The $700bn bet that failed | Leader: a dangerous moment | The 10 biggest stock market crashes ever

A frantic behind-the-scenes effort to cajole, arm-twist and beg enough congressmen to resurrect the White House’s stricken $700 billion financial rescue package consumed Washington yesterday, as an enfeebled President Bush pleaded with Congress to pass the plan after its stunning defeat on Monday.

Stepping before the cameras for the second time in 24 hours to implore the House of Representatives to back the Bill — a sign of how his influence has all but vanished in the waning months of his presidency — Mr Bush repeated his warnings that a failure to approve the package would trigger dire economic consequences.

“The reality is we’re in an urgent situation and the consequences will get bigger each day we do not act. We are facing a choice between action and the real prospect of economic hardship for millions of Americans,” Mr Bush said.

Expert View

Not for the first time, the US Congress has taken a fateful step towards driving the world over the cliff

Gerard Baker

• More

• Post a comment

Related Links

• Spectre of 1930s haunts America

• The Masters of the Universe are dethroned

• US shares rebound on fresh hopes of deal

Multimedia

• Will this split the Republican Party?

As he spoke, leaders in both parties, stung by the scale of the rebellion among House Republicans and Democrats in the 228-205 defeat of the Bill, met Henry Paulson, the Treasury Secretary, on Capitol Hill to try yet again to push through a deal before more banks failed.

It emerged last night that there would be a vote on the measure in the Senate today, where its passage is more assured. Support in the upper chamber would put pressure on the House of Representatives to follow suit when it reconvenes tomorrow after the Jewish new year. The Republican and Democratic leadership are desperate to get another vote there by the end of the week.

Nancy Pelosi, the Democratic House Speaker, and John Boehner, the Republican Minority Leader, need to persuade just 12 members between them to reverse course to get the Bill passed. Yesterday they and the party whips, Jim Clyburn and Roy Blunt, vowed to get a deal through and spent hours seeking the extra votes.

Their efforts were not helped by a rally on Wall Street after its record one-day points plunge on Monday, making the calls of urgency seem overwrought to some congressmen.

There were also talks about granting more concessions to make the plan more palatable, but that is risky. Too much ground given to liberal Democrats would increase Republican opposition; more elements to please conservatives would harden Democratic opposition. Mrs Pelosi was also reluctant to follow another option, loading the Bill with liberal demands and then ramming it through the House without Republican support.

The Times has learnt that one alternative bailout would involve using taxpayer funds to buy a holding in troubled US banks. The proposal, gaining some support in Washington, is for the US Treasury to buy preferred shares in financial institutions instead of buying toxic assets. Taxpayers would be investing, therefore, in “healthy” assets from which they could get dividends. This way banks would receive the money they need to free credit but would be left with the responsibility of making their distressed debts profitable.

The proposal could be more palatable to Congress because it dumps the idea of using the $700 billion to buy toxic, mortgage-related assets, and places more responsibility on banks to work their own way out of the crisis. A poll released yesterday showed 44 per cent of voters blamed Republicans for the legislation’s failure; 21 said Democrats were to blame.

John McCain and Barack Obama — who had both failed to sway members of their own parties before Monday’s calamitous vote — also urged the House to pass a rescue plan, after they telephoned Mr Bush. “Inaction is not an option,” Mr McCain said at a campaign event in Iowa.

Mr Obama told a Nevada rally that a failure to pass the plan would hurt ordinary Americans. “There will be time to punish those who set this fire, but now is the moment for us to come together and put the fire out,” he said.

Yet the complexities of election-year politics, and a vacuum of leadership in Washington generally were hindering efforts to resurrect the deal. Faced with a plan deeply unpopular with voters, nearly all the House members in tight re-election races on November 4 voted against it.

Mrs Pelosi and Mr Boehner were humbled by the scale of the rebellion — 133 Republicans and 95 Democrats rejected the plan. Meanwhile, not one member of Mr McCain’s home-state Arizona House delegation backed it, while a majority of Democratic African-Americans, some of Mr Obama’s earliest supporters, voted “no”. Despite heavy pressure from Mr Bush, 15 out of 19 Republicans from his home state of Texas voted against the Bill.

Times Recommends

• Zardari still has to tackle tough questions
• Material evidence 'debunks' Turin Shroud
• BBC criticised over Uganda gay execution poll