January 15, 2019

THE DRUBBING THE HOUSE GOP EARNED (profanity alert):

When America Stared Into the Abyss (John Lawrence, Jan. 7th, 2019, The Atlantic)

The commission appointed by Congress in 2009 to investigate the causes of the meltdown concluded that it "was the result of human action and inaction, not of Mother Nature or computer models gone haywire." A "combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis." And perhaps most tellingly, the commissioners determined, the crisis had been "avoidable."

In the leadership meeting Pelosi convened after her phone calls with Bernanke and Paulson, the Federal Reserve chairman described a "very severe financial crisis--hundreds of billions in losses." The administration was forced to turn to Congress, Bernanke declared, because the Fed was "no longer able to use the tools we have to maintain stability. It is a matter of days," the chairman warned, before "a major meltdown [would occur] in the United States and globally." Paulson agreed. "I've never seen anything like it," he said. "Once in 100 years."

Congress would have to authorize the Treasury to purchase the toxic assets. "If we don't deal with it by next week, the country could collapse," Paulson warned. The alternative, Bernanke predicted, was a "deep, long recession." Congressional leaders, many of whom considered the two financial managers politically naive and partly responsible for the unfolding catastrophe, were stunned. Senate Majority Leader Harry Reid asked how much the purchase would cost. "Hundreds of billions," Paulson admitted, and even then, it was inevitable that widespread foreclosures would cost millions of Americans their homes.

Democratic leaders immediately seized on the strategy of using Wall Street's crisis to benefit millions of Americans on "Main Street" who were seeing their homes, savings, and jobs evaporate without generating any comparable urgent response. Congress had negotiated with Paulson and the Bush administration a meager $168 billion stimulus bill in February, but the law had minimal impact on the worsening recession. Pelosi and Senator Chuck Schumer of New York insisted that something like Paulson and Bernanke's audacious proposal could only secure Democratic votes if it included billions of dollars in anti-recessionary spending to promote job creation, extend unemployment assistance, and fund other initiatives to reduce the "perception the bill is a [corporate] bailout." Barney Frank, the chair of the House Financial Services Committee, also demanded restrictions on the exorbitant executive-compensation packages of financial-services companies to help secure the needed votes.

The administration and congressional Republicans reacted negatively to these efforts to expand the scope of the legislation. "We won't get there if you take that approach," Paulson admonished. The House Republican leader, John Boehner, agreed, advising the Democrats, "Don't play politics." Other Republicans raised their own concerns. Dick Shelby, the senior Republican on the Senate Banking Committee, skeptically described the administration's proposal as "a blank check." Reid explained that Democrats would also face challenges rounding up votes without incentives. "It's political reality," Reid declared in defense of the additional spending. Without the anti-recessionary provisions, Frank advised, "I can't tell you the bill will pass." After a tense moment, Paulson glumly responded, "Then God help us." [...]

Administration negotiators were also exasperated by a plethora of conservative-generated TARP alternatives, including one from Chief Deputy Whip Eric Cantor that would have substituted a federal insurance plan for the bailout. Paulson dismissed these alternatives as "pretty ridiculous" and focused on crafting the legislation with Democrats. Meanwhile, on the Senate side of the Capitol, Paulson was "laying an egg" with the Senate Finance Committee, a top Boehner aide confided in me. White House Chief of Staff Josh Bolten told Democratic leaders their Republican counterparts were "horrid," according to Reid, and Obama quoted Bush as having declared, "My problem is House Republicans." According to a senior White House staffer, neither Senator Shelby nor the ranking member Spencer Bachus of Alabama was being helpful. The obstinacy of Bachus, said Paulson, was "disgraceful."

Reid was flabbergasted to hear that even McCain was leaning against the bill. "We can't pass a bill unless 80 percent of Republicans vote for it," he told Pelosi, who called McCain's opposition "just pathetic." When McCain called Pelosi on September 24 to complain about the pace of the discussions, Pelosi sharply rebuked him. "We are making progress," she said. "It is not accurate to say otherwise." McCain then proposed a suspension of the presidential campaign and the convening of a bipartisan White House summit to hash out a legislative agreement. Pelosi was concerned that a White House meeting would cause delays. When Bolten called to invite her to attend the meeting, the speaker reproached him for capitulating to McCain's "political stunt." She instructed Paulson, "Tell the president to lead! ... I will not allow Congress to look like it's in disarray!" Later in the meeting, she reminded him, "The president never listened to us on Iraq ... He never broaches disagreement." Unless Bush embraced the TARP design they had fashioned together, she told the Treasury secretary, "we have wasted our time, and it is an insult to you." Sardonically, Paulson noted, "I'm beyond that point."

Schumer thought McCain's suggestion was "just weird," especially coming from someone who had offered little "except for an occasional, unhelpful statement, sort of thrown [in] from far away." The Democratic presidential nominee, Barack Obama, was similarly skeptical of the meeting, which might force the postponement of his first debate with McCain, but he was also wary of rejecting the kind of invitation he might soon as president extend to congressional leaders. "We've got him boxed in ... We have him on the ropes," Obama said. "If we didn't go, it would be a bad precedent," he told Reid and Pelosi. They unenthusiastically decided to participate, and decided Obama would serve as their leader. However, they agreed, there would be no deal-making at the meeting, and the exit statement to the press would emphasize that it was the Republicans who needed to "get their ducks in a row."

"We've got a serious economic crisis," Bush declared to the participants around the enormous oval table in the Cabinet Room. "This meeting is an attempt to reach agreement quickly. I can't tell you how important it is to get something done." He cautioned against loading up the bailout with controversial provisions that could jeopardize passage, but he also signaled flexibility, adding that if Paulson and Bernanke signed off, "we're for it. You damn sure don't want to be the people who see it crater." He made, I recall, a point of singling out Pelosi for her collaboration with administration officials.

Obama's opening statement focused on the proposal under negotiation, while Boehner and Bachus again floated alternative approaches. Their ideas, like the insurance scheme, drew sharp rebukes from Frank and Reid, who accused the Republicans of leading negotiators "down a primrose path" only to throw up obstacles at the last minute. As the parties parried, Bush became increasingly restless. "It's easy for smart guys to sit around," he said, but "if money isn't loosened up, this sucker could go down." Although he had proposed the meeting, McCain remained silent for nearly an hour. A CNN reporter confidentially disclosed to me later that McCain's campaign staff had feared that his presence in the meeting could be "political dynamite," and a Boehner staff person privately expressed to me deep concern at the nominee's lack of preparation, admitting he had requested staff assistance from Boehner only the day before the meeting.

After nearly every other principal had spoken, Obama turned to his rival. "We need to hear from John," he declared, and all heads turned to the silent senator. McCain awkwardly stumbled through a rambling statement, thanking Bush for convening the meeting and declaring his support for the concerns expressed by other Republicans. Puzzled looks flew around the Cabinet Room.  [...]

Afterward, Nowakowski told me the Republican leader was displeased with the outcome of the White House meeting and furious with Paulson for seemingly siding with Democrats against the GOP proposals. Perhaps, she mused, Pelosi should "start thinking" about a bill that could pass with only Democratic votes. Confidentially, a top White House aide admitted that Boehner's conference was filled with "hardheads" and that the meeting had been awful, "chaos ... typical of McCain world," allowing others to "outmaneuver him." I recall one Republican aide telling me, "The only person in the room who looked presidential was your guy," Obama. [...]

Unease hung over the House chamber as the debate began on September 29. Blunt advised Pelosi, "Don't count on the Republicans," while Nowakowski advised that some Republicans would undoubtedly "beat their chests" in opposition. Bush, Vice President Dick Cheney, Paulson, and Bernanke continued to call House members, the White House liaison Dan Meyer reported, but there might be only 75 Republican votes for the bill. He asked for additional time to convince recalcitrant Republicans, but Pelosi, worried that her own members might begin to drift away, insisted that the vote go forward.

In a leadership meeting, Democratic Whip Jim Clyburn confidentially predicted that only half of the Democrats' 235 members would support the bill, but far fewer if the Republicans produced only 75 of their own. Pelosi dispatched Barney Frank to meet with skeptical Democratic factions, including the liberal Hispanic and Black Caucuses, and the conservative Blue Dogs. Steeling himself for the onslaught of complaints, Frank asked, "When is the Asshole Caucus, and do I have to address them?"

Shortly after the New York stock market had opened that morning, Citigroup announced it was taking over the failing Wachovia Bank, and several central banks announced plans to shore up the credit markets. Neither action prevented the Dow from beginning a precipitous decline, a worrisome backdrop to the debate. In her statement in support of the bill on the House floor, Pelosi acknowledged, "We have a situation where on Wall Street, people are flying high. They are making unconscionable amounts of money. They make a lot of money. They privatize the gain. The minute things go tough, they nationalize the risk ... they drive their firm into the ground, and the American people have to pick up the tab. Something is very, very wrong with this picture."

She castigated Bush for squandering the $5.6 trillion surplus bequeathed him by President Bill Clinton on unpaid wars, tax cuts, and a Medicare expansion. "No regulation" and "fiscal irresponsibility, combined with an 'anything goes' economic policy, has taken us to where we are today," she asserted. Now, she assured the skeptics in her caucus, "the party is over." She promised that "before long, we will have a new Congress, a new president of the United States, and we will be able to take our country in a new direction."

In his floor speech, Jerry Lewis, a well-respected Southern California Republican, offered a rationale for his recalcitrant fellow conservatives to support the bill. "Frankly, I'm furious," he admitted. "The idea of spending taxpayer dollars to prop up risky investments keeps me awake at night. It goes against all the principles I have lived by." But there was little choice. "Doing nothing will cause a potential catastrophe."

The toughest selling job fell to Boehner, who had privately described the bill to Republicans as a "crap sandwich, but I'm going to eat it anyway." His voice cracking as he spoke in the well of the House chamber, his cheeks streaked with the tears, he acknowledged, "Nobody wants to vote for this, nobody wants to be anywhere around it ... I didn't come here to vote for bills like this. But let me tell you this, I believe Congress has to act." He pleaded with members on both sides of the aisle: "What's in the best interest of our country? Not what's in the best interest of our party [or] our own reelection." His earnest plea received tepid applause, and then it was time to vote.

As the seconds ticked down on the 15-minute clocks flanking the chamber, it became evident that the bipartisan entreaties and White House pressure had failed. The bill was defeated by a vote of 205-228, a rare loss on the floor for Pelosi. Nearly 60 percent of Democrats (140 out of 235) voted "yea," compared with just 33 percent of Republicans (65 of 198). Bush, who had called all 19 Republican members of his Texas delegation, had persuaded just four to support the bill. One of the Texas dissenters, Jeb Hensarling, denounced TARP as the first step "on the slippery slope to socialism."

Anxiety over the fast-approaching election played a significant role in the defeat. Of 18 members in "toss-up" races, 15 voted against the bill, including all six freshman Democrats facing tight campaigns. Some voiced skepticism about the accuracy of the administration's description of the crisis, recalling the misleading information provided Congress about weapons of mass destruction that was used to justify the war in Iraq. Many in the Hispanic and Black Caucuses proved unwilling to explain to their economically suffering constituents the massive spending for Wall Street, particularly since the bill contained little of what Democrats had sought for the jobless and those at risk of losing their homes.

In the cloakroom, stunned members watched the Dow Jones average plunge sharply lower. When the final vote was announced, the bottom fell out. Within minutes, the market had lost nearly 700 points off its opening, ending 778 points lower for the day, a record one-day point loss. By day's end, $1.2 trillion in IRAs, pension funds, and savings was gone--nearly twice the size of the bailout package itself. The VIX index that chronicled market volatility, the so-called fear index, closed at the highest level in its 28-year history.

Reality always trumps ideology, but not often as quickly as that week.


Posted by at January 15, 2019 4:19 AM

  

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