FINEMAN: Behind the Bailout Bust

Over at his new "Race to the Finish" blog, my NEWSWEEK colleague Howard Fineman explains why the bailout bill collapsed--and sees a light at the end of the tunnel. Take it away, Howard:

House Minority leader John Boehner (speaking) and other House GOP leaders said Speaker Nancy Pelosi's "partisan" speech spurred defeat of the bailout bill. (Photo: Susan Walsh / AP)

It was a demonstration of democracy at its finest-or worst-depending on your point of view.

Ain't democracy grand? Infuriating, yes. Unpredictable, yes. And grand. All the Washington powers that be and all the New York money men simply could not convince the House of Representatives-"the People's House"-to swallow the Paulson Plan.

What happened? Here are a few of the forces at work:

  • A new generation of Republicans, coming of age since the advent of Ronald Reagan, refused to accept this vast expansion of federal power in the markets. The new GOP is in many ways a populist one, and not amenable to the wishes of Wall Street, and not eager to give more power to Washington.
  • President George W. Bush has zero credibility, even-if not especially-with his own party. He used it up in selling the war on terror. He tried to sell this measure, and the more he worked on it, the more damage he did to its prospects of passage.
  • There was a mismatch between the purpose of the plan, which is to get credit flowing again, and the language and numbers of the proposal: a $700 billion "bailout" of Wall Street. Voters never were convinced that they would get any money back, and they didn't like the idea of helping a herd of rich people. As a result, the measure-to the extent anyone understood it-was wildly unpopular with the most vocal of voters.
  • Democrats had their own objections-a lack of tough measures against the big boys-and in any case were not about to be the only party to vote in favor of an unpopular measure.
  • The measure drew only weak support from the presidential candidates, who have their own criteria. Neither John McCain nor Barack Obama was an eager participant in the sales job.
  • The rush-job nature of the entire process did not help. Call it the Iraq effect. It seemed to Democrats and Republicans alike, that a colossal measure was being crammed down their throats.
  • Good old-fashioned partisanship. House Speaker Nancy Pelosi gave an accusatory speech at the last minute that did not help; Republican leaders such as Newt Gingrich poured his own gasoline on the fire, by lashing out against the Bush administration's plan as biased "entirely in favor of the big banks and Wall Street."

Now what? Well, the measure could be resurrected in a day or two. Paulson and Hill leaders could expand the bill like an accordion to win votes, one by one, on both sides of the aisle (and it won't take that many). Conservative Republicans-the core group that defeated the bill-could come back with an alternative more to their philosophical liking.

Or Congress could punt-and put the question of what, if anything, to do about the credit crisis to the American public. That would mean a full discussion of the issue and the merits of various proposals, which the two parties have yet to really make.

Doing that would require the two presidential candidates to get specific-and get real.

In other words, more democracy.