Defeat Sends Political Shockwaves

Defeat of the $700 billion Wall Street bailout bill sends political shockwaves.

ByABC News
September 29, 2008, 3:42 PM

Sept. 29, 2008 — -- The stunning defeat of the massive Wall Street bailout bill throws the politics of the nation's economic crisis wide open, scrambling the campaign strategies of both Democrats and Republicans as the nation adjusts to an even bleaker economic outlook.

In an extraordinary -- if not unprecedented -- scene Monday, a bill backed by President Bush, both presidential candidates and congressional leaders from both parties went down in defeat in the House of Representatives, by a vote of 228-205.

The vote forces congressional leaders and the White House to go back to the negotiating table to find a way to wrest a final few votes out of a legislative body whose members are increasingly concerned about their own job security, to say nothing of that of their constituents.

Amid the finger-pointing and accusations -- and members of both parties share significant portions of the blame for Washington's inability to act -- a new political reality emerges.

The changed landscape is marked by widespread mistrust of all branches of government; a powerless president and a paralyzed Congress; and above all a sinking realization that, five weeks before Election Day, the American economy is likely to get significantly worse before it can hope to get better.

The immediate fallout respects no party lines: The defeat reflects poorly on Sen. John McCain -- who made a dramatic return to Washington last week in the hopes of salvaging a deal that ultimately collapsed -- as well as the Democratic-controlled Congress, which looks powerless in the face of crisis.

"It's ugly," said Whit Ayres, a Republican political consultant. "It makes the Congress look pretty irresponsible. But the more negative the current environment, the higher the hill McCain has to climb."

More broadly, the reaction on Wall Street portends a worsened economic climate in the five-week run-up to Election Day, raising the incumbent party's burden.

Given the widespread economic unease, said Chris Lehane, a Democratic strategist, "I would not even bet valueless Lehman stock on McCain winning."