Politics appeared to trump leadership in Washington yesterday.
Led by a Republican uprising, the House rejected a $700 billion taxpayer bailout of the financial industry, further roiling financial markets. The Dow industrials fell 777 points - nearly 7 percent - after the bailout plan was voted down. It was the worst single point-drop ever.
Wall Street's latest Black Monday was a black eye on congressional leaders in the nation's Capitol.
Any doubt about President Bush's lame-duck status was erased, as 133 Republicans joined 95 Democrats to vote against the measure, despite arm-twisting by the White House and party leaders. Remember, the bailout was first proposed by Bush's Treasury secretary.
Lawmakers who voted against the bill said the bailout would help Wall Street's wealthy at the expense of average taxpayers. Many of the lawmakers who rejected the bill clearly had one eye on their own looming elections, fearing a voter backlash from helping Wall Street.
Immediately after the bailout was rejected, the finger-pointing began. Unfortunately, partisan politics by Republicans and Democrats isn't what taxpayers need in the middle of a serious financial crisis.
The bailout package isn't perfect. But doing nothing about the situation could be more catastrophic, as evidenced by the Dow's steep drop.
The bailout was sparked by the housing collapse, which caused credit markets to dry up and brought the financial system to a grinding halt.
The fallout has been quick and painful. Three venerable investment banks - Bear Sterns, Merrill Lynch and Lehman Brothers - disappeared through forced mergers or bankruptcy.
The federal government took over mortgage-lending giants Fannie Mae and Freddie Mac earlier this month, as they teetered near collapse. Then the government was forced into an $85 billion bailout of AIG, one of the world's largest insurance companies. The largest bank seizure in U.S. history occurred Friday when federal officials took over Washington Mutual Inc. and sold pieces to JPMorgan Chase & Co.
Yesterday, Wachovia - the largest bank by deposits and employees in the Philadelphia region - was near collapse before it was bought by Citigroup. The turmoil has also spread overseas. Dutch-Belgian bank Fortis NV had to be rescued by the governments of Belgium, Luxembourg and the Netherlands.
Treasury Secretary Henry Paulson and congressional leaders spent the weekend revising the U.S. bailout bill, which grew from three pages to 106. The measure added some protections and oversight missing from the initial proposal. But some details remained murky, and it's unclear if the measure will actually solve the problem. Plus, Paulson, who has demonstrated strong leadership, may be gone from the job in the next administration.
Both Democrats and Republicans gave in on some demands. The Bush administration agreed to some curbs on executive pay, but those provisions were vague. Democrats backed down from a worthy provision to allow bankruptcy judges to alter the terms of mortgages.
The revised bill called for a bipartisan committee and the Government Accountability Office to provide oversight, a necessary improvement from the initial proposal.
Overall, the bailout is a bitter pill. But the total collapse of the financial markets is an even worse alternative. Even with the bailout, Paulson had warned "the situation is fragile." Politics has only made things worse. Leadership is sorely lacking.