Republican congressional leaders dropped an ideological bombshell on President George Bush’s lap Thursday when they balked at approving his $700 billion bailout of the financial industry.

Bush vowed today that “we are going to get a package passed,” Reuters reported.

The meeting Thursday, which also included presidential candidates Sen. John McCain and Sen. Barrack Obama, included a moment in which U.S. Treasury Secretary Henry Paulson bent on one knee as he pleaded with House Speaker Nancy Pelosi not to “blow it up” by pulling Democratic Party support for the package, the New York Times reported.

As if passage of the bailout plan weren’t enough to keep Washington occupied, with government finance experts warning of a worldwide financial crisis if it is not approved, U.S. authorities also seized Washington Mutual Inc., selling its assets to JPMorgan Chase & Co. for $1.9 billion in what was called the largest bank failure in U.S. history.

By taking on all of Washington Mutual’s troubled mortgages and credit card loans, JPMorgan Chase will absorb at least $31 billion in losses that would normally have fallen to the Federal Deposit Insurance Corp.

John Sorensen, president and CEO of the Iowa Bankers Association, said it is crucial to stabilize global capital markets.

“Our view of it is that it is important for the Department of Treasury and the Federal Reserve to do what’s necessary to stabilize those markets,” Sorensen said. “Essentially what we’re experiencing is frozen credit markets, and whenever businesses don’t have access to credit, big or small, that has a ripple effect throughout the economy.

“Iowa is somewhat unique in that large sectors of the state’s economy, particularly agriculture and manufacturing, don’t have those immediate impacts. And we’ve had much more stable home values, and that translates into probably more consistent and appropriate lending.”

Asked whether some Iowa banks that are carrying defaulted mortgages from the collapse of Regency Homes would be likely to benefit from a possible purchase of those assets by the government, Sorensen said it’s too early to know what may happen.

“Mortgage-backed securities (in which loans were sold and assembled into debt obligations that were bought by investors) will probably be looked at initially,” he said. “I don’t know when they would get to whole loans. We agree (the bailout plan) needs to be broad to have an impact.”

Sorensen was quick to point out that commercial banks, with deposits protected for up to $100,000 per account by the Federal Deposit Insurance Corp., are the primary source of credit in Iowa.