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The Situation Room

Bailout Bill Fails, Stocks Plunge; Obama: 'Get it Done'

Aired September 29, 2008 - 16:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

WOLF BLITZER, CNN ANCHOR: Happening now, we're following the breaking news. The stock market tanks after the House of Representatives stunningly defeats a financial bailout bill. This hour, the economic and political damage and where the high-stakes debate goes from here.
Plus, the presidential candidates, the bailout and the blame game. A lot of very bitter and partisan finger-pointing under way right now. We're bringing you all the reaction. John McCain getting ready to speak. We'll go there live.

And setting the sage for the vice presidential debate. Both Sarah Palin and Joe Biden preparing intensively right now for their face-off on Thursday. Palin possibly learning from some recent very public missteps.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

The U.S. economy, already in crisis, thrown a shocking and potentially devastating curveball by Congress today. The Dow Jones industrials plummeting some 614 points after the House rejected a $700 billion financial bailout.

The final vote, 228 against, 205 in favor. About 60 percent the Democrats voted for the measure. Less than a third of the Republicans backed it.

The fate of the plan and of Wall Street in limbo right now. We know this much, though. There's an outpouring of blame and bitterness on Capitol Hill only 36 days before the election.

Suzanne Malveaux and Ed Henry are covering the presidential campaigns. We'll get their reaction, what's going on. Our senior correspondent, Ali Velshi, is also standing by.

First, let's go to Jessica Yellin. She's up on Capitol Hill where this stunning defeat took place.

We're seeing the markets now 656 points, the Dow Jones industrials, down. It's changing over these past couple minutes as they tally the end of trading on this tumultuous day in New York. But tell our viewers, Jessica, how this unfolded, because a lot of viewers are just tuning in right now, and they're clearly stunned.

JESSICA YELLIN, CNN CORRESPONDENT: Wolf, earlier this afternoon at 1:26 p.m., the House began to vote on a bill that all sides thought would be very close but probably would pass. They put the ultimate pressure on everybody, saying that the U.S. could face total financial crisis if the Congress and the House of Representatives didn't vote to pass this bill.

As the minutes ticked away, we saw an unusual sight. The House of Representatives very crowded. Usually it's empty during votes. Everybody standing there watching the ticker board, and sure enough, the bill did not pass. Democrats, as you say, got two-thirds of their caucus to vote for it, but Republicans, by their own admission, fell even 12 votes shorter than they expected.

Now, as you say, the finger-pointing has begun. Negotiations and phone calls are taking place all over this building. Everybody in a semi-state of shock trying to figure out what to do next.

I'll tell you first, everybody is gone for -- many of the members are gone for a recess. It's the Jewish holiday. Congress won't even be back in session until Thursday. So that's the earliest we could see any new vote on either the same bill or a renegotiated piece of legislation.

In the meantime, the political spin has begun. This was Minority Leader John Boehner speaking just a short time ago, blaming Nancy Pelosi for the failure of his own conference to deliver the votes they thought they had. Let's listen.

(BEGIN VIDEO CLIP)

REP. JOHN BOEHNER (R-OH), MINORITY LEADER: We were -- we put everything we had into getting the votes to get there today. But the speaker had to give a partisan voice that poisoned our conference, caused a number of members that we thought we could get to go south.

(END VIDEO CLIP)

YELLIN: Now, the Democrats say it's absolutely absurd to suggest that the Republicans were unable to be deliver votes on the largest economic bailout package in U.S. history because of a brief speech one member, even the speaker, gave on the floor of the House. And Barney Frank, the House member who has been shepherding this through, defended Nancy Pelosi.

Now, I should point out, he is known for his temper and his larger-than-life language. Here's what he had to say.

(BEGIN VIDEO CLIP)

REP. BARNEY FRANK (D-MA), FINANCIAL SERVICES CHAIRMAN: And those 12 Republican members who were ready to stand up for the economic interests of America, but not of anybody's -- I'll make an offer. Give me those 12 people's names, and I will go talk uncharacteristically nicely to them and tell them what wonderful people they are, and maybe they'll now think about the country.

(END VIDEO CLIP)

YELLIN: Now, Wolf, everyone around this building is still here trying to decide what the next steps are -- Wolf.

BLITZER: Jessica, stand by.

I want to point out to our viewers right now -- and take a look at this -- 688 points, 689, it just went up. If this holds, if this holds, this will be the single largest point drop in the market's history in the Dow Jones industrials ever. The largest until now was on September 17th, right after the 9/11 attacks, to September 17, 2001 when the markets reopened after 9/11. The markets went down 684 points that day. Right now, they're at 689 points.

Ali Velshi is watching this for us. It's not the largest percentage drop because the Dow Jones is selling at a higher number.

ALI VELSHI, CNN SENIOR BUSINESS CORRESPONDENT: It's bigger, right.

BLITZER: But in terms of the biggest point drop ever, if this holds, 689, this would be the biggest point drop in American history.

VELSHI: That's right. You're watching history right now.

It's 689. It beats the old record by about five. And remember, the old record was set on the day, the first day the stock markets opened after the attacks on 9/11. So there was a very specific reason for that drop.

And in fact, during the day on September 17, 2001, the Dow had dropped at its lowest point. It was down 722 points. Our lowest point today, we were down more than 734 points.

But again, let's put that in perspective. That is points. And we follow the points because they have this nice little convenient box in the corner. Let's think about it in percentages.

The Dow dropped 6.19 percent right now. That might change a little bit as the numbers settle in. The S&P 500, which is a broader measure of the economy and perhaps one that more reflects the type of investments you hold, down 7.88 percent in one day.

Now, Wolf, you know a thing or two about markets. Seven percent in a day, if you got away this year with earning 7 percent in your portfolio for the entire year, I'd say you did pretty well in this environment.

BLITZER: Ali, it just went up. It just went up now...

VELSHI: There we go.

BLITZER: ... to 720 points. They still are tabulating the final transactions.

VELSHI: And if you can take off...

BLITZER: And that's why it keeps going higher and higher. 732 right now, Ali. Take a look at that. VELSHI: Now, if you take away that box that's there and you look at what's underneath it, OK. Now, you see that says VOLU -- UVOL and DVOL. Volume means the total volume.

So, 1.9 billion shares were traded today; 46 million of them were traded on the uptick, which means somebody bought a stock that was going up. 1.858 billion shares were sold at a loss today. That's what that tells you.

This is unbelievable. We have not seen numbers like this before, 735.63 points, a loss on the Dow. That is the biggest loss we've ever seen not just in the close, even intraday. That is, no one has ever looked at the Big Board and seen minus 735.

Now, Wolf, I want to tell you something that is counterintuitive right now. That's not the story.

The story here is the credit markets that have seized up, the fact that businesses, possibly businesses that employ you, may not be able to borrow money on a short-term basis, which is what they do to keep the lights on and pay rent and pay your salaries. Every day this deal isn't done means people are not getting their mortgages, they're not getting other loans, and it could mean that they're going to put out of work.

This will not be an implosion of the economy, it will not be Armageddon, and it will pass. But the bottom line is, every day this happens, we don't have a nice convenient box like that one to show you what's going on in the credit markets, but it is very, very serious.

So I hope folks who are deciding that they want to sit this one out and get greater clarity understand that their economics lesson is coming at the expense of Americans' jobs and homes. This is a very serious issue, Wolf, and anybody who tells you otherwise and that we should take our time to figure this out is displaying that they do not have enough knowledge of the fundamental underpinnings of this economy to be making decisions at Congress.

A deal needs to be made. Money needs to be freed up. Everybody's got a right to be really angry about this. Save it for later.

BLITZER: And just to put some perspective, right after 9/11, right after the markets reopened, they went down some 684, 685 points. Right now, we're not sure this is the final closing number, 738-point drop in one day. That's a huge, huge number, underscoring the disappointment that the investors have out there as a result of this enormous setback on the floor of the House of Representatives.

VELSHI: The investors -- everybody's 401(k)s and IRAs. So this is the day to stop thinking about Wall Street versus Main Street. It's your retirement.

That's something people have to remember. This is you. Kicking Wall Street kicks you right back. BLITZER: How long do you think that these -- the markets will have a chance to play this out? It doesn't look like the House of Representatives is going to gong to come back to have another vote to take another look at least until Wednesday, maybe Thursday. In the meantime, we're seeing what's going on.

VELSHI: What we need to know is that cooler heads will prevail, and we saw a lot of that language today. So what happened is, those who thought there shouldn't be any bailout at all gave it their last kick at the can. If markets think that is the last kick at the can and cooler heads will prevail, then we'll see markets respond to that.

But again, I caution everybody out there, this isn't the markets. This is the credit that your company that maybe pays your salary can't get. This is the mortgage that you can't get. This is the mortgage that somebody can't get if they're trying to buy your house.

This is why this is that serious.

BLITZER: This is a huge, huge deal.

All right. We'll continue to watch it. Ali, don't go away. We're coming back to you.

VELSHI: Yes.

BLITZER: I want to check in with Jack Cafferty. He's got "The Cafferty File."

Huge, breaking news today, Jack. Something that a lot of us woke up this morning did not expect would happen, because normally in the House of Representatives, they pretty much have those votes counted going in to a sensitive vote like this. The whips on the Democratic side, the Republican side, they basically can predict what the number's going to be. They missed by a few today.

JACK CAFFERTY, CNN ANCHOR: Well, the Republicans failed to turn up the 12 votes needed, as I understand it. All weekend we heard this phrase, "We're making progress." Today, earlier, we were assured that House leaders had the votes to pass this humongous bailout bill, save the economy from the meltdown.

We ought to know better after this much time. When the roll was called this afternoon, the necessary votes were missing. And Wall Street was like a yo-yo on a string, up, down, all over the lot. You can see on the screen there it's closing just under 750 points to the down side.

It all happened despite the best efforts of John McCain to anoint himself the savior of the bailout package. Remember?

It turns out members of McCain's own party balked at voting for the bailout in the House of Representatives. He couldn't even deliver his own party's votes.

At the end of the day, President Bush couldn't get it done, House Speaker Pelosi couldn't get it done, John Boehner couldn't get it done. And McCain is left with egg all over his face after calling for the cancellation of last Friday's debate and announcing he was suspending his campaign -- remember last Wednesday?

Once again, our government has failed us. The future of the bailout very much an open question now. And with just five weeks before the election, look for everybody in Washington to bend over backwards explaining why this isn't their fault.

The question is this: Is the failure of the bailout reason enough to vote all the incumbents out of office in five weeks?

Go to CNN.com/caffertyfile. You can post a comment on my blog -- Wolf.

BLITZER: All right, Jack. We'll get back to you shortly.

We're following the breaking news. America's financial crisis getting more urgent and much more complicated today for the entire nation. And for the presidential candidates, as well.

We're waiting to hear from Senator John McCain. He's getting ready to speak. How all this turmoil could affect the race for the White House.

Plus, a nightmare on Wall Street and in Congress. Could something positive come out of the House defeat of the bailout bill? I'll speak about that and a lot more with the always outspoken Glenn Beck. He's standing by live.

And later, I'll ask CNN World Affairs Analyst Fareed Zakaria about Sarah Palin and his provocative declaration that she's simply not qualified to be vice president.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Breaking news. Look at this, 777-point drop -- 777.68, that's the largest single day point drop ever in U.S. history. The previous worst day was on September 17, 2001, when the markets dropped 684 points.

That was the first day of trading right after 9/11. But today, a 777-point drop.

Ali Velshi, we're watching this. It's unbelievable what's going on. But give us some perspective.

VELSHI: Yes. OK.

Obviously, on a busy day like this where there's been such an imbalance in trade -- in other words, most people are selling, very few people are buying -- it takes a little while to settle, and that's why when you started the show, we were about 603 points or something lower, and it has just continued to do this. So we're going to probably have to wait a little until we see how it settles.

But this is seven percent. Now, at seven percent, a loss of seven percent, we're actually not even in the top 10 of losses because the value of the Dow has increased. So while the points are big, it's not there.

On the S&P 500, however, we're at 8.75 percent. That may reflect in your 401(k) because you may have SPDRs or ETFs or index funds that emulate the S&P 500.

At 8.75 percent, we're somewhere around the fourth biggest percentage drop in the market. So this is very serious, and we're going to see how this plays out.

Now, Wolf, the issue here is markets are reacting to the fact that credit markets are frozen up. And that means good companies, even healthy companies, are having trouble raising money.

It is very common for a healthy company to have to raise money for the short term in order to pay some operating expenses because they have money coming in from clients, they have money going out. And sometimes you need to bridge that. It is that money that is becoming very difficult for even healthy companies to raise. And when they can't raise that money, that means some of the bills may be in jeopardy, that means some of their suppliers might be in jeopardy of getting paid. That means some small businesses can go out of business.

It also means that salary is one of those operating expenses. Most companies would like to make their salary payrolls. And if they think there's a danger of not making them, you might see some companies stopping operations, you might see others laying people off.

So the seriousness of this is not even in the stock market as much as it is in the fact that this is affecting the ability of companies to raise money. That's why we have to worry a great deal about this -- 777, that's the biggest number we've ever seen on that board with a negative sign in front of it -- Wolf.

BLITZER: A huge number. All right, Ali. Stand by.

Glenn Beck is also watching what's going on. He's from our sister network, Headline News.

Glenn, what do you make of this situation?

GLENN BECK, CNN HEADLINE NEWS: Unfortunately, I think that Ali is exactly right on everything that he just said. And I unfortunately don't think this is the end of it.

I have been calling for about 18 months now that we were headed towards a Great Depression. And I think we are still headed that way. And I don't think -- my problem with the bailout, again, I agree with Ali that we need a bailout.

I don't think this was the bailout because it was discrediting capitalism, and capitalism is not the problem. Greed is the problem. But we need a bailout, but we need a clean bailout. And I don't think that's what this was at all.

BLITZER: So if you had been a member...

BECK: And we are in real trouble.

But the other thing about this bailout, Wolf, that I think is interesting, I have yet to hear anyone say two things. One, that this bailout will fix it. In fact, if you want to know how they came up with the $700 billion number, this is from "Forbes." A treasury spokesperson said, when asked, "How do you come up with $700 billion?" "It's not based on any particular data point. We just wanted to choose a really large number."

That doesn't make me feel real good.

BLITZER: They were using the Colin Powell doctrine of overwhelming force. They might not need all that $700 billion, but they needed a huge number to reassure the markets that the credit would be there. That was the thinking of Henry Paulson at the Department of Treasury and elsewhere. They were hoping they would never get to that but they just wanted to have it available.

BECK: I'll tell you this, Wolf. Anybody who says that $700 billion is enough is lying to you.

The number's going to be over $2 trillion when all is said and done. And that's why this bill also left the door open for Henry Paulson to be able to take on pension funds from cities and towns, et cetera, et cetera. There was a lot of things in here that led us right down the road.

You know, I want to save our country, but I don't believe the government can save our country. I don't believe that our -- the government is the one who brought us this mess.

Greed and the grab of power -- doing anything for power, that's what brought us these problems. And from the surgeons who screwed up our corrective surgery the first time, I don't know why we would be giving them even more power.

BLITZER: It's fascinating that the president of the United States, a Republican, wanted this $700 billion bailout passed. The secretary of the Treasury wanted it passed.

The Republican leadership in the House of Representatives and in the U.S. Senate, Mitch McConnell and John Boehner, they wanted it passed. The Democrats wanted it passed. But you take a look at all the Republicans who were urging that they vote yea in favor of this legislation today, only 65 Republicans in the House of Representatives voted for it, 133 voted against it. The Democrats had an overwhelming majority, 140 Democrats voted for it, 95 voted against it.

Why couldn't the Republican leadership, the Republican president get their fellow Republicans in the House of Representatives on board? BECK: Because there are too many Republicans and not enough conservatives in that party. There are too many politicians. And politicians will anything they have to get re-elected.

I can't speak for anybody. I can't even tell the average American what to do. I can tell you that this, I believe, is the most important decision quite possibly we have ever had to make as Americans. And I wish people would be more clear on this.

If you are for the bailout, know that this bailout is an ugly, ugly thing and changes, fundamentally changes, who we are as a nation and how we run our country. It also has great reflec reflections back to the Great Depression, where the government was just experimenting and doing things which caused great uncertainty.

However, if you're for it, I completely understand that. If you're against it, please don't think -- and I am against this bill -- but please do not think that this is like, oh, well, it's no big deal if I'm against it. This is going to lead us -- one way or another, I believe it is going to lead us to the Great Depression.

We are there on the precipice looking into the great abyss, and every American has to know that today and come to reckoning with that. Life in America is about to change.

BLITZER: Glenn Beck, we're going to continue our conversation. I know you're deeply worried about what's going on, not only the political fallout, obviously, but much more important how this is going to affect average folks out there who have a lot of investments, mutual funds, their 401(k)s, their IRAs. They're all going down right now -- Glenn...

BECK: I tell you, Wolf, I could care less about the politics right now. I think it is so -- I think it is so petty.

Where is Obama and where is McCain? Both of these guys should have their plan and they should be pushing their party and their people whichever direction they believe. They should be out front.

BLITZER: All right.

BECK: They're asking to be the leader of the free world. It is so petty and so small, politics on both sides on all of it. I'm sick of it.

The other thing is, I'm not worried about the people with the mutual funds and everything else. Most people have to think about, wait a minute, am I going to have a job? Am I going to be able to put food on table? Can I be able to get a loan to get my kid in college?

It is much different than just looking -- Ali said it just a minute ago. This is not about Wall Street. This now is about your street. And you need to -- you need to get that message out to people, that this is going to affect them in a very big way very soon.

BLITZER: Well, just to point out, a lot of the economists, the expert economists, are saying we could be facing a serious recession now, but very few say there's going to be a another Great Depression. You --

BECK: I do.

BLITZER: One of the serious economists, Glenn Beck.

BECK: I'm not an economist. I'm just a thinker.

BLITZER: All right, Glenn. Stand by. We'll get back to you.

Glenn Beck weighing in on this very important subject, the breaking news we're following right now.

Soon after the bailout compromise went down in flames on the floor of the House, Senator Barack Obama issued this appeal to both sides of the aisle...

(BEGIN VIDEO CLIP)

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: Democrats, Republicans, step up to the plate, get it done. And understand that even as you get it done to stabilize the markets, we have more work to do to make sure that Main Street is getting the same kind of help that Wall Street's getting.

(END VIDEO CLIP)

BLITZER: Let's go right to Suzanne Malveaux. She's in Denver watching this story. That's where Senator Obama has been campaigning.

Give us a little bit more of what they're saying behind the scenes, Suzanne.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Well, Wolf, I had a chance to talk with Linda Douglass, the spokesman for Barack Obama. And she says his schedule is not changing, his travel schedule. He will continue to campaign, that he never believed that it was particularly helpful to go to Washington and inject what they call presidential politics into this process.

However, he continues to get updates from Secretary Paulson, as well as House Speaker Nancy Pelosi. He did so before his big rally here. He will continue to do so.

And I asked her, are there going to be any additional recommendations he's going to make to his party to, to both these parties to come together for a passable bailout package? She said it's much too soon, much too early for that. Essentially, he has to find out, first and foremost, what happened -- Wolf.

BLITZER: All right, Suzanne. We're going to get back to you. Stand by.

We're also standing by to hear from Senator John McCain. He's getting ready to speak. We'll get his reaction to the House rejection of the bailout compromise.

Speaking in Ohio before the vote -- this was before the vote -- Senator McCain suggested he played a key role in reaching a bailout compromise, while he said that Obama did not. Listen to this.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: It's a matter of record. Senator Obama took a very different approach to the crisis our country faced. At first he didn't want to get involved, and then he was monitoring the situation. That's not leadership. That's watching from the sidelines.

(END VIDEO CLIP)

BLITZER: All right. Let's go right to Ed Henry. He's watch the campaign, getting reaction.

He's going to be speaking fairly soon, is that right, Ed?

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: That's right. He's in Des Moines, Iowa, right now. In the next few minutes, we expect Senator McCain to go on camera.

But we've already heard from his staff, and what they're basically trying to do, you heard him there even before the vote trying to go on offense, because John McCain is very much on defense now. He put a lot of political capital on the line with this bailout, suspending his campaign last week, saying that he was going to go off the trail, coming back here to Washington. But instead, he put all that capital on the line and failed. The vote did not pass.

What the campaign is trying to say is, look, four House Republicans supported this when he came to Washington. Now in the end, 65 House Republicans support it. So they're trying to say he turned 61 votes.

In a quote from Douglas Holtz-Eakin, his economic adviser, "Barack Obama failed to lead, phoned it in, attacked John McCain, and refused to even say if he supported the final bill. This bill failed because Barack Obama and the Democrats put politics ahead of country."

So they're trying to spin it around and say it's the Democrats' fault. But as you know, Wolf, it's clear that, instead, actually, it was Republican votes that killed this, not Democratic votes. So Senator McCain is going to have a very difficult time with this issue. You had 133 House Republicans who voted against it. That's what killed it -- Wolf.

BLITZER: And as we get ready to hear from Senator McCain right now, it comes at a time when he's been losing some ground in these public opinion polls over the past couple weeks or so.

HENRY: Absolutely, and specifically on the issue of the economy. And that has been -- this financial crisis has been front and center. John McCain had had the momentum coming out of the Republican National Convention, his pick of Sarah Palin part of that, of course. But over the last two weeks, we saw him two weeks ago talking about how the fundamentals of the economy are still strong. He walked that back.

And ever since that point, it's been looking as if all the atmospherics in the campaign suggesting that the economy, the financial crisis, has put John McCain on the defensive. He was trying to go on offense last week by saying he was going to suspend his campaign, but the fact that he put so much muscle and capital on the line over the bailout, and now it fails, it looks like it's putting him once again in a defensive posture -- Wolf.

BLITZER: All right. Stand by, Ed.

I want to alert our viewers that we're also standing by to speak live with the secretary of the Treasury, Henry Paulson. He'll be here in THE SITUATION ROOM. We'll be speaking with him momentarily.

And to our viewers, you're in THE SITUATION ROOM.

Happening now, Congress fails to pass its bailout package and the Dow Jones logs its biggest point drop in history. What about the other markets? CNN's Deborah Feyerick takes the pulse over at the Nasdaq.

401(k)s, other retirement programs, your IRA accounts sure to take a hit from the economic upheaval. We'll hear from financial expert Suze Orman on what it might mean for you. We'll get some practical advice.

And the vice presidential debate only a few days away. As Palin and Biden prepare, we measure who might get a bounce from last Friday's presidential face-off.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

But first, lets go to Susan Lisovicz. She's there on the floor of the markets. What a drop. I believe a 777-point drop, Susan, the biggest single point drop ever in U.S. history. Give us a little flavor of what was going on behind you.

SUSAN LISOVICZ, CNN BUSINESS CORRESPONDENT: Well, Wolf, we already saw a very nervous marketplace, and it was playing out with a sharp sell-off, a sell-off that, by the way, we had seen around the world. Why is that? We saw three big European financial institutions that were propped up by governments there. They also exposed to assets that really just were completely toxic, and they needed government intervention.

We saw Wachovia, one of this nation's largest banks, bought cheap, its banking assets bought cheap by Citigroup, which is now going to cut its quarterly dividend, issue new stock to help pay for that. It's had its own problems related to mortgage-backed assets. So the market was already unnerved. When we saw the vote, something that had been promised by the president, by Congressional leaders from both sides, it's going to get done, it's going to pass and we saw that it was in doubt, that's when you saw the market start to tank and that's what culminated in the biggest point drop in the history of the Dow industrials.

BLITZER: Henry Paulson is going to be coming out to the reporters. He's going to be coming out to the microphones over at the north lawn of the White House right outside "the west wing" momentarily. I guess he's going to try to reassure everyone that it's not over with yet.

LISOVICZ: Right, but the market meanwhile, we're seeing this play out on a day by day basis Wolf and that's the problem. I mean we're seeing -- we're -- Congress can take all the time it wants but the fact is we're seeing ramifications on a daily basis here. And that just really sort of exacerbates the situation. Later this week, we're going to get one of the most sensitive economic reports that always has -- can really push the markets. That's the jobs report for September. We've lost -- the biggest economy in the world has lost jobs every month this year. The expectation is that September will follow suit. No one expects even if this bill gets passed on a second try that it's all of a sudden going to be the magic pill that the U.S. economy will need. We continue to lose jobs.

The housing market is in its worst straits since the Great Depression. Wages aren't keeping up with prices that we pay for energy and for food and for other things, consumers are cautious about spending. So you know there are a lot of problems in the economy. You know, it is the ramifications that you see when excess is being wrung out, when you see the credit market seize up though and when you can't get access to capital that you need to expand your business, upgrade your business, make your payroll, you know, that's when have you real problems, and that's why I think there was such urgency behind this bill. That's why Hank Paulson and Ben Bernanke really said something needs to be done and done quickly -- Wolf?

BLITZER: All right. I want you to stand by Susan because we're waiting to hear from the secretary of the treasury, Henry Paulson. There you see the entrance, the driveway over there to the west wing of the White House. You see the marine guard as he is always there. They rotate obviously those marine guards. Momentarily, we expect the secretary of the treasury to be walking out of that door into the driveway and walking over to the microphones where reporters and camera crews have gathered to hear what he has to say and we'll get a sense of that momentarily.

Ed Henry is our White House correspondent. He's got a tough road to walk right now, Ed. What do you think?

HENRY: Very clear what the mission for Henry Paulson is. It's to calm the markets down. You're looking at the number at the bottom of the screen, 777 -- 777 points down. That is obviously going to be alarming people all around the world. Henry Paulson, why would they send him out and not the president? The president has been speaking for days now. He gave a primetime address to the nation last Wednesday night trying to calm everyone down but also trying to bring Congress along. It obviously failed. Henry Paulson is a unique figure in this administration. He carries a lot of weight because he's a former Wall Street heavy, a former Wall Street executive himself. He has a lot of credibility on Wall Street and a lot of credibility in Washington -- Wolf?

BLITZER: As we await to hear from Secretary Paulson, once he emerges from those doors, we're going to go there live, I want to get back to you, Ed. I want all of our reporters and analysts to stand by. All of this taking place only a few days before the next debate, the vice presidential debate, both of the vice presidential nominees are gearing up for their first and only debate that will take place Thursday night.

The Democrat Joe Biden is rehearsing with the Michigan Governor Jennifer Granholm, she's a stand in for Sarah Palin, and Governor Palin will be spending a lot of time over the next few days at John McCain's Arizona ranch for what's being billed as a debate boot camp. The showdown Thursday night in St. Louis at Washington University in St. Louis, coming on the heels of some widely publicized gaffes in recent days by Sarah Palin. Let's go to Brian Todd, he's working this part of the story for us. All right. Brian, tell us what's going on right now.

BRIAN TODD, CNN CORRESPONDENT: Wolf, the McCain campaign is holding firm on Sarah Palin despite some of those public missteps. They believe that she is a valuable asset to this campaign, able to energize voters, really connect with them. They also believe that these missteps in public have been way overblown. Right now, Palin is under a microscope to prove just that.

(BEGIN VIDEOTAPE)

TODD (voice-over): At the very least, Sarah Palin's getting valuable training on where political curveballs might come from. Like from a grad student in a south Philly cheese steak joint.

UNIDENTIFIED MALE: So we do cross border, like Afghanistan to Pakistan you think?

VOICE OF GOV. SARAH PALIN, (R-AK) VICE PRESIDENTIAL CANDIDATE: If that's what we have to do to stop the terrorists from coming any further in, absolutely we should.

TODD: On its surface, a position that seems more like Barack Obama's. It prompts her running mate to say on ABC's "This Week," we're on the same page.

MCCAIN: She shares my view that we will do whatever is necessary. The problem is you don't announce it. You don't say to the Pakistanis we're coming in unilaterally and carry out operations.

TODD: But as she prepares for what's clearly her most important public appearance of this campaign, GOP strategists say the stakes for Sarah Palin and the McCain campaign have been hyped up considerably over the past week. McCain's gambit on the financial bailout raised them as did Palin's own performance in a CBS news interview parodied on "Saturday Night Live."

UNIDENTIFIED FEMALE: Ultimately what the bailout does is help those that are concerned about the health care reform that is needed to help shore up our economy, helping -- oh, it's got to be all about job creation.

TODD: McCain campaign officials tell us they're not worried about Palin's debate performance, they say some of her other answers in network interviews shows she understood the issues. Campaign aides say Palin is going to Senator McCain's ranch in Arizona to prepare and that some top staffers from the senator's campaign will help her. Analysts say she's got a tall order to show command of the facts and not look rehearsed.

LISA BURNS, MEDIA ANALYST, QUINNIPIAC UNIV.: If she's not comfortable at this point, she needs to do whatever it is that takes for her to get more comfortable so she can say a few things that are possibly off script, yet of course, are still going to represent McCain's stance on these issues.

(END VIDEOTAPE)

TODD: So Sarah Palin's clearly got to demonstrate command of the issues but not look heavily coached. GOP strategists we spoke to say that while Palin's own gaffes have contributed to the pressure on her right now, it is also true that expectations for her are now so low, that all she's really got to do Wolf is not make a major mistake on Thursday. It's going to be fascinating. We're going to be watching for her mistakes, Joe Biden's mistakes. It's almost going to be surreal watching this debate.

BLITZER: Well a lot of people, tens of millions will be watching Thursday night. Brian, thanks very much.

Fareed Zakaria is joining us right now, he's a CNN world affairs analyst. He's the host of Fareed Zakaria "GPS" that airs on Sundays. Fareed, you wrote a provocative column. I woke up this morning and read it in "The Washington Post". Among other things, you said this, you said, "Senator McCain says he always puts country first. In this important case, it is simply not true." And basically, you say it's time for Sarah Palin to drop out for the good of the country. Explain what you have in mind.

FAREED ZAKARIA, CNN WORLD AFFAIRS ANALYST: Wolf, I'm really not looking at this as a game. I'm looking at this as a serious matter of governance. I think you've just been watching, you've been anchoring very well exactly what is going on here. The American financial system is in the greatest crisis it's been in since the 1930s. The economy is probably more stressed than at any point from various different areas. And this is complicated stuff. I think that there is a fundamental test of governance that is going to have to be applied and is going to have to be applied to the House and to the House Republicans in particular, but look, it applies all the more seriously to the people we are considering having as president and vice president. They have to be able to govern. You know, we can talk about the games and the gaffes, but what has become absolutely clear watching Sarah Palin in her responses to interviews and the Katie Couric interview was the last straw frankly, there were others. Is that it's not that she when asked these complicated questions or difficult questions, it's not that she doesn't know the right answer. It's that she clearly does not understand the question. This is way beyond anything we have ever seen from a national candidate.

BLITZER: What about the argument that Senator McCain makes she's got a proven track record. She's very popular in Alaska as governor, has the highest job approval rating of any sitting governor right now. 80 percent like what she's doing in Alaska and she brings this executive experience with her that neither Joe Biden nor Barack Obama has.

ZAKARIA: Well, you know, if you delve into that, you discover that the executive experience is running a very small town. Alaska itself is an unusual state. 85 percent of its budget comes from oil revenues. Basically you're just distributing oil revenues that are being provided for you by digging holes in the ground. This is good training to be president of Saudi Arabia, not the United States. Look, what is absolutely clear is we are dealing with very, very difficult issues.

The financial crisis is probably the most complicated financial crisis we have experienced yet. And it was absolutely clear the most scary answer in the Katie Couric interview was not on foreign policy. The foreign policy stuff was funny. The scary answer was on the economy. The one you displayed switching back and forth between "Saturday Night Live" because it was absolutely clear, that she simply did not understand any of the issues involved. She did not understand the question. This is a woman who is going to be as the phrase goes a heartbeat away from a 72-year-old man if McCain wins. The actuarial odds of her becoming president are very high. They are actually significant. It's sort of about a one in five chance.

BLITZER: All right, Fareed, thanks very much. Fareed Zakaria is the host of Fareed Zakaria GPS that airs Sundays on CNN.

I want to go up to Senate right now, Senator Judd Gregg, Republican of New Hampshire, the ranking Republican on the Senate budget committee is speaking on what's going on. Let's listen.

(JOINED IN PROGRESS)

SEN. JUDD GREGG, (R) NEW HAMPSHIRE: -- to mortgage foreclosures, by reorganizing we can help folks who have real problems with their homes and had extremely aggressive oversight by the Congress and by an independent board. So it was, you know, considering the emergency and the difficulty of moving very, very quickly, this was a package that addressed most of the major public policy issues that at the time seemed current and, of course, you had the House issue on insurance. And so I'm willing to go back and take another look at whatever anybody wants to do because that's my job as the chief negotiator. But I think the bottom line is this -- if we don't act promptly around here, and effectively, then a lot of people are going to lose their jobs. And Main Street is going to be put into dire straits. So we have a responsibility as leaders said to do something, do it quickly and do it in a bipartisan and cooperative way. [INAUDIBLE QUESTION] I can't speak to that issue.

BLITZER: All right. There are the Republicans, they're leaving that little news conference. But you heard a very dire, very dire assessment if the Congress fails to act right now, a lot of Americans, Senator Judd Gregg says, will be losing their jobs. We're not only talking about investments, retirement funds, credit, but losing their jobs because companies presumably won't be able to get credit and that's going to undermine their ability to meet payroll expenditures.

We're going to watch what's going on because the enormity of what's going on is significant. Here comes Henry Paulson, by the way, the secretary of the treasury walking over to reporters at the White House.

HENRY PAULSON, U.S. TREASURY SECRETARY: Good afternoon. I'm very disappointed in today's vote. But leaders on both sides of the aisle have worked very hard. I've spoken to them, and I know they share my great disappointment. We've experienced significant turmoil in our financial markets in the last few days. Including the collapse of Washington Mutual and Wachovia here and the failure of two major financial institutions in Europe. Markets around the world are under stress and that reduces the availability of credit that businesses across America depend on to meet payroll and to purchase inventories. Families, too, feel the credit crunch as it becomes more difficult to get car loans or student loans.

I and my colleagues at the fed and the SEC continue to address the market challenges we are facing on a daily basis. I am committed to continue to work with my fellow regulators to use all the tools available to protect our financial system and our economy. Our tool kit is substantial, but insufficient. Therefore, I will continue to work with Congressional leaders to find a way forward to pass a comprehensive plan to stabilize our financial system and protect the American people. By limiting the prospects of further deterioration in our economy. We've got much work to do. And this is much too important to simply let fail -- What?

UNIDENTIFIED FEMALE: How long do you estimate it will take if there is still no Congressional action before the country starts to slip into what the president calls a long and painful recession?

PAULSON: Well, we need to work as quickly as possible. We need to get something done. I'm going to be continuing to consult with Congressional leaders to find a way forward to get something done as soon as possible. We need to get something done.

UNIDENTIFIED MALE: Do you still think you can put something close to your original plan back together?

PAULSON: We need to put something back together that works, and as you've heard me say, we believe that our plan and the plan that we developed with the Congressional leaders and worked so hard is a plan that works. And we need a plan that works.

UNIDENTIFIED MALE: How soon do you need it, sir?

PAULSON: We need it as soon as possible. And we're just committed to working with Congressional leaders to get it done.

UNIDENTIFIED FEMALE: Thank you.

PAULSON: What? -- Eric.

UNIDENTIFIED MALE: What would you like to see in this?

PAULSON: We had a plan that we'd worked very hard on that did the job. Gave us the tools we needed to protect the financial markets to protect the American people. So where we go from here is something we're going to be working on with Congressional leaders because we need to get something done and we're going to be working hard on it. One more question.

UNIDENTIFIED MALE: Is the banking system able to withstand the stress it's under right now?

PAULSON: Our banking system is -- has been holding up very well, considering all of the pressures. And there's been a lot of work that's been done. And you've seen us now for a period of months and weeks taking strong actions and actions that are essential in order to protect the banking system and the economy. And as I said to you, we have significant tools in our tool kit. But they're not sufficient. And so we're going to continue to work with what we have until we get from Congress what we need. Thank you very much.

BLITZER: All right, there he is, Henry Paulson, a man under intense pressure right now. The secretary of the treasury, himself a former chairman of Goldman Sachs. He knows this business. He is clearly disappointed he says he has great disappointment that the House of Representatives voted today against the $700 billion bailout plan o great national rescue plan as the White House likes to call it.

Ali Velshi was watching and listening. It was interesting, he spoke about two banks, Washington Mutual which did collapse but he also said Wachovia collapsed. It didn't actually collapse. Citigroup bought it out earlier today, but it just stopped short apparently of going under. You know, he's very precise in his words. I was surprised when he linked Washington Mutual with Wachovia, but it does underscore the enormous crisis the banking system is going through right now.

VELSHI: Two major banks are gone bringing the total to 12 banks that have disappeared this year. Three major investment banks. If you went away for six months on vacation and came back, the landscape has really changed and so has the language that both Henry Paulson and the president have been using about this. Now you know he was asked very directly, how long can we go without a deal? This is a question we get. It's a question I get, it's a question everybody gets and I don't think anybody is being coy when they say we need it soon. Here's the problem Wolf. We've never actually seen this before, we've never been in this particular situation where good companies try to get money and then can't or it's too expensive for them to do business. That's the problem.

What's happening is there are people in Washington saying look, we can take a little more time to do this. The economy won't collapse and they're right. The economy won't collapse one day. It's not like we're going to wake up on Friday and the economy's gone. The problem is, bit by bit, we will start to see problems. I'll tell you anecdotally, we're hearing major companies having problems raising money, operating cash. We're hearing company's franchises which usually finance their franchisees not doing that anymore, telling people to go to the bank. So business is grinding to a halt wherever money needs to be exchanged.

As you know very well Wolf, that is how the system is structured. We may not like it, we may have gone too far in terms of credit and leverage, but the way we operate right now is business operates on borrowed money on the expectation that that money will come later. If we don't lube that engine again, it is going to work its way all the way down to people's salaries, people's small businesses, people's ability to get a mortgage or sell a House.

BLITZER: What a dire scenario that you and the secretary of the treasury and others including Judd Gregg we just heard from him, the ranking Republican on the senate budget committee, one of the key negotiators in this proposed legislation which went down in flames on the House floor today. All of you have laid out. We're getting word that John McCain, the Republican presidential nominee is getting ready to walk over to those microphones in Des Moines, Iowa, momentarily and make a statement, maybe answer some questions. Not sure if he'll answer questions but definitely make a statement. Once he goes there, we'll bring that live to you.

But let's discuss what's going on in our Strategy Session. Donna Brazile, our Democratic strategist is joining us, Terry Jeffrey is here, conservative commentator and editor in chief of the Cybercast News Service. This is pretty scary stuff, Donna. The Democrats I think it's fair to say, if you look at the votes, they came through 140 Democrats voted in favor of it. 95 voted against. Only 65 Republicans voted in favor. 133 voted against not enough to get the job done though that a lot of the Republican leaders, the Republican president, Henry Paulson and others said they needed, including John McCain.

DONNA BRAZILE, CHAIR OF DEMOCRATIC NATIONAL COMMITTEE'S VOTING RIGHTS INSTITUTE: Wolf, I agree with Barney Franks that notwithstanding the holy holiday tomorrow, members, those who can should stick around and try to find the votes. This is a very frightening situation. Not only for taxpayers who are worried about bailing out Wall Street but small business owners who have to make payroll this week. Of course, common sense would tell you that leaders should put politics aside and just come to the rescue of the country. But there's so much politics in the water right now that nobody wants to drink this bottle.

BLITZER: The House has adjourned until Thursday, they're going to come back on Thursday I suppose. Leaders could be meeting behind the scenes but they were supposed to go into recess and let everybody go back and start campaigning. We're only 35 or 36 days away from an election. But they're coming back on Thursday.

TERRY JEFFREY, EDITOR-AT-LARGE, "HUMAN EVENTS": Right, obviously this is a very serious problem, Wolf. I think the leadership of both parties have to address some of the serious concerns, some of the conservatives in the House of representatives have been putting forward the last couple of days. John McCain stated I thought a very good principle earlier that he's not living up to. He said we don't want to bail anybody out who made imprudent decisions. Though we have to protect ourselves against systemic problems in the economy. All right, we have a systemic problem here, but this bill that they've tried to put through the House today, part of the problem is it is a bailout.

For example, sections 109 and 110 of this bill, Wolf, they actually mandate that the secretary of treasury try and mitigate mortgage problems by among other things having the government after it takes control of these loans change the principal that is owed, pay the interest rate that is owed? Putting concrete terms.

BLITZER: That was designed presumably to help people stay this their homes.

JEFFREY: But Wolf put that in concrete terms of middle American people who get up in the morning, who work every day, who didn't borrow more money than they can pay off. Yet two people in the same neighborhood, one person is working hard paying off his mortgage, the guy down the street bought a House he couldn't afford. What the Congress is trying to tell us today Wolf, is you're going to take money from the person who worked hard and bought a House he could afford and give it to the guy down the street who bought a House he couldn't afford. That's a basic injustice and the thought of it is, that the political elite and the Wall Street elite are not speaking to and not addressing.

BLITZER: Democrats sought to get that in to help a lot of people who can't afford to make their increased interest rate payments actually be able to stay in their homes.

BRAZILE: Wolf, I understand Terry's anger and I understand his passion because as a taxpayer and a homeowner, I feel the same way. However, if the Houses on my block go down, that means I have to pay more in local property tax. That means I have to worry about unemployment, food stamps.

BLITZER: It means the value of your home is going down too.

BRAZILE: I was going to mention that as well. So we have to help.

BLITZER: But are you concerned Terry, you just heard the secretary of the treasury, you heard Judd Gregg, you heard the president of the United States say that people's jobs are on the line right now. Forget about the fat cats on Wall Street but people's jobs are on the line.

JEFFREY: Absolutely, that's the systemic threat you don't want to demagogue this but I think I just explained this and the microcosm, what's going on in American neighborhoods. The big, big question is where we end up at the end of the day. Are we still going to have a free market economy where the market works, where people pay for taking risks?

BLITZER: Is that ideological principle so much more important to you than the practical impact of what's about to happen?

JEFFREY: It's not an ideological principle, it's practical. The practical reason we got into this problem is because of government intervention in the mortgage markets, it basically was politicians saying I'm going to help you buy a House even if you don't have the 20 percent down payment. Even if you have impaired credit. At the end of the day we have to get back to a market that works, where the government isn't controlling it and a bunch of Wall Street bankers aren't controlling it.

BRAZILE: As Congresswoman Maxine Waters said today and perhaps she's probably one of the most progressive members of Congress, she voted for this and she said this is not a perfect bill. There are people who are hurting out there. But she voted for it because she understands if the credit market freezes up, we're in trouble, everyone's in trouble. Homeowners are in trouble, small business is in trouble. So progressives also have principles but one of the principles is that we should help everybody in this crisis, not just Wall Street.

BLITZER: Nobody liked this, everybody sort of hated it but they were worried about the consequences of failure to see this pass and those consequences at least right now look like some of them are going to be implemented and take a look at the markets today. All right guys.

JEFFREY: All right.

BLITZER: Passionate discussion which is important because this is big and important news. We're going to take a quick break. The Dow Jones industrials down today more than 770 points. That's a record. It's the largest single point plunge at the closing bell ever.

The bailout of Wall Street rejected by the House, as you know. But what does all the turmoil in the markets and in Congress mean for your wallet? I'm going to be speaking live with personal finance adviser Suze Orman. She's going to be here in THE SITUATION ROOM.

Congress and the presidential candidates in quite a fix right now. Paul Begala and Leslie Sanchez they're going to be standing by, they're going to be offering their thoughts on what could happen next. And two very different vice presidential candidates. Questions about Joe Biden and Sarah Palin's style and substance. And remember, we're waiting to hear from Senator John McCain. He'll be walking out of that area over there over to the microphones. He's in Des Moines, Iowa right now. We'll hear what he has to say about this financial meltdown. Lots more coming up right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Looking at a live picture at an auditorium or a room in Des Moines, Iowa. John McCain expected to walk through those curtains, make a statement on this historic day, the single largest point drop ever in U.S. history, 777 points. While we wait for Senator McCain, let's go to Jack Cafferty for "The Cafferty File" -- Jack?

CAFFERTY: Didn't he suspend his campaign and want to cancel the debate because he was going to save all this from happening?

BLITZER: He was going to try.

CAFFERTY: How did that work out?

BLITZER: Not so good.

CAFFERTY: Yes, I know. The question this hour: is the failure of the bailout reason enough to vote all incumbents out of office. I don't even think you need the bailout, I think that's a good policy to follow any old day.

Mark writes: "I'm beyond words to describe my disappointment and anger in our politicians. I sat and watched in disbelief as the vote came through this afternoon. What are we? Invisible? Just watch come the first Tuesday in November. With more of us out of work, more bank failures and a total collapse of our economic system, watch the incumbents fall harder than today's stock market."

Jim in Iowa: "With their being no guarantees the bailout would work, what if it didn't? The stock market would tumble, banks would fail, and the taxpayers would be out the $700 billion. The bailout was a bad idea foisted on us by a president who's cried wolf more than once too often. A president interested only in the super rich."

J.C. writes: "The Republicans can kiss the election goodbye. They've done more for the Democrats than the Democrats have. Unfortunately it is bad for all of us, normal Americans!"

Jan in California: "Something's got to happen Jack. McCain played politics with this and now it's us who are going to be suffering as the economy goes in the tank. They didn't sell this bill correctly. When Goodyear can't pay people, it's us who will suffer."

Bob writes: "The hubris of our elected officials that are supposed to be looking out for us is finally biting them on the can. Good. This bailout was a giant leap toward national socialism. I'd rather live in a cardboard box than give up my rights. It's going to hurt everybody in the short term but artificially propping up these markets would kill the ideas this county was founded on in both the short and long-term."

And Dave in Arizona writes this: "I now know why revolutions happen. Our revolution must happen in November at the voting booth and get these self serving, incompetent, plain old dumb clowns out of office."

If we -- if you didn't see your e-mail, you can go to my blog at CNN.com/caffertyfile and look for yours there among hundreds of others -- Wolf.

BLITZER: All right, Jack. Stand by.

And to our viewers, you're in THE SITUATION ROOM.