From BW.com:
What the heck just happened? Once again, it is back to the drawing board for the Treasury’s proposed $700 billion rescue plan for the financial industry. In a development that stunned Washington after more than a week of intensive negotiations, the bailout bill failed in the vote in the House early this afternoon. The vote started at 1:30 and was supposed to have been completed quickly, but by a little after 2 PM, only 205 House members had backed the bill versus 228 against. The bill needed 218 to pass. The defeat sent the Dow down more than 750 points, or nearly 7%, and left lobbyists and Congress members alike scrambling for an explanation.
Don’t expect easier sailing in the Senate. Fewer than a third of the Senate is up for reelection on November 4, but they’re all hearing from angry constituents.
Prediction: A scaled-down bill will be enacted by the end of the week. It will provide the Treasury with a first installment of $150 billion. Treasury can use it to back Wall Street’s bad debts with lend no-interest loans of up to two years, until the housing market rebounds. Or to invest in Wall Street houses directly, in exchange for stocks and stock warrants. There will be strict oversight. Congressional leaders will promise further installments, but with conditions calling for limits on salaries and relief to distressed homeowners.