The Housing Chronicles Blog: Why did the bailout fail?

Tuesday, September 30, 2008

Why did the bailout fail?

Voter anger. Politicians up for re-election in just over 30 days. It's no wonder the bailout -- in its current incarnation at least -- failed. From an LATimes story:

The surprise defeat of the Bush administration's financial rescue plan was a product of the waning influence of a lame-duck president and the nervousness of members of Congress, whose institution is even less popular and who faced a flood of angry messages from constituents. McCain and Obama are more popular, but neither candidate embraced the bailout measure enthusiastically before the vote....

"We're all worried about losing our jobs," Rep. Paul D. Ryan (R-Wis.), who voted in favor of the plan, said in a speech in the House. "Most of us say, 'I want this thing to pass but I want you to vote for it, not me.' "

The rescue plan, which would have allowed the Treasury to spend as much as $700 billion to buy distressed investments from troubled financial institutions, was always going to be a hard sell.

No grass-roots constituency supported the idea. Instead, conservative Republicans protested the bill as a huge federal intrusion into private enterprise, and liberal Democrats complained that it rescued wealthy investors but didn't give homeowners a refuge in bankruptcy to avoid foreclosure....

In the face of that storm, members of Congress in tight races walked away.

All seats in the House are up for grabs this year. But many members who voted no are in safe districts -- where voters are overwhelmingly conservative or liberal. That's partly because, over years of redistricting, many districts have become politically polarized, and members from those districts have less incentive to compromise with the other party....

Pleas from a president may not work either -- especially if the president's public standing has fallen to record lows. White House spokesmen said Bush called dozens of GOP members of Congress. His efforts appeared to bear little fruit. Rep. Joe L. Barton (R-Texas) said the president called him, but the lawmaker explained that he preferred to listen to his constituents.

In such a situation, even a powerful vice president such as Cheney can no longer command votes from members of the House. "Cheney lived up to his reputation as Darth Vader . . . talking about all the terrible things that were going to happen," said Rep. Christopher Shays (R-Conn.). "People weren't afraid of Darth Vader."...

Strangely, perhaps, some House members on both sides said the pressure from their leaders for a yes vote was milder than they had expected.

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