasment of not having the votes."
Pelosi didn't address the allegation directly, but said the Democrats were convinced by Treasury Secretary Henry Paulson that a bailout was essential to prevent an economic meltdown. "We delivered on our side of the bargain. ... Clearly that message hasn't been received yet by the Republican caucus," Pelosi said.
The White House worked hard to win the votes for the bill with Bush, Vice President Dick Cheney and other top administration officials working the phones. The president made a television appearance early in the morning to urge a "yes" vote and give Republicans some political cover.
The negotiations will start over again, all sides said.
"We'll be working with members of Congress, leaders of Congress on a way forward," Bus said. "Our strategy is to continue to address this economic situation head on, and we'll be working to develop a strategy that will enable us to continue to move forward."
The House will reconvene Thursday, but Boehner indicated that it won't be easy to come up with a new plan.
"I don't know that we know the path forward at this point," he said.
Bush tried to nudge some Republicans into line before the vote by saying during his television appearance, "I fully understand that this will be a difficult vote."
He defended the unpopular bill by insisting it was not a rescue of corporate fat cats.
"A vote for this bill is a vote to prevent economic damage to you and your community," he added.
The president and his team worked the phones calling wavering House members. The administration also got a boost when former House Speaker Newt Gingrich, a conservative who has bad-mouthed the deal, issued a statement saying he would "reluctantly and sadly" vote for it if he were still in office.
Gingrich warned that the crisis of the credit markets is real and could have "horrendous" consequences.
Bush had tried to downplay the enormity of the $700 billion price tag, telling voters that "the cost to the taxpayer will be far less." In fact, he said that "much if not all, of the cost will be paid back."
He praised the measure as a "bold bill" that was hammered out in a short, although contentious, period of time. He said the expensive bailout will restore worldwide confidence in the U.S. economy and stave off even worse consequences.
There were early warnings that the bill could be in trouble when Republican House leaders, who initially balked at the bailout proposal, endorsed the deal with nearly poisonous words.
"It sucks," Rep. Paul Ryan of Wisconsin, the ranking Republican on the House Budget Committee and one of the leaders of last week's House rebellion, told colleagues behind closed doors Sunday night, one attendee told ABC News. But Ryan insisted that the measure had to pass to preserve the free market system and stave off a financial collapse.
Boehner urged all Republicans "whose consciences will allow them" to support the bill.
With fellow party members like that, Bush had reason to worry about the outcome of the House vote.
The administration's most reliable support on the issue is coming from Democrats. Sen. Chris Dodd, D-Conn., who heads the Senate Banking Committee, called the completion of the package "a sad day, a dreadful situation." When asked whether he could predict that the bill would pass, Dodd said only, "We hope so."
Dodd Praises the Bailout Bill
But the Democrat praised the bill, pointing out on "Good Morning America" that "for the first time ever, as far as I know, there will be limits on executive compensation, the so-called 'golden parachutes.'"
Dodd also told "GMA" that the plan to have the government buy up a mountain of virtually worthless mortgages and other debts from banks will work.
"I am very confident that this will work," he said. "I've been told by people on the outside that there's a wall of capital willing and waiting to move."
When they are confident that the federal government has made a deal, that money should start circulating, Dodd said.
The economic crisis that seemed to take Washington by surprise earlier this month has created 10 days of political drama that stretched from the halls of the Capitol to the presidential campaign trail.
John McCain suspended his campaign and rushed back to Washington, a move that Republicans claimed help prevent Democrats from steamrolling them with a bad deal, and that Democrats argued was simply grandstanding that made reaching a deal more difficult.
His Democratic rival Barack Obama also ended up in Washington at the invitation of Bush, and their posturing took the spotlight in their first debate last week.
Both candidates have cautiously endorsed the deal.
ABC News' Zachary Wolf contributed to this report.