The House of Representatives today refused to approve the proposed $700 billion bailout, voting 228-205 against the package despite indications that Congress and the White House had reached agreement on the plan.

The close vote showed just how controversial this package, which NAHB last week deemed critical to the housing industry, had become across the country. According to a story published this afternoon in the Washington Post,“Leaders met strong resistance from a liberal wing that opposed bailing out Wall Street's corporate executives and a conservative wing that denounced the measure as an abandonment of free-market principles.”

How will the bailout’s failure affect builders? It’s too soon to tell, but many are concerned about the economic consequences and the trickle-down effect on the housing industry. “The 228-205 vote amounted to a stinging rebuke to the Bush administration and Treasury Secretary Henry M. Paulson Jr., and was sure to sow massive anxiety in world markets,” the Washington Post story said. “Just 11 days ago, Paulson urged congressional leaders to urgently approve the bailout. He warned that inaction would lead to a seizure of credit markets and a virtual halt to the lending that allows Americans to acquire mortgages and other types of loans.”

Capital flow is already a serious worry for builders and the economy overall. "The Federal Reserve and other central banks pumped massive amounts of liquidity into the credit markets today in an attempt to stabilize interbank lending conditions," observed Brian Bethune, chief U.S. financial economist at Global Insight, in a quick written analysis of the situation after the House vote. "If the legislation is indeed moribund--as it seemed to be on Monday afternoon--then the baton will pass quickly to the Fed and other central banks to deal with the fallout, which would be further tightening of credit conditions and upward pressure on borrowing spreads."

Alison Rice is senior editor, online, at BUILDER magazine.

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