For the second time in less than a week, Washington has thumbed its nose at Wall Street and in the process might just have brought the global financial system to the brink.
The defeat of the $700bn banking bailout plan by the House of Representatives today was a much larger and more stunning blow than the disorderly collapse of last week’s White House meeting in which the bailout plan unravelled for the first time.
Negotiators had worked all weekend to accommodate some of the doubts of conservative Republicans who objected to such a massive outlay of taxpayer funds on the financial sector. But in the end the largely superficial changes made to the original plan were not enough and more than three-quarters of Republicans voted against. Worse, perhaps, more than a third of Democrats also opposed the measure, which they saw as a handout to rich bankers on Wall Street.
Now, in effect, the politicians have called the bluff of Hank Paulson, the US Treasury Secretary. Since he first proposed the plan ten days ago he has repeatedly warned that its passage was absolutely essential to avoid a complete freezing-up of the US financial system.