Less than a week ago, it seemed that the Bush Administration's dire pronouncements about the nation's financial markets were enough to scare Congress into passing whatever high-priced rescue plan it was asked to. Last Thursday night, around a glossy wooden table in House Speaker Nancy Pelosi's offices, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke described to congressional leaders of both parties how the credit crunch and panic on Wall Street that had already engulfed Lehman Brothers and AIG would soon lead to a near total collapse of short-term lending that could sink the economy into a Depression. According to an aide who was in the room, there was a 10-second-long, oh-my-God silence after the two described how the crisis threatened to wipe out virtually anything invested in the markets, no matter how safe they had been considered 401(k)s, IRAs and defined benefit pensions could take massive hits, even though they are insured by the Federal Government to the tune of trillions of dollars.
In talking to their respective caucuses in the days since, party leaders have underlined the gravity of the problem. But having heard doom and gloom from the Bush Administration to justify everything from the Iraq war to the Patriot Act, rank-and-file Republicans and Democrats remain very skeptical about the rescue plan. In many legislators' minds, President George W. Bush has cried wolf one too many times. "This is eerily similar to the rush to war in Iraq," Representative Mike McNulty, Democrat of New York, said. "We have been told repeatedly by this Administration that the economy is fundamentally sound, and then all of the sudden they say the economy is going to collapse."
The party leaders' objections, of course, stem from their widely divergent agendas and beliefs. Democrats don't want to take ownership of a problem they feel they didn't create, especially if it seems to be rewarding many on Wall Street whose behavior led to the problems in the first place. On the right, this kind of bailout stands for everything they came to Congress to fight: Big Government tampering with free markets, and lots and lots of potential debt. Both parties appear to agree that they are being asked to consider and pass such a momentous piece of legislation way too quickly, and that whatever final plan is crafted will have to include some oversight. And while whatever compromise agreed upon in the end is likely to pass before the end of the week especially with the markets tumbling hundreds of points a day the final product won't come without a lot of "twisted arms, bad karma and angry, angry people," said one leadership aide.
That much was apparent at the heated Senate Banking Committee hearings attended by both Paulson and Bernanke on Tuesday. Senators from both sides of the aisle, including chairman Chris Dodd, a Connecticut Democrat, and the panel's top Republican, Richard Shelby of Alabama, were not shy about expressing their reservations about the wisdom of the current broad rescue plan, which Dodd flatly declared to be "not acceptable." Paulson and Bernanke did their best to argue that the risk of inaction was much worse for the American taxpayer than even the stratospheric cost of the proposal to buy up the toxic mortgage-backed securities that have paralyzed the credit markets, but the preening politicians weren't buying it. And both Paulson and Bernanke will surely get an equally tough grilling at a House hearing Wednesday morning that will be chaired by Democrat Barney Frank, who is spearheading his party's moves on the rescue plan.
The House is expected to take the lead on drafting legislation, as it did with the passage of the economic stimulus package earlier this year. House majority leader Steny Hoyer said Tuesday that he hopes to have a bill on the floor by Friday. But getting it there will mean overcoming his own caucus's concerns, some of which have little to do with the merits of the plan. With Election Day about six weeks away, House Democrats are very concerned that the GOP will try to use the bailout as a populist rallying cry on the campaign trail, as a few conservative activists have already counseled. Some Democrats have even suggested that they will not vote for it unless Republican nominee John McCain does the same. They are adamant that "this has to be done together we all hold our noses and jump at once," as one Democratic leadership aide put it.
But the lame-duck, very unpopular Bush Administration no longer has much pull on Capitol Hill, even with its own party. Vice President Dick Cheney, Office of Management and Budget director Jim Nussle, Bush's chief of staff Josh Bolten and a top White House economic adviser, Keith Hennessey, held a contentious 90-minute session with House Republicans Tuesday morning. "The large majority of our members remain skeptical of the plan," one GOP leadership aide said after the meeting. House minority leader John Boehner, while reiterating the gravity of the crisis, sympathized with the precarious political position of many of his members, many of whom are in tough races for re-election. At the meeting Boehner said that much depended on Democratic demands for adding provisions to the bill, and that he himself would vote against a bill overloaded with too many.
The problem for the Democrats is that they can't make this bill palatable to their own party without pushing for add-ons. "Certainly, we want to stabilize the markets, but we want to do so at the same time as we protect the taxpayer," Pelosi told reporters Tuesday. Democrats are demanding three central changes to what started as a three-page, deliberately vague draft bill. They want to mandate new limits on executive compensation for any of the firms that take part in the government's unprecedented assistance; they want increased regulation of those same firms; and they want expanded power for the Treasury to help distressed mortgage holders essentially replacing the $300 billion housing bill passed earlier this year that many Democrats believe hasn't worked.
Paulson and Bernanke have made it clear that they prefer what they call a "clean bill," but they have started to open the door to include at least some Democratic provisions. For their part, House Republicans have balked at the idea of the government becoming more directly involved in buying mortgages, though even they seem to be giving some ground on the issues of executive compensation. Some Senators and House members are warming to the Senator Charles Schumer's idea of giving the Treasury an initial payment of $150-$200 billion before committing the entire sum.
If the bailout debate has put many vulnerable members of Congress in a bind, the presidential campaigns have been put in an equally uncomfortable position. Barack Obama and John McCain have relatively light weeks as they prepare for their first debate Friday night, and both campaigns are doing their best to stay out of Congress's way. But neither candidate can avoid weighing in on such a crucial bill; Obama has stressed the need to add more oversight and taxpayer protections to the legislation and Tuesday expressed interest in Schumer's down payment idea. McCain made similar calls for more oversight and transparency in the system while expressing concern about the price tag. Still, underlining the high stakes of the bailout plan, both politically and economically, neither Obama nor McCain is willing to come out unequivocally for or against it, and it's not clear if either candidate will even show up to vote for the final piece of legislation.