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Posted by on Sep 30, 2008 in Economy, Politics | 4 comments

Wall Street Financial Meltdown: So Who Bailed On The Bailouts?


And now the “blame game” begins.

Who bailed on the bailout?

Who sandbagged a bailout bill that seemed on the verge of just passing? Who most contributed to what will go down in history of as a failure of Washington political leadership, leading to the stock market emulating the good ship Titanic? And where will the Titanic the economy go from here?

Did the bailout bill flop and send just the wrong signals to Wall Street due to Democratic Senator Barack Obama and Democratic partisanship? Or did Republicans in the House — who voted in large numbers against the bailout — have a key role? Was a lame-duck President not just lacking in clout but now triggering repudiation among conservative GOPers a factor?

Was GOP Presidential nominee Sen. John McCain parachuting himself into Washington a factor? And are voters supposed to forget him taking credit for the bill’s expected passage right before it went south yesterday? Could it really be true that supposedly veteran and hardened politicos, faced with one of the worst economic crises in American history, changed their minds and voted against the bailout mainly to get back at Speaker of the House Nancy Pelosi for a speech many Republicans found too partisan and offensive?

These are just some of the questions now being passionately debated by partisans, new and old media, talk show host and over the water coolers — if companies haven’t cut the water coolers out to reduce expenses.

Two political facts seem most evident:

(1) The failure of the bill in the face of the worst financial crisis since the Great Depression represents a massive failure of Washington leadership in the executive and Congressional branches, of both parties. They say “if it’s not broke, don’t fix it.” In Washington’s case, it’s broke. Rather than put aside partisan recriminations and finger pointing and tackle the bailout with the same spirit as American had immediately following 911, yesterday’s vote reeked with the smell of election year decay.

(2) It won’t help McCain. His dramatic announcement that he would suspend his campaign and work to solve the problem revealed he had as much clout with House Republicans as President George Bush has — tethering McCain even more with the economic issues and raising doubts about whether Republicans in Congress would go along with him if he’s elected President. By most accounts, a Congressional compromise seemed close until McCain announced he’d go to Washington. It’s not that he did something wrong; once he went to Washington along with Obama, Presidential politics was inserted into the fragile process.

Here’s an extensive section of news and weblog reaction to the events:

The AP:

The house always wins, gamblers are warned, and the U.S. House made John McCain pay Monday for his politically risky, high-profile involvement in a financial rescue plan that came crashing down, mainly at the hands of his fellow Republicans.

The bill’s defeat can hardly be blamed on the GOP presidential nominee, and it’s possible that a revised measure might succeed. But by his own actions last week, McCain tied himself far more tightly to the failed bill than did his Democratic opponent, Barack Obama.

McCain argues that action is better than inaction in times of crises. His efforts, however, were aimed squarely at House Republicans, the group mainly responsible for the bill’s demise, which triggered a record drop of nearly 800 points in the stock market, the most ever for a single day.

If Congress’ impasse leads to a credit crisis, “it’s not going to be good for McCain,” said veteran Republican consultant John Feehery.

Another prominent Republican strategist, who would talk only on background to avoid antagonizing associates, said the vote was trouble for McCain.

As recently as Monday morning, only minutes before the House’s stunning vote, McCain suggested that his call for a White House summit meeting Thursday, and his visit with unhappy House Republicans that preceded it, had helped clear the way for the bill’s passage.

The Politico details what McCain had been saying about his role in a bailout agreement when he thought it would pass.

Andrew Sullivan links to this Robert Reich prediction on what will come next:

A scaled-down bill will be enacted by the end of the week. It will provide the Treasury with a first installment of $150 billion. Treasury can use it to back Wall Street’s bad debts with lend no-interest loans of up to two years, until the housing market rebounds. Or to invest in Wall Street houses directly, in exchange for stocks and stock warrants. There will be strict oversight. Congressional leaders will promise further installments, but with conditions calling for limits on salaries and relief to distressed homeowners.


With a firm rejection of Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke, the House Republicans have told the financial markets that they’ll have to solve their problems on their own, without $700 billion of taxpayer money.

In a stunning vote on Monday, the House rejected the financial rescue package on a vote of 205 to 228. Republicans voted against the bill by a two-to-one ratio, and in the process rejected their own leadership, who had worked for nearly a week to craft a bill that could gain a majority. Nearly 100 Democrats also voted against the bill, spurning their leadership.

Many Republicans in the House were never persuaded that the credit crunch in the financial system is an impending disaster deserving of taxpayer aid. Politicians who had cut their teeth on free-market principles couldn’t accept the idea that the federal government should back up the banks who had foolishly bet everything on the housing bubble.

Or they didn’t want to face the voters in six weeks and explain why a Republican would vote for the biggest government bailout ever.

Now we shall see if Paulson and Bernanke were right when they said the credit crisis could worsen and inflict dire consequences on the global economy. Or perhaps the plan’s many critics were right in saying that credit markets and home prices can adjust on their own, once the promise of free money is withdrawn.

Bill Kristol wants McCain to resuspend his campaign (presumably this would mean no Vice Presidential debate for Sarah Palin), go to Washington and save the economy:

No one wants to take ownership of the task of rescuing the economy right now. The Bush-Paulson plan has failed. The administration, House Democrats, and House Republicans (above all) have all proved unable to deliver. But there is someone who might be able to save the economy–and incidentally the Republican party: John McCain.

He should come back to D.C. But this time he needs to take charge–either by laying out the outlines of his own plan, or presiding over meetings at which a real plan that can pass is cobbled together. He might also insist on the immediate passage of a couple of provisions (raising or removing FDIC insurance limits, for example) that could mitigate the damage that could be done over the next few days.

It’s time for McCain to act decisively, and to lead, as he did with the surge. No one else seems up to it.

ABC News’ George Stephanopoulos on four options Congress is considering:

# 1 — Muscle Bailout Bill Through House: Some leaders suggest those House Republicans on the fence will be swayed by seeing what the markets do tomorrow, which could be more bad news. The Dow Jones Industrial Average dropped over 700 points today as the administration’s bailout bill failed in Congress This option would see House leaders try again to muscle through the votes they need to get the $700 billion bailout bill passed.

#2 — Pass Bailout in Senate First: Some Senate and House leaders have been talking about letting the Senate go first and pass the bailout package, ABC News has learned. There appears to be broader support in the Senate for the bailout package. This option would see the Senate vote first which would increase the pressure on the House to pass the Bush administration’s bailout bill.

#3 — Make Small Tweaks to the Bill: Congressional leaders wonder if perhaps there are a couple of small tweaks they can make to the package that would bring along the 12 votes they lost the vote by. Option A, sources say, could be adding a line that some economists have said is absolutely necessary for the FDIC to guarantee all deposits in transaction accounts, not just up to $100,000. That would deal with the credit crunch and it would be quite popular, some on Capitol Hill argue. Option B would be eliminating the mark-to-market rule that many Republicans and conservatives complain about, which ensures financial decision-makers must show their losses in real time.

#4 — Get More Democrats On Board: Finally, one other unlikely option talked about on Capitol Hill is to try to pass the bill almost entirely with the Democratic majority in the House. That would require adding a major stimulus package favored by Democrats, infrastructure spending, unemployment insurance spending, and heating and food stamp assistance for low-income Americans.

Times Online:

In the 1930s, the US Congress did more than its fair share in helping to turn a financial crisis into a global depression. Yesterday it looked as though it was auditioning to assume that role again.

Back then, Congress’s vote for protectionist legislation, the infamous Smoot-Hawley Tariff Act, which erected trade walls around America, almost brought to a halt the free movement of goods and services vital to the efficient functioning of the global economy.

Yesterday, in rejecting a plan to help to rescue the US financial system that had been constructed and reconstructed by the Bush Administration in collaboration with the Democratic and Republican leaderships, the House of Representatives dealt a hammer-blow to an already almost immobilised global financial system.

Larry Kudlow:

A number of Republican House members and staff, along with others who are plugged in, are telling me that Nancy Pelosi and the Democrats will come back with a new bill that includes all the left-wing stuff that was scrubbed from the bill that was defeated today in the House.

As this scenario goes, the House Democrats need 218 votes, and they have to pick up a number of black and Hispanic House members who jumped ship because the Wall Street provisions, in their view, were too benign. So things like the bankruptcy judges setting mortgage terms and rates, the ACORN slush-fund spending, the union proxy for corporate boards, stricter limits on executive compensation, and much larger equity ownership of selling banks through warrants will all find itself back in the new bill. Of course, this scenario will lose more Republican votes. But insiders tell me President Bush will take Secretary Paulson’s advice and sign that kind of legislation.

Ezra Klein:

This is a huge failure. A revolt of the incumbents. More Republicans voted to kill the bill than did Democrats, but not by that much. The leadership of both parties were whipping in the bills favor. The president backed the legislation as did the two candidates.

But the votes weren’t there. Presumably, leadership thought they would be. Congressional sources say there was a deal. Democrats would bring 110 votes, and so would Republicans. Democrats brought 140. But the Republican whip operation fell apart, or never engaged. The votes weren’t there. And as that reality crystallized, some of the votes that were there vanished. Boehner apparently choked up on the floor. “Think about what happens to your friends, your neighbors, your constituents,” he begged. “These are the votes that separate the men from the boys and the girls from the women — these are the votes your constituents sent you here to vote for on their behalf — these are the kind of votes where we have to look into our souls.”

With leadership — and elites — so aggressively behind the bill, the massive defections suggest that congressmen are sensing a towering populist outrage. Like on the immigration bill, the opposition did not fear their party but their voters. The implication here is that the politics of the bailout are much more intense than most currently recognize.

The question is what comes next….

The San Francisco Chronicle:

House Speaker Nancy Pelosi looked ashen as she faced reporters this afternoon, the stock markets plunging on news that the House had defeated, 205-228, a $700 billion bailout of the U.S. financial system.

“What happened today cannot stand,” Pelosi said. “We must move forward, and I hope that the markets will take that message.”

The markets did not. They plummeted as two thirds of Republicans and more than a third of Democrats voted no.

….Majority leader Steny Hoyer, D-Md., who just moments before had declared in a stirring speech that in a time of national crisis there are no political parties, only Americans, angrily confronted Republican dissenters. Pelosi and her lieutenants huddled to no avail, looking up nervously at the roll call as votes failed to materialize.

“Everybody was just sitting there in awe,” said Rep. Sam Farr, D-Monterey, who voted for the bill. Republicans “just walked away from their leaders and threw McCain under the bus.”


I watched Fox, MSNBC, CNN tonight and without fail all of them screamed that the sky is falling and that if this bill isn’t passed on Thursday at the next vote all is over. Let’s not forget however that all the major news orgs are run by giant corporate conglomerates that have heavy investment in Wall Street so it’s no doubt that their anchors are simply relaying the panic of their employers.

The market plunged, and might do so again tomorrow, but nevertheless the bailout isn’t the right way to go. Keep up the pressure on our side of the house, the fact is that Larry is most likely right and democrats may just shove this thing through with all the earmarks and perks attached. But we have to stay firm on the GOP side.

So let the Democrats pass this mess and when it blows up – and it will down the road – they will not have the GOP to blame.

Cartoon by John Cole, The Scranton Times-Tribune

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