The defeat of the bailout deal in the House yesterday afternoon and subsequent largest single-day points selloff of the Dow Jones index has put a white hot focus on the bailout as the single most important issue in the campaign. The stakes for Obama and McCain could not be higher as the candidate who is perceived by moderate, centrist swing voters as fashioning a solution will probably seize the inside track to the presidency. An interesting question to independent, centrist observers is whether Obama’s campaign did or did not intentionally scuttle yesterday’s bailout vote in order to deny McCain credit for fostering the bipartisan package. Some evidence supports both theories. It cannot seriously be contended that McCain scuttled the package as he suspended his campaign to push the deal and limited campaigning through the weekend to focus on pushing House GOP members to vote for the bailout.
Last night, the Obama campaign changed strategy by strongly calling for the passage of the bailout with a single phrase: “Get it done”. This morning, echoing the House GOP’s call during weekend negotiations, Obama called for raising the federal deposit insurance coverage on bank deposits from $100,000 to $250,000 for each individual. Again this afternoon, Obama stated in a speech that this is a moment of national emergency in which the parties must come together to pass a bailout package immediately.
Obama’s move into the middle of the bailout deal fray is a marked shift from his campaign’s prior strategy over the last two weeks to stay away from direct, specific support for the bailout deal. To an objective observer, it appears that Obama is now making his move to the center on the bailout to appear presidential in a time of crisis and as leading the charge to a solution after yesterday’s failed vote and fear spreading throughout the American public and world. As overseas markets stabilized overnight and stock market is strongly up today, Obama is well-positioned to claim his shift in position made a significant difference.
Historians and independent minded voters will ponder whether or not the Obama campaign moved behind the scenes to scuttle the vote yesterday with last-minute manuveoring by the Democrats. Indeed, had the bill passed yesterday, McCain would likely have been perceived as the dealmaker who brought about bipartisan consensus with the suspension of his campaign. The actual moment-to-moment breakdown of yesterday’s vote and the last week of negotiations provide evidence both ways of the Obama campaign’s intent, or lack thereof, to scuttle the yesterday’s vote.
As a starting point, recall that last week very few House Republicans supported the bailout. At that time, congressional Democrats had been negotiating almost exclusively with Treasury Secretary Henry Paulson and excluding the House GOP from the talks on the bailout. On Tuesday of last week, Democratic Senate Majority Leader Harry Reid directly called on McCain to “produce” House GOP votes for the package and lead:
We need, now, the Republicans to start producing some votes for us. We need the Republican nominee for president to let us know where he stands and what we should do.
Also, early last week Pelosi announced that she would not push through the bailout package unless a majority of the House GOP supported the package. Sensing the potential for catastrophic defeat, Paulson then called upon McCain to get involved in the dealmaking process to bring along a significant portion of the House GOP.
McCain, being McCain, reacted dramatically to Paulson’s call and suspended his campaign the next day to focus on on pushing for a deal and a White House meeting with all congressional leaders and both candidates present. Obama, after rebuffing McCain’s request to jointly suspend campaign operations to deal with the crisis and delay the first debate, agreed Wednesday night to President Bush’s request to attend a Thursday White House meeting.
As McCain was touching down in DC on Wednesday, Democratic Committee Leaders Chris Dodd and Barney Frank, along with Paulson and a liberal GOP senator, announced that a bailout deal was reached. National media outlets cooperated and reported the bailout was a done deal. Objectively speaking, this reporting was clearly not grounded in reality as House GOP leaders had in no way signaled support for the Dodd-Paulson draft agreement and Pelosi had made clear that without that support, the House would not pass the bailout. Regardless, the media narrative reported that McCain had “blown up” the deal by arriving in Washington on Thursday afternoon, and Reid reversed himself by stating that McCain should stay out of town.
From a centrist, independent perspective, it is not hard to extrapolate Reid’s change in position as reactive to McCain’s bold suspension move and at the behest of the Obama campaign. Additionally, the hastily arranged news conferences on Wednesday to present the Dodd-Paulson deal were intended by the Obama campaign to undercut McCain’s move and paint him as reducing bipartisanship by “injecting presidential politics”.
The Dodd-Paulson draft was the product of negotiations between Paulson and the Democrats, and included many poison pills which made significant GOP support impossible. Such poison pill provisions included the now-infamous directive to provide 20% of any profit from any individual transaction under the bailout legislation to two federal trust funds, which hand out grants to organizations such as ACORN.
The turning point in the negotiations occurred on Thursday night at the White House, where Bush, McCain, Obama and congressional leaders from both parties convened a meeting about the bailout package. By the time of the meeting, in response to the Dodd-Paulson “deal”, the House GOP had released an alternative plan which would allow for banks to purchase federal insurance for the mortgage assets instead of Paulson’s plan to purchase the toxic mortgage assets directly. Bush began the meeting by yielding to Pelosi and Reid, who then yielded to Obama.
Obama expounded on the virtues of the Dodd-Paulson deal and attacked House GOP leader John Boehner for disrupting the Dodd-Paulson deal with his alternative proposals. Amazingly, Obama reportedly used talking points against the House GOP proposal leaked by Paulson to Goldman Sachs and then by Goldman Sachs to Obama. Boehner defended his proposals, and the meeting quickly devolved into a shouting match amongst the participants. The fallacy of the “deal” announced by Dodd, Frank and Paulson that afternoon was exposed and the meeting broke up in acrimony with an agreement to restart negotiations with a House GOP negotiator on board.
Thereafter, the House GOP leadership whip Roy Blunt was included in negotiations by congressional Democrats over the weekend and some of the more onerous provisions to conservatives were removed, such as the ACORN funding vehicle noted above and a provision that would allow bankruptcy judges to reduce principal and interest of defaulted mortgages without lender consent. The mortgage insurance alternative pushed by Blunt was included in the package, but only as an option as Paulson would not be compelled to use this option. Three other key provisions pushed by the GOP, an end to the “mark to market” requirement for valuation of assets (a return to a three year average in SEC reporting instead of a snapshot market valuation), a rise in the FDIC cap from $100,000 to $250,000.00 and temporary cuts in capital gains and inflow taxes were left out of the deal.
Negotiations dragged on over the weekend until all sides emerged late Saturday night with congressional Democrats again announcing a deal was in place while Blunt said he was “optimistic” but wanted to see the final text produced by the Democrats. A GOP aide added this tepid statement: “I’m not sure yet we can sell it to our conference, but I’m 100 percent sure that this is the best deal we could.”
After some jostling on the Sunday talk shows between campaign surrogates and personal appearances by McCain (“This Week”) and Obama (“Face the Nation”), a media consensus developed that the passage of the bailout deal was likely, if not inevitable. Both Obama and McCain claimed some credit. Indeed, top campaign strategists Steve Schmidt (McCain) and David Axelrod (Obama) squared off on the issue of who should get credit for creating the consensus needed to reach a deal, with Axelrod dismissing any productive role by McCain as “fiction”.
By Sunday night, the Obama campaign was certainly analyzing whether a passage of the Dodd-Blunt Saturday night deal would help or hurt his and McCain’s campaign. With the dire economic news dominating the headlines, Obama had been benefitting greatly in national and state polling, moving from a slight McCain lead to a small but significant Obama lead. The passage of the Dodd-Blunt compromise on Monday afternoon would have surely lead to a gigantic market rally and an intense focus on how each candidate contibuted over the last two weeks to fashion the solution.
Additionally, passage on Monday would have likely moved the severity of the immediate crisis from dominence over the campaign. While Obama’s campaign was already claiming some credit on the Sunday shows, internal polling may have indicated that McCain would be perceived positively as rallying support by delivering a critical bipartisan bill at a time of crisis should the bill pass and calm the markets. Up to this point, the Obama campaign had been successful in painting McCain as “blowing up” the Dodd-Paulson deal while slowing down subsequent negotiations by “injecting presidential politics”.
An analysis of the action on Monday is inconclusive as to whether Obama intentionally scuttled the House’s passage of the Dodd-Blunt package, with evidence on both sides.
Time reports some facts, albeit with a predictably liberal spin, regarding Monday’s vote in the House:
But the two parties have different accounts of what led up to the vote. Two Republican recollections of the same conversation had Blunt informing Hoyer that they were short — Blunt counted 60-some GOP votes and was hopeful they could get as many as 75 — and that Democrats would have to make up the rest. Four Democratic sources dispute this version, insisting they were always promised between 80-90 GOP votes — still short of the 100 votes that would make up a majority of House Republicans, but enough to qualify as a bipartisan victory.
But even some Republicans remarked that their leaders didn’t seem to be trying too hard to get the votes. There wasn’t “some of the bursting of arms that I’ve seen in some votes over the past 12 years,” said Rep. Chip Pickering, a Mississippi Republican. Why wouldn’t there be a harder push on such a crucial bill? “The leaders knew people have deeply held convictions on this,” Pickering said. “Everyone knew what the stakes were.”
And the stakes become even clearer once the tally started at 1:27 Monday afternoon. By 1:51, 227 members had voted against it – nine votes more than the 218 majority. By 2:02 p.m. Hoyer and Rep. Rahm Emanuel, the No. 4 House Democrat, were in animated discussions on the Republican side of the chamber with Boehner and Blunt. Hoyer “was running around in there saying, ‘The market is falling! The market is falling!’” said Scott Garrett, a New Jersey Republican. Faced with a major GOP shortfall, Democrats refused to force 12 of their members to change their votes for a bill that they had just spent the past week renegotiating in order to garner Republican support, dropping several provisions important to Democrats. By 2:05 the vote was done, failing to pass by a margin of 228-205. In the end, Republicans delivered 37%, or 65 of their 199 members, compared to 60% of House Democrats who voted for President Bush’s “rescue” plan.
An aide to No. 4 Democratic House Leader Raul Emanuel commented that “We wanted enough to put the pressure on the Republicans and Congressman Emanuel was charged with making it close enough. He did a great job.” Accordingly, the Democratic leadership itself confirms that vote totals for the bill were kept down to increase pressure on Republicans to support the bill, notwithstanding Blunt’s call to Hoyer earlier in the day stating that Blunt’s count was in the 60′s for GOP support.
It must be noted that Emanuel was a board member of Fannie Mae, and may be concerned about a potential McCain Department of Justice engaging in a widespread Fannie Mae investigation as he was a board member. Furthermore, Emanuel is born of Illinois politics, as is Obama, and has taken a role as a lead Obama surrogate since the end of the primaries when Emanuel supported Clinton and is clearly taking his marching orders from Obama.
Another piece of evidence which weighs against Obama intentionally blowing up the Dodd-Blunt deal is the release of Obama’s Monday remarks prior to his speech. Those remarks appeared to assume that the bailout had passed – once it failed, Obama’s actual speech was altered to reflect that reality. On the other hand, that release could have been gamesmanship by Obama’s campaign to disprove the potential accusation that he killed the bill before they were made.
The role of Democratic House Speaker Nancy Pelosi in the failure of Monday’s bailout package cannot be overstated, and Pelosi is certainly taking her marching orders from Obama as well. Incredibly, an aide to House Democratic leadership noted that Pelosi essentially ordered Democratic Whip James Clyburn to not do his job rounding up votes:
“Clyburn was not whipping the votes you would have expected him to, in part because he was uncomfortable doing it, in part because we didn’t want the push for votes to be successful,” says one leadership aide. “All we needed was enough to potentially get us over the finish line, but we wanted the Republicans to be the ones to do it. This was not going to be a Democrat-passed bill if the Speaker had anything to say about it.”
Pelosi’s final contributions as Speaker to move this legislation bear mentioning: railing against the House GOP members on Saturday for being “unpatriotic” for not engaging in bailout negotiations earlier (notwithstanding the fact that Democratic leadership froze out the House GOP) and moments before the vote Monday, giving a blisteringly partisan speech on the House floor attacking the GOP and Bush, dovetailing nicely with Obama’s claim that the crisis was the “final verdict” on Bush and GOP deregulation policies. In an odd moment of symmetry with Obama’s later speech, Pelosi’s partisan comments were deviations from the remarks issued by Pelosi’s office that morning and up to an hour after she spoke.
Most of Pelosi’s closest congressional allies from California voted against the bailout, and a third of the Democrats on the committee which wrote the bill (12 of 37) voted against the bailout. Almost all freshman Democratic House members voted against the bill with Pelosi’s blessing just as voting began, as did many of Pelosi’s House committee leaders. Many fence-sitters on the GOP side saw this early voting action and Pelosi’s attack speech as the straw that broke the camel’s back and lead them to vote against the package.
Furthermore, a majority (23-16) of the all-Democratic Congressional Black Caucus (CBC) voted against the bailout, despite the fact that few CBC members face competitive elections in November and Obama has considerable sway over the caucus. Indeed, even Obama’s national campaign chairman, close ally and Chicago-based Illinois Democrat Jesse Jackson, Jr. voted against the bill. Accordingly, it stands to reason that if Obama wanted to push the bailout package through, he could have called upon his close allies in the CBC or at least national campaign chairman Jackson to support the package – but Obama did not expend that political capital.
At the end of the day, McCain and the House GOP leadership was only able to garner 65 votes for the Dodd-Blunt bailout package. McCain’s Arizona House contingent all voted against the bailout as well, perhaps indicating the lack of McCain’s ability to corral votes. McCain did make calls on Sunday pushing the package to House GOP members.
At the moment of truth, Democratic leadership refused to force 12 of its members to switch their votes and the bill failed, creating a market free fall to the largest single day point loss in Dow Jones history. The resultant headlines clearly favored Obama, as McCain was ridiculed for being unable to garner enough House GOP support to pass the package. Had the package passed, even if only with the same 65 House GOP votes, McCain would clearly be in a position to claim some credit and the economic crisis would be declining in importance.
Taken together, the evidence outlined above does not conclusively prove whether Obama’s campaign did or did not intentionally scuttle yesterday’s vote, and it is likely no conclusive evidence will ever emerge. However, the fact that so many close allies of Obama’s voted against the bill, the mudslinging by Pelosi moments before the vote and Emanuel’s choking off of additional Democratic votes support the theory that the Obama campaign made a conscious decision to scuttle the bailout package Monday.
Obama clearly benefits from the continued dominance of the economic crisis on the media narrative of the campaign, and Obama’s newfound full-throated endorsement of the bailout after it’s failure yesterday indicates that Obama now wants the bailout to pass and the credit to accrue to him and not John McCain. Fear is now spreading through Main Street America and Obama may indeed be seen as the saviour of the economy with his new push, while the GOP is perceived as at fault for Monday’s failure. Whether Obama intentionally scuttled the vote Monday or not, the bill’s failure and his new strategy is likely to succeed in continuing his rise in the polls while foreclosing any chance that McCain can quickly regain the momentum and perhaps the Presidency.