House Kills Bailout; Uncertainty Reigns
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In a move that sent Wall Street stocks plunging, the House on Monday killed a massive $700-billion Wall Street bailout compromise negotiated with great urgency in recent days between the White House and congressional leaders.
The count was 228 to 205 against the measure, with 95 Democrats and 133 Republicans bucking their leaders to oppose the bill. The Dow Jones Industrial Average plummeted as it became apparent the measure would fail, even as chamber leaders held the 15-minute vote open for an additional 25 minutes to convince opponents to switch their votes. The Dow ended the day down 778 points, or 7 percent — the sheerest single-day point drop in history.
Illustration by: Matt Mahurin
Congressional leaders somehow assumed that the threat of just such a reaction on Wall Street would convince rank-and-file on both sides of the aisle to support the administration’s plan. Now, the surprising outcome leaves House leaders struggling with what to do next. “I don’t know that we know the path forward at this point,” said House Minority Leader John Boehner (R-Ohio), who had urged Republicans to support the bill.
The controversial bailout proposal has been portrayed by supporters as a necessary, if unsavory, step to thaw the nation’s credit freeze and restore investor confidence in jittery markets. Before the vote, leaders from both sides of the aisle warned of the sweeping economic meltdown that could accompany inaction.
“No city or town in America would be untouched,” said House Majority Leader Steny Hoyer (D-Md.). “The alternative is nothing, and that is not acceptable.”
Earlier in the day, President George W. Bush also urged quick passage.
“I fully understand that this will be a difficult vote,” Bush said in a brief speech at the White House. “[But] every member of Congress and every American should keep in mind: A vote for this bill is a vote to prevent economic damage to you and your community.”
But the public has come out strongly against the proposal. In waves of emails and phone calls to Congress, voters have blasted the plan for rewarding the bad behavior of the nation’s financial institutions at the taxpayers’ expense. The bill’s failure is partly an indication that rank-and-file lawmakers from both parties were unwilling to cross their constituents just a few weeks before November’s elections.
Indeed, of the seven Democrats facing the toughest reelection contests in November, just one voted for the bill. That trend was mirrored across the aisle: Only two of the 11 Republicans in the tightest reelection fights supported the measure.
But it wasn’t only election considerations that sunk the legislation. Lawmakers of both parties opposed the bill for ideological reasons — and voted their instincts. Robert Borosage, co-director of Campaign for America’s Future, a liberal advocacy group, said the conventional wisdom going into the vote was that the better entrenched lawmakers would join their leaders in supporting the bill. “The theory was you’d get the safe seats to vote for it,” Borosage said. As it turned out, those were also the members most ideologically opposed.
Under the bailout plan, the Treasury Dept. would have access to hundreds of billions of taxpayer dollars to buy up the distressed assets of banks and other financial institutions. The government could then hold those assets for up to five years, with the idea of reselling them for a profit. If no profits were possible, the president would be forced to devise a plan to recoup the difference from Wall Street.
The plan allots $250 billion immediately, with an additional $100 billion available at the president’s request; and an additional $350 billion available with approval from Congress.
The bill also forces participating companies to grant the Treasury a share in their profits.
Conservative House Republicans have objected to the scope of the government’s interference in free-markets, arguing that a central tenet of capitalism is to allow bad businesses to fail.
Rep. Todd Tiahrt (R-Kan.) called the proposal “the biggest corporate welfare bill in history.”
Liberal Democrats, on the other hand, argue that the proposal primarily helps the titans of Wall Street while ignoring the struggling homeowner. Joining housing advocates, these Democrats have pushed to include a provision forcing lenders to refinance troubled mortgages to help homeowners avoid foreclosure.
Instead, the compromise bill forces the Treasury Dept. to develop a plan encouraging lenders to refinance troubled mortgages in order to prevent foreclosures. “This bailout plan will fail to keep families in their homes,” said Rep. Dennis Kucinich (D-Ohio).
But Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, argued that the homeowner provisions contained in the compromise are better than the alternative. “They will get nothing,” Frank said, “if we’re not prepared to compromise some.”
Republicans focused blame on House Speaker Nancy Pelosi (D-Cal.) for failing to secure Democratic support. But both sides have been quick to blame the other.
It’s unclear what happens next. Immediately after the vote, Rep. Joe Barton (R-Tex.), an opponent of the bill, asked about the process for reconsidering the measure, leaving open the possibility that the lower chamber will get another shot to pass the bill.
Borosage of America’s Future, predicted the proposal will return later this week, perhaps including a few cosmetic changes in search of greater support.
With elections just week’s away, all members probably want nothing more than to be in their districts campaigning. But there’s also the sense that they can’t leave town before doing something — anything — to address the financial crisis. This is especially true if Wall Street continues to tank in response to a congressional stalemate.
“It will be irresponsible to do nothing,” said Rep. Henry Waxman (D-Cal.).
He might have added, politically suicidal.