Wall Street Bailout: What's Next?

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That's a crucial reason why GOP leaders could not win enough support for the compromise bill they had negotiated with the Administration and the Democrats, despite winning backing in the final bill for a program pushed by conservatives that would have allowed the government to insure toxic mortgage assets (BusinessWeek.com, 9/29/08) as well as buy them directly. While ideology was a factor, it alone hardly explains the defeat.

Lawmakers on both sides of the aisle were acutely aware of public perception. In many congressional offices, phone calls and mail against the Paulson package are running 100 to 1 against the plan; one lobbyist noted that 90% of independents were said to oppose it. With less than five weeks to go before the election, conservative Republicans with a free-market bent—but also a fair number of Democrats who thought more money should go to help struggling homeowners, rather than banks—were furious, and scared, at being forced to vote for something that many of their constituents hated. "Politicians started hearing from everyone who hated the bill, and this is an election year," says Scott Talbott, senior vice-president for government affairs at the Financial Services Roundtable, an industry group. "They didn't hear from anyone in their districts who supported it."

Democrats Doing Better

The crux of the problem for lawmakers may be reflected in two Gallup polls: Americans are worried, they want Congress to do something, but they don't trust the Bush Administration plan. And while they're unhappy with everyone involved, they're more unhappy with Republicans.

The first poll, published on Friday, Sept. 26, shows that 8 in 10 Americans claim to be following the debate over the financial rescue. That's a lot, especially for something this complicated, and more than two-thirds of Americans want Congress to do something. They're serious about it, too: Nearly three-quarters think the economy would get worse over the long term—"the next few years"—if Washington doesn't act. And yet 56% of those polled want a plan different from the Administration's proposal.

Meanwhile, a Gallup poll released on Sept. 29 (from a survey taken Friday and Saturday) suggests that Democrats were muddling through the mess looking better than Republicans, on a relative basis. When poll respondents were asked whether they approved of how various people were handling the crisis, Obama came out on top (46% approve), followed by the Democratic congressional leaders (39%), McCain (37%), Republican congressional leaders (31%), and the Administration (Paulson and Bush each at 28%).

Taking a Free-Market Stand

The combination appears to have fueled the Republican rebellion. Many of the conservative House members may have concluded that this was a good time to make a stand on their free-market principles. "If you were a 'no' vote, those polls would have upset you, and emboldened you," says one analyst who closely following the debate. "That's a dangerous combination."

In the end, said one lobbyist who opposed the bill, the public opposition may simply have given lawmakers a reason to buck their leadership and vote against the bill—Democrats because they disliked saving Wall Street without strong assistance for homeowners, and Republicans because they were opposed to meddling in the markets. "I think electoral fear propelled people to a place where they wanted to be anyway," he said.

Sasseen is Washington bureau chief for BusinessWeek. Francis is a writer in BusinessWeek's Washington bureau.