Failure To Lead
The roller-coaster ride is nowhere near over. That was the message sent down from Capitol Hill yesterday as initial optimism quickly gave way to shock when the voting started in the House and it became clear there weren't enough votes to approve the $700 billion bailout plan. Lawmakers rejected the compromise rescue package on a 228-205 vote, and nervous investors quickly pressed the sell button. The markets began to plummet at the first sign of trouble, and by the end of the day the Dow Jones industrial average fell by almost 778 points, a new record. It was "the most devastating stock market collapse in 21 years," declares the Los Angeles Times. USA Today notes that the 7 percent plunge "didn't even make the Dow's all-time top 10" but goes on to point out that the broader Standard & Poor's 500 index suffered its worst day since 1987's "Crash Monday." The Wall Street Journal highlights that the closely watched VIX index, which is often referred to as "the fear index," closed "at its highest levels in its 28-year history."
"Rarely has a congressional vote held such high drama and produced such immediate repercussions," notes the Washington Post. While it was expected that many rank-and-file lawmakers would go against the wishes of their leaders, most were expecting that the compromise bailout plan would pass the House after the marathon weekend negotiations. Even the White House declared itself optimistic before the vote. "The outcome after a slightly more than 40-minute vote on the House floor left lawmakers almost speechless," says the New York Times. But not for long. Republican and Democratic leaders quickly took to the microphones and angrily blamed one another for the bill's defeat.
In the end, 140 Democrats voted in favor of the bill, and 95 voted against it, while 65 Republicans approved the measure, and 133 rejected it. Democrats quickly seized the numbers to say the Republican leadership had failed to live up to its side of the bargain as each party had pledged to deliver half its votes for the bill. But Republican leaders said they lost several members at the last minute and blamed what they described as a partisan speech by House Speaker Nancy Pelosi before the vote, a charge that Democrats (and the WSJ editorial board) ridiculed. Everyone says that yesterday's events more than confirmed President Bush's lame-duck status, as his influence among members of his own party is practically nonexistent.
While some lawmakers pointed to ideological reasons for rejecting the rescue package, everyone says the surge in angry calls and e-mails from constituents opposed to the measure played a pivotal role. As the LAT notes, there was no grass-roots movement in favor of the bill, but there were plenty of groups that angrily opposed the measure. "People's re-elections played into this to a much greater degree than I would have imagined," said Rep. Deborah Pryce, a Republican from Ohio who is retiring. Other lawmakers were clearly worried about how their vote would play with their constituents a mere five weeks before Election Day. Although members may cite other reasons, "it was old-fashioned politics that killed the bill. … [T]oo many lawmakers weren't willing to risk losing their jobs," declares USAT.
The WSJ goes inside with a look at who cast the "no" votes and says they "came from a strange-bedfellows coalition" that spanned the ideological spectrum. Many of these nays came from representatives of low-income districts, but the one thing many had in common is a tough re-election fight. While the majority of Democratic freshmen and all of the first-term Republican lawmakers voted against the bill, the overwhelming majority of those retiring from Capitol Hill voted in favor. But the LAT also points out that many of the no votes came from safe districts, partly because years of redistricting have created "politically polarized" areas where "members from those districts have less incentive to compromise with the other party."
So, what now? Congressional leaders and administration officials vowed to work together, but no one is sure how to proceed. "We've got much work to do, and this is much too important to simply let fail," Treasury Secretary Henry Paulson said. The earliest the House could consider another bill would be Thursday, when lawmakers will reconvene after a two-day break in observance of the Jewish New Year. The NYT says lawmakers are considering having the Senate advance a bill, since its passage there is virtually assured. Some are suggesting that Democrats should propose changes to guarantee more support from their side of the aisle at the expense of Republican votes, but Pelosi and other leaders have been insisting that the bailout must be approved with bipartisan support. For their part, Republicans suggested they could get a few more votes if slight changes are made to the bill.
The NYT notes in a separate Page One analysis that many think the leaders of both parties made a critical mistake when they agreed to bring the bill to the House floor without having a vote count set in stone. That's "a bad move at any time, but especially so in this case given the risk of the markets and the badly weakened financial system reacting badly," says the NYT that emphasizes how the bill's collapse represents a huge failure for the political leadership in Washington.
As lawmakers continue to negotiate, the markets are likely to continue suffering. A staggering $1.2 trillion disappeared from the U.S. stock market yesterday in what the NYT describes as "Wall Street's blackest day since the 1987 crash." The House's vote reverberated around the world, and all of the major stock markets in Asia were down this morning. So, even though those who voted against the bailout may have wanted to send a message to Wall Street fat cats, they also caused pain in "the not-so-fat 401(k) retirement savings plans of millions of Americans," notes the LAT. And the truth is that if the markets experience any more days like Monday, it's "going to hurt the average worker with money in the market far more than it will hurt a bank executive with millions of dollars to spare and a generous pension to boot."
The bailout's failure in the House clearly presented a challenge to both presidential candidates, who had offered tepid endorsements, but John McCain is the one with the most to lose. Last week he claimed that he was suspending his campaign to ensure that the important piece of legislation would pass Congress. The LAT notes that two hours before the House voted against the plan, McCain was telling a crowd in Ohio that he was instrumental in getting the piece of legislation through Congress, a message that quickly changed once the votes came in. "The first defense was to go on offense," notes the NYT. McCain blamed Obama and the Democrats for injecting "unnecessary partisanship into the process" before quickly adding that it "is not the time to fix the blame; it's time to fix the problem." For his part, Obama reworked a speech that praised the agreement and instead said there's a "lot of blame to spread around." While also calling for a bipartisan effort, Obama urged voters to consider McCain's history of favoring deregulation when they consider whom to pick in November.
Unless Congress passes something, the Federal Reserve and the Treasury don't have much ammunition left in their arsenal to deal with the deepening financial crisis. If lawmakers don't approve anything, the WSJ and WP both highlight that the Fed and Treasury would have little choice but to return to deciding on a case-by-case basis which institutions can be allowed to fail and which should be rescued. And no one thinks that continuing with this ad hoc process would do enough to increase confidence in the markets and get credit moving again. The LAT says it remains "an open question" whether the Fed and Treasury have enough power and resources to prevent "the cascading failure of hundreds, perhaps thousands, of financial institutions and paralysis spreading across the whole economy."
And in case voters needed a reminder that even some of the nation's largest banks aren't immune, most papers front the government-orchestrated sale of most of Wachovia to Citigroup for $1 a share, or about $2 billion. Citigroup will inherit Wachovia's $312 billion loan portfolio, but the government agreed to pay for any losses after the $42 billion mark. In return for this guarantee, the government got $12 billion in preferred stocks and warrants.
Wachovia's sale is the latest example of how Wall Street has been reshaped in the past few weeks with what the NYT calls "a wave of shotgun mergers." In a separate Page One piece, the WSJ says that the "notoriously fragmented American banking system is going through a decade's worth of consolidation in a matter of weeks." Now only the strongest banks are likely to survive, and the consequences of this consolidation will be felt for years. Customers might see their fees go up because of a lack of competition, but on the upside, the mere size of these banks means they'll be less vulnerable to future economic shocks. Then again, these banks could decide to take bigger risks because they may be seen as too big to fail.
Faced with a huge economic crisis, the country's political leaders "have failed utterly and catastrophically to project any sense of authority, to give the world any reason to believe that this country is being governed," writes the NYT's David Brooks. Just as they did with their anti-immigration crusade, House Republicans "have once again confused talk radio with reality" and chose to listen to "the loudest and angriest voices in their party, oblivious to the complicated anxieties that lurk in most American minds." If the economy tanks, "they will go down in history as the Smoot-Hawleys of the 21st century."
"The basic problem here is that too many people don't understand the seriousness of the situation," writes the Post's Steven Pearlstein. "But it is a measure of how little trust remains in both Washington and Wall Street that voters are willing to risk a serious hit to their wealth and income rather than follow their lead."
Daniel Politi has been contributing to Slate since 2004 and wrote the "Today's Papers" column from 2006 to 2009. You can follow him on Twitter @dpoliti.