Posted by: Jane Sasseen on September 29
By Jane Sasseen and Theo Francis
What the heck just happened?
Once again, it is back to the drawing board for the Treasury’s proposed $700 billion rescue plan for the financial industry.
In a development that stunned Washington after more than a week of intensive negotiations, the bailout bill failed in the vote in the House early this afternoon. The vote started at 1:30 and was supposed to have been completed quickly, but by a little after 2 PM, only 205 House members had backed the bill versus 228 against. The bill needed 218 to pass.
The defeat sent the Dow down more than 750 points, or nearly 7%, and left lobbyists and Congress members alike scrambling for an explanation. “The legislation may have failed, but the crisis is still with us,” said Speaker Nancy Pelosi in a press conference held soon after the vote. While she pledged to go back “for another bite at the apple”, it was far from clear how the bill could be revived.
Indeed, the defeat left people throughout Washington nearly speechless. Lobbyists from both sides of the aisle, were equally stunned. "I can't quite think there's been anything like this, ever," said Damon Silvers, associate general counsel for the AFL-CIO; meanwhile, one well-connected -- and exhausted -- business lobbyist pointed out there is no Plan B.
The big problem, as has been obvious since Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke first told Congressional leaders help was needed 11 days ago, was the lack of support from a rebellious band of conservative Republicans who are dead set against the plan and the notion of the government taking such an extensive role in the fixing the private sector's woes.
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 in addition to buying them directly. Only 66 Republicans voted for it, with 132 against. Congressional leaders predicted they needed at least 80 supporters from the GOP and at one point hoped to get 100. Among the Democrats, 141 backed the bill and 94 voted against.
But ideology is hardly the only explanation for the defeat. Lawmakers on both sides of the aisle were acutely aware of public perception against the bill: it has sparked huge public opposition, as many perceive it as little more than a bail-out for the Wall Street fat cats who got the country into trouble in the first place. In many Congressional offices, the phone calls and mail against the Paulson package is 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 for the Financial Services Roundtable, an industry group. "They didn't hear from anyone in their districts who supported it."
The crux of the problem for lawmakers may be reflected in two Gallup polls: Americans are worried, they want Congress to do something, 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 Friday, shows that eight Americans in 10 claim to be following the debate – that’s a lot, especially for something this wonky – 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 several years” – if Washington doesn’t act. And yet 56% of those polled want a plan different from the administration’s proposal.
Meantime, a Gallup poll released today (and taken Friday and Saturday) suggests that Democrats were muddling through the mess looking better than Republicans – on a relative basis. Asked whether they approved of how various people were handling the crisis, Barack Obama came out on top (46% approve), followed by the Democrats (39%), John McCain (37%), Republican congressional leaders (31%) and the administration (both Paulson and Bush at 28%).
That may also have fueled the Republican rebellion, as 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 closely following the debate. "That's a dangerous combination."
In the end, 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 disliked meddling in the markets, added another lobbyist who opposed the bill for providing too few homeowner and taxpayer benefits. “I think electoral fear propelled people to a place where they wanted to be anyway.”
So what's next? No one knows. The only thing that's clear: Speaker Pelosi, Paulson and the Republican leadership are in for some more long days and nights at the negotiating table.
Washington Bureau Chief Jane Sasseen and other BusinessWeek writers cover the run-up to the Nov. 4 presidential election, paying close attention to how the candidates will handle issues such as housing, the economy, unemployment, and immigration.