263 for, 171 against, and the bill is approved. How did such a stunning turnaround from Monday’s vote (205 for, 228 opposed) in the House of Representatives happen?
First and foremost, the House, after all these years, is still a very decent barometer of public sentiment. When the stock market crashed after the initial, unexpected House vote on Monday, the strong tide of constituent anger against taking care of Wall Street rapidly turned to a reflection of greater understanding of the consequences of the “no” vote, and then to fear as voters began to express concern that Congress needed to act. It helped to steady things somewhat during the week that party leaders of both houses and the White House pledged to stay at it until something serious was done. In the middle of campaign season, that said something to voters about the seriousness of the situation.
Second, both Presidential candidates, after some interesting skirmishing, got on the same page, largely falling in line behind the plan laid out by Secretary Paulson. Instead of causing confusion by disagreeing, their alignment was essential to the pendulum swing of public sentiment in favor of acting on the plan.
Third, the crisis proved to be just the laxative Congress needed to move on three “necessary” measures hung up in the bitter wrangling over paying for--or not--government expenditures. The Senate, which told the House and its conservative Blue Dogs to “take it or leave it” with regard to three measures - a one-year fix of the Alternative Minimum Tax (AMT), a series of tax benefits and credits known as Extenders, and a collection of long-debated energy incentives - attached its versions of these bills--largely not paid for--to the bailout. To salve frightened depositors and money market investors, FDIC insurance limits were more than doubled (to $250K). Otherwise, the Paulson plan, as first debated in the House, was essentially unchanged. The House, faced with the potential to once again roil the markets, perhaps more devastatingly this time, recognized that events had trumped its earlier “pay-as-you-go” posture. With Members picking and choosing individual Senate add-ons for cover, it blinked. Plenty of House Democrats and Republicans, chastened by events, changed votes.
A clear-eyed observer might conclude that “pay-as-you-go” is dead. Only time will tell…
The turnabout, as extraordinary as it was, is vintage Congressional maneuvering. Had the crisis hit last year, or even earlier this year, despite the Treasury Secretary’s call for quick action, the two bodies might still be wrangling over the content of the Paulson plan, or seriously considering competing plans. The first failed House vote might not have been taken so quickly. But, there is looming, after all, a huge, perhaps landmark, election in less than three weeks. It isn’t so much that most Members wanted to run home and listen intently to opinions of the numerous constituent “experts” they will see at barbeques, the local coffee shops, and gas stations, (redistricting has made truly competitive races in the House far fewer in number), but there is a fear of voter backlash against ineffective, incompetent, government out there that incumbents of both parties sense. They needed to get home to explain why they did what they did.
Now the emphasis, as we advise clients, will be on whether the bailout plan is working, how it is working, and how they might be involved. Stay tuned.