The $700 billion bailout bill is palatable to no one. It’s a huge price tag. It was originally presented to Congress as all but a fait accompli. Secretary of the Treasury Henry Paulson and Federal Reserve Chairman Ben Bernanke have been underwhelming in selling the plan on Capitol Hill. And it’s hated by a public suspicious of the country’s elites, whether in Washington or on Wall Street.
Put that all together with a reflex against such a massive governmental intervention among House Republicans, and it’s understandable that so many of them voted against it and the bill went down yesterday. They were immediately the targets in the Beltway blame game, although there’s plenty of it to go around. House Speaker Nancy Pelosi, who has been acrimoniously partisan over the last few days (calling Republicans “unpatriotic” over the weekend), delivered an obstreperous anti-Republican speech on the House floor prior to the vote, apparently unaware of the delicacy of the moment. She didn’t deliver five of her own committee chairmen and lost more than a dozen of her fellow California Democrats. Ninety-five Democrats voted against the plan; if 13 more had voted “aye,” the bailout would have passed.
But as a practical matter, Democrats wanted as much political cover as possible to pass the unpopular Bush administration proposal. The Republican leadership delivered only a third of its caucus. The Republican opponents marshaled arguments that ordinarily would win us over, for instance, about the plan representing “the slippery slope to socialism.” But we believe these arguments fall down in the current crisis. If the crunch that Paulson and Bernanke are warning about comes, it will squeeze off credit — the very lifeblood of capitalism — to businesses, entrepreneurs, and consumers all around the country. The Paulson plan is an intervention designed to keep capitalism functioning rather than supplant it. If it is successful, the assets the government buys will be sold back on the market (perhaps at a profit), after the panic passes.
There are alternatives to the Paulson plan, some of which are better or worse from a free-market perspective. But all of them involve major government action because in a financial crisis like this – originally stoked by misbegotten government policies — only the government has enough capital to backstop the system. It is the nature of financial panics to destroy institutions and wealth willy-nilly. Insisting only on private action in a crisis this large is like counting on private emergency response to a hurricane or on a private military to fight the country’s wars.
Swallowing hard, some of the most impressive Republicans in the House realize this, not just top leaders John Boehner and Roy Blunt, but the next generation of conservative leaders, members like Eric Cantor of Virginia, Adam Putnam of Florida, and Paul Ryan of Wisconsin. These aren’t socialists, creeping or otherwise. Paul Ryan, a principled conservative who has taken upon himself the lonely task of sponsoring legislation to tackle the nation’s entitlement programs, hated having to support the Paulson plan. But on the House floor Monday, he called it a “Herbert Hoover” moment. He noted the calculation of many of his colleagues: “We’re all worried about losing our jobs. Most of us say, ‘I want this thing to pass, but I want you to vote for it – not me.’ ” That, of course, is a formula for the legislation going down. “We’re in this moment, and if we fail to do the right thing,” he said, “heaven help us.”