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WASHINGTON, DC-In a 205 to 228 vote, the House of Representatives shot down a newly negotiated financial rescue plan Monday afternoon. The market showed its disappointment quickly, with the Dow Jones dropping some 700 points before a slight rebound.

The measure was shy 13 votes necessary to pass–most of the Congress people who withheld support came from the Republican ranks objecting to the cost of the proposal to taxpayers, and the principal of a bailout. According to reports, it appears as though the bill will be resubmitted for vote. Whether it will include changes to make it more palatable, or whether advocates expect to pass the measure after redoubling efforts to persuade foot-dragging colleagues is unclear. Also unclear is the fate of the Senate vote, which had been scheduled for Wednesday.

Admittedly no one in Congress liked this bill; however it has been widely acknowledged that something must be done to unfreeze the credit markets, which have all but ceased operating in the last few weeks. The bill presented to the House contained bits and pieces of proposals that have been floated over the last week by the various factions in Congress, centered around the Bush administration’s original plan to buy the bad debt that is now choking the system.

For instance, a provision has been added in which the Treasury Department has the option to use insurance–as opposed to purchasing the debts–in certain cases, should it want. Other provisions included limits on executive pay of those institutions that participate and a requirement for the president to submit a plan within five years to recoup the losses if Treasury is unable to eek out a profit selling the securities that it purchases.

The price tag to the bailout is still officially $700 billion but government officials were hopeful that it may not be that much if Treasury does indeed make a profit from the securities. Money will be released in tranches under the bill, with $250 billion to be dispersed immediately, followed by $100 billion if the president deems it necessary. Treasury can request the remaining $350 billion, but Congress has the power to deny the funding if it chooses.

There are also provisions to prevent more foreclosures–although Democrats were not able to give bankruptcy judges the ability to change mortgage provisions. Also, the government will be taking equity in the companies that sell the securities to it.

Perhaps the biggest change to the original version proposed by the administration is the tighter oversight that has been put into place–an apparatus that includes an independent inspector general. The purchase of the securities will be under the auspicious of a new office with Treasury called Office of Financial Stability, whose head would be subject to Senate confirmation and who would be required to publish guideline for how it intends to price and profit from the purchase of the assets.

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