September 24, 2008
Caving to Pressure, Congress Lets Bailout Fail
"We're all worried about losing our jobs. Most of us say, 'I want this thing to pass, but I want you to vote for it--not me.' "
-Rep. Paul Ryan, R-Wis.
After a weekend of frenzied negotiations between the Bush Administration and Congressional leaders from both parties, the first Congressional vote on a plan to bailout the financial sector and avoid a meltdown in the global economy failed. The final tally was 205 for and 228 against.
The failure of the bailout vote sent stock prices tumbling yesterday in their worst free-fall in two-decades. The Dow closed down 778 points yesterday, or nearly 7 percent, and global credit markets are in distress.
The failure of the bailout is attributable to the head-on, high speed collision of public, sound-bite political electioneering with back-door, complex Capitol Hill policy-making. Let's lay it out:
On September 19th, Henry Paulson and Ben Bernanke roll into Congress, and, in a meeting in Speaker Pelosi's office, lay out their plan to save America from economic depression. 'Enough with the case by case bailouts and acquisitions like Fannie and Freddie and AIG,' they argue. 'We need a system wide solution that will stave off collapse.' And they introduce the Paulson Plan, which is basically a plan to buy 700 billion dollars worth of bad, mortgage-related assets from the large financial firms, simultaneously injecting them with capital to maintain their liquidity.
Over the weekend, the story picks up traction, and as the work week starts, all of America has their eyes on the Hill, looking to see how the entire deal will play out. As it became clear that this was an issue of importance to anyone with a stake in the economy, Presidential politics came into play, making every decision either party made, as if they weren't important already, politically charged to the extreme.
That is not to say that Congressmen were already very worried about the politics surrounding the bailout--all 435 seats in the House and 35 Senate seats are up for election in little more than a month. Do you know what that's called? Terrible timing for a crisis that demands swift legislative action.
After a week of hearing about the need to bail out Wall Street, voters, concerned over rising energy prices, declining housing values and flat wages, sent the message loud and clear to their representatives in the Beltway that they did not want to see nearly a trillion dollars put in the hands of executives who were making millions while steering Wall Street into the ground. Suddenly, the bailout, which had begun its life as an act of necessity with bipartisan support, was vulnerable to criticism, and ideologues at both ends of the political spectrum--free market conservatives and anti-corporate liberal populists--came out against it.
This sudden breaking of the ranks fed into the public's perception that Congress was not acting in their interest, further solidifying their suspicion of the plan. At any other time, Congress could have voted it through and politicians who had drawn flak would have been vindicated as the economy steadied and righted itself. But this was not any other time, and many members of Congress had to make a choice: at this intersection of legislative policy and election politics, what choice would they make?
What did they choose? Well, in Congress at least, 205 members came out in support of the bailout and made the political sacrifice and 228 did not (NY Times has an interactive map of the No votes here). You may be asking yourself if there were any indicators that may have been able to predict who would vote yes and who no. Well, as it turns out, of the 38 Congressmen who are in "toss-up" races, 30 voted against the bailout. Of the members who are not facing such tough elections, 197 came out for and 198 came out against.
Let's just make sure we are clear about what happened: in the face of a true threat to our country, at a time when Congress could have begun a process that is critical to the continued long term wellbeing of our nation, they cowed away from making the hard choice in favor of doing what was politically safe. Instead of standing up and saying that although it was not popular it was vitally important; instead of standing up and explaining to the voting public why the bailout was necessary to their livelihood; instead of securing our nation's future, Congress, feeling the November 4th heat, caved.
Only eleven days have passed since Paulson and Bernanke addressed those Congressional leaders in Nancy Pelosi's office. In that time, the Dow Jones Industrial has fallen 1,023 points. However, in the previous 10 days, the Dow only fell 250 points. Today, since the failure of the bailout, the Dow fell 777 points, closing at 10,365, the lowest it has been since 2005.
The stock market is falling and consumers have no access to credit. People are struggling every day to pay their mortgages even as the value of their houses fall. And today, in a big white building in Washington DC, Congress kicked back and watched America decline.