Business hits back after Congress bailout vote

US House Minority Leader John Boehner (R-OH) (C) talks with reporters about progress with congressional negotiators working on a bailout package for the current financial and banking crisis, at the US Capitol in Washington, September 27, 2008.

WASHINGTON (Reuters) - Business lobbyists scolded the U.S. Congress and threatened political payback after lawmakers handed the financial services industry a stunning defeat by killing a $700-billion Wall Street bailout.

The vote Monday in the House of Representatives to reject the rescue plan, proposed by the Bush administration September 20 and modified by congressional leaders over the past week, came as a rude shock to powerful and deeply entrenched interests.

Major banks and executives from the financial sector overall donate heavily to political campaigns and spend a lot of money on government lobbying to push their agenda.

The titans of high finance don't always get their way on Capitol Hill, but the 228-205 House vote was unexpected and drew a flurry of private sector counter-punches.

The U.S. Chamber of Commerce, the nation's largest business lobbying group and a vocal bailout proponent, responded quickly after the vote with a letter to all members of Congress.

"Make no mistake: when the aftermath of congressional inaction becomes clear, Americans will not tolerate those who stood by and let the calamity happen," said the letter, urging reconsideration and passage of "financial rescue legislation."

"The chamber will score votes on, or in relation to, this issue in our annual 'How They Voted' scorecard," it said.

House members who supported the bailout have received about 50 percent more in campaign contributions from the finance, insurance and real estate sectors in their congressional careers than those who opposed the emergency legislation, said a campaign finance watchdog group after the vote.

The Center for Responsive Politics, using data going back to 1989, said members of Congress who helped defeat the bailout had, on average, collected nearly $590,000 from the industries most affected over their careers, while the bailout bill's supporters had received $883,000.

VERY DISAPPOINTED

Securities Industry and Financial Markets Association President Tim Ryan called the vote in the House "very disappointing" in a statement afterward.

Ryan's association, which represents large financial firms, sent an alert to its members on Monday morning urging them to pressure lawmakers in the House to approve the bailout.

Even software group Microsoft Corp weighed in on the issue. General Counsel Brad Smith issued a statement urging the House "to reconsider and to support legislation that will re-instill confidence and stability in the financial markets."

The bailout called for spending a fortune in taxpayer money to buy up broken financial assets created by Wall Street banks back when it looked like home prices had nowhere to go but up.

Now that the real estate bubble has popped, many financial institutions are sitting on bad debts they cannot value or sell and the situation is locking up global capital markets.

Advocates of the package argued it was needed to address a crisis that, if allowed to spread, would damage the economy.

In debate on the House floor before the vote, Connecticut Republican Rep. Christopher Shays said, "While this is not 1929 all over again, it could be if we step aside ... We are witnessing the economy coming to a grinding halt."

The bailout proposal represented a huge bet that buying up the broken assets and dumping them into a government portfolio would unlock the markets and get capital flowing again.

"Voting against this is a complete mistake in terms of misreading where the economy is right now," Bruce Josten, executive vice president for government affairs at the U.S. Chamber of Commerce, told Reuters in an interview.

The Financial Services Forum, which also represents financial interests, urged lawmakers to work together to pass this critically important legislation. "Swift action must occur to get the U.S. economy on the road to recovery and economic growth."

But skeptics in both parties, during House floor debate, questioned the need for the bailout and whether it would work.

Both supporters and opponents complained about the way the administration presented the proposal as an urgent demand, accompanied by warnings of potential economic collapse, after years of sky-rocketing Wall Street bonuses, abusive mortgage lending, and regulatory neglect by the administration.

"This isn't legislation. This is extortion," said Florida Republican Rep. Ginny Brown-Waite. "This is so embarrassing it turns the stomach of most Americans."

(Reporting by Kevin Drawbaugh; additional reporting by Karey Wutkowski; Editing by Tim Dobbyn)