A Capitol crisis

The Bailout Fallout: The failure of America’s leaders to hatch a plan for the financial crisis exposes the emptiness of their ‘politics of change’.

Helen Searls

1st October 2008

The voting down of the $700billion bailout plan by the House of Representatives produced a rare moment of political drama in Washington. It was genuinely unexpected. In the days before the failed vote, President George W Bush, Treasury Secretary Henry Paulson, and the chairman of the Federal Reserve, Ben Bernanke, threw their weight behind the plan. The House and Senate leadership on both sides of the aisle spent days and nights brokering the package. The House vote was meant to be the final rite of passage of a done deal.

The debate on the bailout bill was spirited, but there was little indication that it was about to fail. At the end of the debate, speaker Nancy Pelosi declared that the ‘ayes’ had won. As an afterthought, it seemed, members called for a card vote – a move, observers presumed, designed to allow dissenters to register their objections in the record. Slowly the votes came in. Network and cable channel anchors prepared to move on to other stories. Then suddenly, the Dow Jones index started to slide rapidly. More and more ‘no’ votes were registered. There was a realisation that something was about to happen. The vote fell. Lawmakers rejected the deal by 228 to 205.

Such a shocking outcome is rare in the staid political climate of contemporary Washington. Increasingly, the business of politics takes place behind closed doors, which means Congress lacks spontaneity. Most public deliberations are carefully scripted and choreographed. In fact, so alien is spontaneity today that many Americans watch cable repeats of the Prime Minister’s Question Time in the UK House of Commons with awe and incredulity. That’s how bad things are.

And yet on Monday, the House had shocked everyone. The House leadership was supposed to have had this vote sewn up. Politicians, the press corps and Wall Street traders stood and stared at their TV screens in stunned disbelief. This was not business as usual, and it was not meant to happen.

Commentators now claim that it was a groundswell of public revulsion that provoked lawmakers to reject the bailout. Some Congressional members did report getting calls 100:1 against the package in the days leading up to the vote. Yet while there was undoubtedly public distaste for the $700billion rescue package, it would be wrong to see public reaction as a decisive factor.

Most people moan about the bailout plan. Democrats and their allies claim the plan favours Wall Street fat cats over ordinary folks on Main Street. Rarely do two or more liberals gather together without the conversation turning to the greed of Wall Street executives and its part in the current financial crisis. More conservative factions see Washington rather than Wall Street as the big problem. For them, the prospect of government intervention along the lines of the bailout plan is a recipe for economic sclerosis rather than rejuvenation.

Yet while unease is widespread, there is also a lot of confusion and dismay about what is going on with the banks and financial institutions. In the days before the vote, the American public was more baffled than anything else. A Washington Post/ABC poll found ‘Tepid Public Approval for Fed Action’, by a statistically insignificant difference of 44 per cent to 42 per cent. Support, such as it existed, was lukewarm, even from those who conceded that the bailout was probably necessary. Two days later, a CBS/New York Times poll found ‘tepid opposition’ to the plan – 42 per cent approved of it, and 46 per cent disapproved (1).

The real impetus behind the chaos on Capitol Hill was the total void of political leadership in American politics. It was unease rather than opposition that caused the bailout to fall. Politicians followed their gut, but there was no clear thinking behind their actions. Whatever one thinks of the bailout deal, the fact that the combined authority of the Bush administration, the Federal Reserve and the cross-party Congressional leaderships failed to convince a confused public or an uneasy House reveals a great deal about the absence of authority in Washington.

And this lack of authority is not confined to the president. True, the approval ratings for George W Bush are at an all-time low. But there is a far more profound political malaise than one that can be measured in opinion polls or popularity ratings. Supporters of the bailout plan have no greater coherence to their ideas than the bill’s opponents. Behind the posturing, nobody in Washington is offering a cohesive political vision, strategy or alternative.

This is ironic, given the emphasis on change in the presidential race. At a time when there is much talk about the need for a ‘politics of change’, there is no evidence that anyone has an inspiring solution to the current financial impasse. The Bush proposal was bold; $700bn is a lot of money. But money alone does not constitute a plan. It is almost as if the size of the price tag was meant to inspire support.

Even the ‘maverick’ Senator John McCain – who suspended his campaign to come to Washington to solve the financial crisis – had nothing to offer his aimless troops in the Republican Party. He offered nothing beyond the need to ‘do something’. Both Democrats and Republicans ignored the urgings of their respective presidential nominees and voted in large numbers against the bill. Quite a move, considering that all of the nation’s leaders were saying that the sky is falling.

The ‘no’ vote on Monday was not a clear and coherent rejection of the Treasury’s plan. It does not represent a resurgence of free-market thinking anymore than it was a revolt of Main Street against Wall Street. Rather it was an expression of the chaotic and random nature of political deliberations today. With no leadership, and no politics, the political process is likely to become more arbitrary and less predictable. This might make for a few more surprises from Congress, but the unpredictability can go both ways. The fact that the bill now looks like it will pass through the Senate and return to the House for a more successful passage demonstrates the subjective nature of what is going on here.

Helen Searls is a writer based in Washington, DC.