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President Bush said Tuesday he was "disappointed" by the House's rejection of the $700 billion bailout plan and urged Congress to take action to save the economy.
"Unfortunately, the measure was defeated by a narrow margin," Bush said in a brief televised address at the White House. "I'm disappointed by the outcome, but I assure our citizens, and citizens around the world, that this is not the end of the legislative process."
Bush said he expects lawmakers to move forward with legislation. The House is adjourned for the Jewish holiday Rosh Hashanah and is not scheduled to return to session until Thursday at noon. The Senate is in session on Tuesday.
Senate Majority Leader Harry Reid, D-Nev., said that he would meet with some key Democratic senators - including Senate Banking Committee Chairman Christopher Dodd, D-Conn. - working on a bailout plan.
For his part, Bush said the nation is facing "the real prospect of economic hardship."
"Our economy is depending on decisive action from the government," Bush said. "The sooner we address the problem, the sooner we can get back on the path of growth and job creation. This is what elected leaders owe the American people, and I am confident that we'll deliver."
Bush is meeting with his team Tuesday morning to review options, a senior Bush administration official told CNN. On Monday night, White House staffers were in contact with Republican congressional leaders and Democratic staffers, the official said.
The official said that even Republicans who oppose the plan understand the seriousness of the situation and "want to get this done."
The Senate's lead Republican, Sen. Mitch McConnell, R-Ky., said Tuesday that lawmakers will pass a bill. "I want to reassure the American people that we intend to pass this legislation this week," he said.
On Tuesday, Bush spoke to Sens. Barack Obama and John McCain about the financial crisis, according White House spokesman Tony Fratto. The presidential candidates "offered ideas and reaffirmed what they have said publicly - that this is a critical issue that needs to be addressed," Fratto said.
Stock market reaction
The bailout package, a collaboration of Treasury Secretary Henry Paulson and leaders from both parties, was rejected by the House in a 228-205 vote Monday. Two-thirds of Republicans and about one-third of Democrats voted against the bill.
Following the defeat, the Dow Jones industrial average dropped 777 points, its biggest one-day point decline ever. The decline of nearly 7% was the largest percentage decline since the Black Monday crash of 1987.
The bill, if approved, would have allowed the federal government to buy troubled mortgage-related investments from finance companies, freeing them up for lending, to pull the economy out of its credit freeze. Proponents of the bill believe it would prevent the United States from sliding into a serious financial crisis, but opponents saw it as an unbearable burden to taxpayers and a rescue for Wall Street.
"That, no question, is a large amount of money," said Bush, referring to the $700 billion. "We're also dealing with a large problem. But to put that in perspective, the drop in the stock market yesterday represented more than a trillion dollars in losses."
A closely watched index released Tuesday showed home prices tumbling by the sharpest annual rate ever in July, but the rate of monthly declines is slowing.
The Standard & Poor's/Case-Shiller 20-city housing index fell a record 16.3% in July from a year earlier, the largest drop since its inception in 2000. The 10-city index plunged 17.5%, the biggest decline in its 21-year history.
No price gains
Prices in the 20-city index have plummeted nearly 20% since peaking in July 2006. The 10-city index has fallen more than 21% since its peak in June 2006.
No city in the Case-Shiller 20-city index saw annual price gains in July, the fourth straight month that has happened.
However, the pace of monthly declines is slowing, a possible silver lining. Between May and July, for example, home prices fell at a cumulative rate of 2.2% - less than half the cumulative rate experienced between February and April.
But there's "no evidence of a bottom," said David M. Blitzer, chairman of the index committee at S&P.
Trouble in Vegas
Las Vegas prices plunged the most at nearly 30%, with Phoenix diving 29% and Miami 28%. Prices in the seven cities in the Sunbelt all fell between 20% and 30% from a year ago.
Only seven cities showed positive or flat returns from June to July, down from nine that showed month-over-month gains in June. Atlanta, Boston, Dallas, Denver and Minneapolis all posted positive returns for three months or more.
Oil prices fell to near $103 a barrel Monday on concern that economic growth will slow across the globe despite a tentative agreement in Washington on a $700 billion bailout package to stabilize the U.S. financial system.
By midday in Europe, light, sweet crude for November delivery was down $3.50 to $103.39 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.13 Friday to settle at $106.89.
In London, November Brent crude fell $3.39 to $100.15 a barrel on the ICE Futures exchange.
Bailout plan goes to House
Congressional leaders and the White House agreed Sunday to a rescue of the ailing financial industry after lawmakers insisted on sharing spending controls with the Bush administration. The biggest U.S. bailout in history won the tentative support of both presidential candidates and goes to the House of Representatives for a vote Monday.
"The bailout package reduces the chance of a complete meltdown," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "But worries on the demand side will continue to weigh on oil prices."
The plan would give the administration broad power to use hundreds of billions of taxpayer dollars to purchase devalued mortgage-related assets held by cash-starved financial firms.
Congress insisted on a stronger hand in controlling the money than the White House had wanted. The government would take over huge amounts of devalued assets from beleaguered financial companies in hopes of unlocking frozen credit.
"It's still a crisis situation," Shum said. "The market is concerned about the depth and breadth of this global downturn."
JBC Energy in Vienna, Austria, also was cautious about the effects the rescue package could have on U.S. economic growth.
"The latest government reports show sales of new homes at a 17-year low in August and orders for durable goods falling stronger than expected," JBC said in a research note. "It is far from certain that (the bailout) will prevent an economic downturn."
Dollar stronger
Prices were also pushed down by a stronger dollar. Investors often buy crude futures as a hedge against a weakening dollar and inflation, and sell when the dollar strengthens.
While the dollar gained as details of the bailout package become known, analysts said the euro was weaker also because of growing economic problems in Europe.
"It is also a question of the euro losing ground due to a continued deterioration in the euro zone," said Olivier Jakob of Petromatrix in Switzerland. "With the rate of bank failures increasing in Europe and the economy slowing more rapidly than expected, pressure will continue to mount on the (European Central Bank) to lower (interest) rates."
The 15-nation euro fell Monday to $1.4361 from $1.4614 on Friday while the dollar rose to 106.23 yen from 106.01.
"The bailout should inject confidence in the markets in the short-term," Shum said. "Longer term, it increases money supply, inflation and likely weakens the dollar - all of which supports oil prices."
General Motors Corp. said Thursday it will build a new factory in Flint to make four-cylinder engines for the Chevrolet Volt rechargeable electric car and other models.
GM Chairman and Chief Executive Rick Wagoner said the new plant will build a 1.4-liter four-cylinder engine that will extend the range of the Volt, and a turbocharged version that will power the Chevrolet Cruze, a new compact car to be built in Lordstown, Ohio.
"This will be one of the places. You will be one of the teams that help GM lead into our second century," Wagoner told workers and government officials gathered for the announcement.
Production at the new $370 million plant will begin in 2010, and both cars are slated to go on sale in the same year.
Workers at the nearby Flint Engine North plant, which GM (GM, Fortune 500) is in the process of closing, said the announcement is good news for an area hard hit by auto job losses.
Although GM said the new plant won't create any new jobs, it will retain about 300 hourly positions, and workers said they are hopeful the new plant will create more employment in the industrial city about 50 miles northwest of Detroit.
"This also means that there's a future for our youth in this area," worker Jean Adams-Anderson said.
The state of Michigan on Tuesday approved $132.5 million in tax incentives for the automaker to spend $838 million on the new plant and to upgrade four other facilities, including the Detroit-Hamtramck assembly plant where the Volt will be built.
The Flint investment includes the 552,000-square-foot plant as well as machinery and other equipment. GM says it will invest another $21 million in tooling for its suppliers to support the new Flint factory.
The new plant will double its global production of GM's small four-cylinder engines by 2011, with more than half the increase going into North America.
The factory, GM said, will have 300 flexible work stations that will allow the company to build different four-cylinder engines without retooling.
GM's U.S. sales are down 18% so far this year due to a declining market and high gasoline prices that have caused a dramatic shift away from trucks and sport utility vehicles to smaller, more efficient cars.
The new plant will help GM roll out new models designed to adjust to the shift, which GM and other automakers say is permanent.
The struggling automaker has lost $57.5 billion in the past 18 months, including $15.5 billion in the second quarter. Its U.S. market share has fallen to about 23% this year from a peak of nearly 51% in 1962.
The company is banking on the much-ballyhooed Volt to be its car of the future, although it conceded this week that the Volt won't operate exactly as advertised.
GM initially said the Volt would be able to run 40 miles on its lithium-ion batteries, with a small internal combustion engine recharging the batteries to extend the range hundreds of miles. A top executive said the same thing as recently as last week.
But company spokesman Rob Peterson said Wednesday that engineers changed the design so the Volt engine will power a generator that would run the electric motor after the batteries are depleted. A small amount of power from the generator will recharge the batteries, but most will be used to directly run the car, he said.
He said bypassing the batteries is more efficient, and GM did not intend to deceive people by maintaining that he motor would only be used to recharge the batteries.
"At the end of the day, to the consumer, the vehicle will operate much the same way," he said.
Automakers gained $25 billion in taxpayer-subsidized loans and oil companies won elimination of a long-standing ban on drilling off the Atlantic and Pacific coasts as the Senate passed a sprawling spending bill Saturday.
The 78-12 vote sent the $634 billion measure to President Bush, who was expected to sign it even though it spends more money and contains more pet projects than he would have liked.
The measure is needed to keep the government operating beyond the current budget year, which ends Tuesday. As a result, the legislation is one of the few bills this election year that simply must pass. Bush's signature would mean Congress could avoid a lame-duck session after the Nov. 4 election.
White House spokesman Tony Fratto said the bill "stands as a reminder of the failure of the Democratic Congress to fund the government in regular order." But, he said, it "puts the United States one step closer to ending our dependence on foreign sources of energy" by lifting the offshore drilling ban and opening up huge reserves of oil shale in the West.
The Pentagon is in line for a record budget. In addition to $70 billion approved this summer for operations in Iraq and Afghanistan, the Defense Department would receive $488 billion, a 6 percent increase. The spending bill also offers aid to victims of flooding in the Midwest and recent hurricanes across the Gulf Coast.
Such a huge bill usually would dominate the end-of-session agenda on Capitol Hill. But it went below the radar screen because attention focused on the congressional bailout of Wall Street.
The measure settles dozens of battles that have brewed for months between the Democrats who run Congress and the White House and its GOP allies.
The administration won approval of the defense budget. Democrats wrested concessions from the White House on $23 billion for disaster-ravaged states, a doubling of low-income heating subsidies, and smaller spending items such as $24 million more for food shipments to the elderly.
The loan package for automakers would reward them with $25 billion in below-market loans, costing taxpayers $7.5 billion to subsidize the retooling of plants and development of technologies to help U.S. carmakers to build cleaner, more fuel efficient cars. Companies would not have to begin repaying the loans for five years, drawing objections from Sen. Jon Kyl, R-Ariz., who predicted they would return for more help when the money is due.
Republicans made ending the coastal drilling ban a central campaign issue this summer as $4-plus per gallon gasoline stoked voter anger and turned public opinion in favor of more exploration.
The action does not mean drilling is imminent and still leaves the oil-rich eastern Gulf of Mexico off limits. But it could set the stage for the government to offer leases in some Atlantic federal waters as early as 2011.
Also in the bill is money to avert a shortfall in Pell college aid grants and solve problems in the Women, Infants and Children program delivering healthy foods to the poor.
In addition to the Pentagon's budget, there is $40 billion for the Homeland Security Department and $73 billion for veterans' programs and military base construction projects. Combined with the Defense Department's spending, that amounts to about 60 percent of the budget work Congress must pass each year.
Democrats came under criticism from the GOP for short-circuiting the normal process for a spending bill after it became clear that Republicans would force difficult votes on the drilling ban.
Democrats also wanted to avoid an election-year clash with Bush that would have played in his favor. They are willing to take their chances that Democrat Barack Obama will be elected president in November and permit increases for scores of programs squeezed by Bush each year.
Bush had threatened to veto bills that did not cut the number and cost of pet projects in half or cause agency operating budgets to exceed his request. Democrats ignored the edict as they drafted the plan and the White House has apparently backed down.
Taxpayers for Common Sense, a watchdog group, discovered 2,322 pet projects totaling $6.6 billion. That included 2,025 in the defense portion alone that cost a total of $4.9 billion. Critics of such projects are likely to discover numerous examples of links to lobbyists and campaign contributions.
Gas prices fell for their 10th straight day, dropping almost 19 cents during the period, according to a nationwide survey of credit card swipes at gas stations.
The average price of unleaded regular fell by 1.6 cents to $3.667 a gallon on Saturday, from $3.683 a gallon, according to survey results from the motorist group AAA.
Gone are the high prices that followed Hurricanes Ike and Gustav weeks ago. But prices are slightly higher than a month ago, when the national average for a gallon of unleaded was $3.660. They are 30% higher than a year ago, when the average was $2.805.
The record high was on July 17, when the nationwide average for gas prices was $4.114 a gallon.
For now, Hawaii and Alaska are the only two states where gas costs more than $4 a gallon. In Alaska on Friday, the statewide average for unleaded was $4.284 a gallon, according to AAA, and the average was $4.262 in Hawaii.
The cheapest gas was in New Jersey, where the average was $3.394 for a gallon, and in Oklahoma, at $3.370 a gallon.
