A dizzying day of high-stakes Washington drama has left everyone confused and unsure about whether the $700 billion bailout to save the nation's financial system has any chance of making it through Congress. Whereas yesterday's papers were filled with optimism that a compromise would be reached, today no one knows whether the breakdown in negotiations means the plan is doomed or whether it just represents a brief stumbling block. The Los Angeles Timesreports that, far from the limelight, Republican and Democratic lawmakers were moving toward a compromise, "but it remained to be seen whether there would be enough votes to pass legislation." If that sounds familiar, it's because that's how things looked yesterday in the early afternoon, when key lawmakers said they were well on their way to agreeing on the "fundamentals" of a deal. But then in the White House, a "verbal brawl" broke out in the Cabinet Room, according to the New York Times, and things quickly fell apart, which led to an eloquent declaration from President Bush: "If money isn't loosened up, this sucker could go down."
Bush's dire warnings weren't enough to save the plan after a mixture of "financial concerns, presidential politics and partisan rancor" resulted in "an unexpected Washington drama with the nation's economic future hanging in the balance," says USA Today. Who's to blame for the breakdown? The Washington Postdoesn't mince words and declares right off the bat that a "renegade bloc of Republicans" managed both to surprise and to anger administration officials as well as congressional leaders when they "moved to reshape" the bailout. The Wall Street Journal reports that talks are set to resume this morning "without House Republicans." Meanwhile, lawmakers received a crude reminder of the fragility of the U.S. financial system last night as federal regulators seized Washington Mutual and immediately sold the bulk of its operations to J.P. Morgan Chase in what amounted to the largest bank failure in U.S. history.
The NYT has the most complete details from inside the White House meeting that was meant to display how members of both parties could come together to solve a crisis. In the end, it proved everything but. So how did we get from deal to no deal so quickly? Well, all that optimism quickly disappeared when the House Republican leader, John Boehner, laid a bomb by flatly declaring that rank-and-file members of his party were unable to support the bailout plan. And he wasn't talking about making an amendment or two—Boehner didn't like the idea of the government buying distressed securities from troubled financial companies. And as those following from home should know by now, that's pretty much the entire basis behind the administration's plan.
The WP reports that Obama and Rep. Barney Frank, one of the key figures in the negotiations, began to question Boehner about his new proposal, which would be a more market-based approach and involve less government money. But Bush quickly put a stop to that and summarily rejected this new plan that would imply starting negotiations again from scratch. "Don't start over," Bush said. John McCain, who the NYT reports was mostly silent during the meeting while Barack Obama repeatedly questioned Treasury Secretary Henry Paulson, simply declined to take a position on the issue.
The partisan rancor began flying as soon as the meeting broke up. Treasury Secretary Henry Paulson tried to lighten up the mood by approaching a group of Democrats at the White House. In a scene that everyone reports, Paulson dropped to one knee and pleaded with House Speaker Nancy Pelosi not to "blow up" the deal. "It's not me blowing this up, it's the Republicans," Pelosi said. "I know. I know," Paulson replied with a sigh.
Democrats didn't hide their anger and were quick to point the finger at one man: McCain. "This is the presidential campaign of John McCain undermining what Hank Paulson tells us is essential for the country," Frank said. Indeed, the WSJ declares that McCain's decision to return to Washington and participate in the talks "appears to have complicated days of negotiations." For its part, USAT flatly declares that "the good feelings" about an imminent deal "seemed to evaporate" around the same time that McCain joined the fray. Republicans, on the other hand, said Democrats were the ones playing politics because they were trying to quickly ram a deal down their throats early in the day to prevent McCain from getting involved in the conversation.
In a Page One analysis, the NYT notes that "as a matter of political appearances" the drama-filled day mostly just raised more questions about exactly why McCain went to Washington in the first place. And, as a bonus, those who wanted to know what McCain thinks should be done to solve the impasse were left scratching their heads. It's still too early to know how all this will play out, but at the end of the day Obama was given an opportunity to present himself "as the old hand at consensus building, and as the real face of bipartisan politics." Obama said the White House meeting showed that presidential politics should not be brought into "delicate negotiations."
It's also not clear that McCain had much to do with the alternative plan that House Republicans put forward yesterday. The WP reports that while he was shuttling between meetings, he "rarely came close to the Capitol suites and committee rooms where the talks were taking place," and he was home by 6 p.m. In an interesting nugget, the Post notes that aides described a meeting between Boehner and McCain as "somewhat surreal," since neither one of them "was familiar with the details" of the new proposal.
As for tonight's scheduled debate, no one knows whether it will actually happen. Obama called on McCain to join him at the University of Mississippi, but aides to the Republican nominee insisted he's still committed to staying in Washington until a deal is worked out on Capitol Hill. The NYT notes that at one point in the day, McCain "dropped a hint that the ultimatum was not as ironclad as he once said it was." If it does take place, everyone predicts the audience for the debate would likely be huge, "perhaps rivaling the record 80.6 million Americans" who watched Ronald Reagan and President Carter face off in 1980, says the LAT.
You know it's a big news day when the largest bank failure in U.S. history gets relegated to second-tier status on the front pages of the newspapers. After seizing Washington Mutual, which was the country's largest savings-and-loan institution, federal regulators immediately turned around and sold much of the company to J.P. Morgan Chase for $1.9 billion in a deal that will create the nation's largest bank in terms of deposits. WaMu depositors have nothing to worry about because their cash will be secure, even those with deposits larger than the federally insured maximum. Shareholders, on the other hand, aren't likely to see any money. The good news out of the "historic two-step," as the WP describes it, is that the federal insurance fund won't have to dig into its own pockets to cover WaMu's deposits, which totaled $188 billion in June.
WaMu's board was "kept completely in the dark" about the deal, and its chief executive, Alan Fishman, was actually in midair when the deal finally came through. Fishman shouldn't feel too bad, though. He has been on the job for only 16 days and "is eligible for $11.6 million in cash severance and will get to keep his $7.5 million signing bonus," says the NYT.
And while the failure of WaMu might be the most visible sign of the financial troubles facing the nation, it's hardly the only one. The NYT reminds readers that even as some people wonder whether the Bush administration is exaggerating the possibility of an economic collapse, "the reality of tight credit already is limiting daily economic activity." Many analysts continue to fear that unless financial institutions find a way to get rid of their toxic securities, they're likely to continue to "hoard their dollars and starve the economy of capital," which could "pin the nation in distress for years." And we won't have to wait long. The WSJ ominously warns that "inside markets that are hidden to most Americans ... action was unfolding that will soon affect how companies meet payroll, pay vendors and make investments."
In other campaign news, the NYT takes a look at how Obama isn't quite holding up his vow "to respond with the truth." While McCain's misleading advertisements have received lots of attention, Obama has also started to run television and radio ads that "matched the dubious nature of Mr. McCain's more questionable spots." Some Democrats are worried this tactic could hurt Obama's image as someone who doesn't play politics as usual. Others, however, say these ads are only fair considering the misleading statements coming out of McCain's camp, and these supporters insist that Obama's ads hardly come close, in terms of frivolousness and dishonesty, to those of his opponent.
The papers report on two pieces of international news that are unlikely to get much attention considering everything else going on. First, everyone reports that Pakistani and U.S. ground troops exchanged fire along the Afghanistan border yesterday. There are differing accounts of what actually happened, but everyone says it's stark reminder of the "risk of a much more serious, and lethal, misunderstanding along the border," as the NYT puts it. Meanwhile, the WP reports that a key reason why the deal to end North Korea's nuclear weapons program has been unraveling lately has to do with the "sweeping plan" presented by U.S. officials to verify the claims it was making about its nuclear programs. Others had warned the United States it was asking for too much, and what once looked like promising talks quickly came to a halt after the plan was presented.
The WP's Steven Pearlstein writes what TP thinks just might be the most concise and easy-to-understand case in favor of the bailout. Addressing those who are angry at the deal, he writes that we have to make a choice between preventing a financial collapse or teaching Wall Street a lesson, because "you can't do both at the same time." Pearlstein even mentions an intriguing idea of how to structure the rescue package "around a new government-owned corporation" but does so to emphasize why it's important to give the Treasury flexibility. "Just as we entrust generals to fight a war, we are going to have to trust the Treasury to find a way out of this crisis."