Time Magazine
Friday, Sep. 26, 2008

Who's to Blame for the Bailout Deal's Stumble?

John McCain arrived on Capitol Hill early Thursday afternoon just as a bipartisan group of senators and representatives were announcing they had reached an agreement on the broad outlines of a bill to bail out Wall Street. For a moment, as the press conference broke up, members of the media traveling with McCain mingled with reporters covering the Hill. "Wait, there's a deal?" one surprised McCain reporter asked his congressional colleague.

That one question summed up the confused state of a high-stakes day in the nation's capital that only got more confusing as the hours passed. For a few hours, it looked as if McCain, who came to Washington with the stated goal of helping to hammer out a final deal, had shown up just minutes too late to speed along the once-stalled negotiations. Then McCain, his Democratic rival Barack Obama and congressional leaders from both parties went to the White House for what some billed as a photo-op, a public showing of bipartisan support for a piece of legislation that Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and the President himself have called absolutely vital to preventing economic collapse. Reporters waited and waited on the rainy White House driveway expecting to hear from the two candidates, only to be informed by Senator Richard Shelby, the top Republican on the Senate Banking Committee, that there was no deal.

With the fate of the bailout bill in peril, it's not clear whether the presence of the presidential candidates is doing more damage than good. Members of both parties emerged from that meeting accusing each other of playing politics with the crucial legislation. Both sides to some degree are right. Less than 40 days from the presidential election, this crisis has been anything but the shining moment where candidates transcend politics and come together for the good of the country as McCain suggested it should be when he suspended his campaign and asked to postpone Friday's debate until a deal could be worked out.

Instead, as skeptics had predicted, the process is getting bogged down by a host of partisan fears: fear that one candidate could be perceived as breaking the logjam and saving the country from financial ruin, fear that one party could be blamed for passing a costly government bailout of fat cats on Wall Street, and fear of who might be blamed if nothing is done. "I'm not clear that in a very difficult situation like this that doing things in the spotlight and injecting presidential politics is necessarily useful," Obama told reporters Thursday.

So what caused the breakdown of a $700 billion rescue package that at one point seemed to have been amended to everyone's liking with limits on executive compensation, more protections for taxpayers and homeowners, and additional oversight of the buying and selling of Wall Street's toxic mortgage-backed securities? In the simplest terms, it was House Minority Leader John Boehner's surprising declaration at the White House meeting that his caucus does not support the deal and that alternatives should be considered. House Speaker Nancy Pelosi has demanded that Boehner get at least half of his caucus or 100 members to vote for the legislation so that Democrats are not left passing this still very unpopular bill by themselves less than two months before the election. Boehner simply doesn't have the votes and nothing that President Bush, Vice President Cheney, Secretary Paulson or even Boehner has said has swayed the GOP's rank and file.

During Paulson's meeting Wednesday with the GOP caucus, dozens of members steadily streamed out of the meeting in outrage. Finally, with just 60 or so members left in the room, Paulson called for a show of support, according to Representative Tom Davis, a Virginia Republican. Only four people raised their hands. Eric Cantor, a Virginia Republican who has started pushing an alternative to the Paulson plan that would not require Washington to pony up so much money, said every member has been inundated with hundreds of calls from angry conservatives.

Democrats are having none of this tale of woe. As far as they're concerned the GOP's platform of deregulation is what caused this problem, and it's a GOP President however unpopular who is demanding this fix. They view Boehner's stance with deep suspicion. If enough Republicans did not support the bill, why, they ask, did Republican Senator Bob Bennett and Representative Spencer Bachus, the top Republican on the House Banking Committee, stand at the press conference on Thursday announcing the agreement and voice their support? Why wait until a meeting at the White House to throw out a raft of alternative solutions that the Administration had already rejected, and which would require a whole new round of talks to get done?

In the minds of Democrats, what changed was the dramatic decision by McCain, who does not serve on the Senate Banking Committee and has rarely exhibited much interest in crafting financial legislation, to come to Washington. "This notion that somehow John McCain is going to ride to the rescue, I think, is a notion in his own mind, not in the reality of what we're facing here," said Illinois Senator Dick Durbin, the No. 2 Senate Democrat. "Bringing the presidential political campaigns to the halls of Congress is not going to make this any easier."

Perhaps, the Democrats now wonder, the point was actually to make it harder. Some party members think Boehner created a problem for the Republican nominee to fix; if the House Republicans can be brought around from their initial intransigence, McCain would be seen as the savior of the bill. Even some of the McCain campaign's statements Thursday afternoon seemed to suggest as much. "We're optimistic that Senator McCain will bring House Republicans on board without driving other parties away, resulting in a successful deal for the American taxpayer," said McCain spokeswoman Kimmie Lipscomb.

House Republicans protest they are not playing politics with the bill. Bachus, they say, is a maverick who told the Democratic negotiators six times that he did not have the power to speak for his caucus. The press conference, they contend, was a staged production to give the illusion of an agreement and force it down the throats of unwilling House Republicans. Some point to Senate Majority Leader Harry Reid's comments Thursday morning that the deal represented what he liked to call "the Obama principles," thus handing the credit to the Illinois senator. And McCain campaign staffers point out that only a couple of days ago Democratic leaders were insisting that McCain had to get involved and help bring his party on board if the plan was going to pass.

What it has all come down to is an incredibly high-stakes game of political chicken which no one wants to lose. House Republicans late Thursday were talking up an alternative proposal for the government to help insure the bad mortgage-backed assets rather than buy them up, but that less-expensive option has little support from either Democrats or the Bush Administration. "Members are aware of the crisis situation that we're in," McCain told ABC News Thursday. "They do have concerns, which I think when you're talking about $700 billion or a trillion dollars, that need to be addressed so that this is a genuine bipartisan, bicameral agreement."

One solution being floated in the Senate, however, might work precisely because there would be no real winners. The Senate, where the bill has more support among Republicans than in the House, would take the lead and attach the bill to a resolution that continues to fund the federal government through the election. That is a measure members have a hard time voting against, and if the Senate then adjourns, the House would pretty much be forced to swallow the Senate's single bill. House members would then be forced to vote for or against the budget along with the bailout, giving them a measure of political cover. In the end such an approach may be the only viable way out of a fine mess that has left markets reeling, the economy on the brink of collapse and Washington looking once again like the dysfunctional place that both Barack Obama and John McCain have pledged to change.

(Click here for Pictures of the Week.)

(See the ten steps to the financial meltdown here and TIME's photos of the global financial crisis here.)