Bailout Saga Reveals Limits of Leadership, Realities of Democracy
Congress' two-week financial bailout saga is a case study in how American democracy really works — both for better and for worse.
Some of the early press accounts attributed the initial House rejection of the bailout bill to a failure of political leadership in Washington and a crisis of confidence in government. My reaction was less harsh: Our representative democracy was behaving as one might expect given the overwhelming negative public response to a perceived taxpayer bailout of Wall Street fat cats who had messed up.
It was unrealistic to expect that party leaders could compel Members overnight to vote against the wishes of their constituents, let alone against their own re-election interests and unanswered skepticism. Moreover, I had confidence, based on similar situations in the past, that Congress would eventually do the right thing. Inaction was not an option. It would simply take more time, education, deliberation and legislative tweaking.
Sure enough, on Oct. 1, two days after the House defeated the bill 205-228 (with 95 Democrats and 133 Republicans voting no), the Senate passed a modified version, 74-25. The bill included the energy tax extenders, increased Federal Deposit Insurance Corp. coverage, an alternative minimum tax fix and other sweeteners. Two days later, the House adopted the measure, 268-171.
What had happened in the interim to produce such a dramatic turnaround? The most jarring occurrence, of course, was the 777-point drop in the stock market on the same day the House voted down the bill. That alone gave many Members pause to rethink their votes. It also forced public reconsideration of its initial visceral response to the bailout plan. There was an almost instantaneous and angry counter-reaction to Congress' failure to pass the bill when people recognized the potential adverse consequences for their stock-based retirement plans. The public can be a very fickle beast.
Moreover, interest-group politics soon kicked in. Main Street and Wall Street launched massive lobbying efforts in support of the plan as people became more aware that their fortunes were intertwined with those of the big banks and investment houses. When credit freezes, everyone gets frostbite. Even the mainstream media (except a few cable shock jocks) became more responsible in reporting the full dimensions of the crisis. Members followed suit by educating themselves and their constituents. James Madison's "mild voice of reason, pleading the cause of an enlarged and permanent interest," was taking hold.
Throughout this ordeal, my mind kept flashing back to the 1990 budget summit in which President George H.W. Bush worked with a Democratic Congress and minority Republicans to hammer out a bipartisan deficit-reduction plan to avert the painful-sounding "sequestration" process of Gramm-Rudman-Hollings — a slice-'em-dice-'em machine that executes automatic, across-the-board spending cuts to meet deficit targets.
The plan was negotiated in secret sessions at Andrews Air Force Base beginning Sept. 7 by a "Gang of 20" House and Senate party and committee leaders and administration officials. When the group remained stalemated after 10 days, bargaining devolved to a group of eight consisting of the House and Senate Majority and Minority Leaders, the Speaker, the White House chief of staff, director of the Office of Management and Budget, and the Treasury secretary.
At the eleventh hour, on Sept. 30, Bush and the budget summiteers appeared in the Rose Garden to announce an agreement. The capital gains tax cut favored by Republicans and tax rate increases on the wealthy favored by Democrats had not been included, though other tax increases were.
As the vote approached, a group of conservative House Republicans began sporting yellow buttons that read, "Junk the Summit." The leader of the pack was a backbencher, Rep. Tom DeLay (R-Texas), who said his group was ready for a floor vote on its own "no new taxes" budget package (echoing Bush's convention pledge, "Read my lips: no new taxes!").
The first vote occurred on a revised budget resolution that included reconciliation instructions to committees to produce the spending cuts and revenue increases. Notwithstanding impassioned pleas by Speaker Tom Foley (D-Wash.) and House Minority Leader Bob Michel (R-Ill.), the resolution was overwhelmingly rejected by a bipartisan House majority of liberal Democrats and conservative Republicans, 179-254, with 149 Democrats and 105 Republicans in opposition. Even one of the original budget summiteers, Minority Whip Newt Gingrich (R-Ga.), split with his party's House leader and president in opposing the package.
By the end of October, a new package had been cobbled together by Democratic-controlled committees — this time with fewer spending cuts and more tax increases on the wealthy (the origin of the AMT). It passed both chambers by comfortable margins with only 47 House Republicans and 19 GOP Senators voting for it.
The bailout bill signed into law this month by President Bush remained a bipartisan effort throughout, despite its initial rejection. Democrats did not have the numbers or the time to leverage a partisan alternative. The performance of leaders of both parties was awkward at times (like new dance partners), but, to everyone's credit, they persisted in the wake of defeat and eventually prevailed. Congress did not swallow the administration's three-page blank check, and instead erected numerous checks and oversight devices in a 440-page bill. As House Financial Services Chairman Barney Frank (D-Mass.) observed afterward, there had been more Member involvement in developing the legislation than if it had been a committee product.
Deliberation can take strange twists and turns during times of crisis, but it is still an essential ingredient in producing consensus outcomes. Rumors of the death of bipartisanship have been greatly exaggerated. It just makes rarer appearances nowadays.