Negotiations over a $700 billion Wall Street bailout plan broke down Thursday amid a round of partisan finger-pointing, with top Democrats alleging that Sen. John McCain and House GOP leaders may have purposely derailed the talks in order to score political points.
The McCain camp and an aide to Minority Leader John Boehner (R-Ohio) denied the accusation, arguing that that there is simply no support within the House Republican Conference for the Treasury Secretary Henry Paulson’s “market stabilization” plan.
According to one GOP lawmaker, some House Republicans are saying privately that they’d rather “let the markets crash” than sign on to a massive bailout.
“For the sake of the altar of the free market system, do you accept a Great Depression?” the member asked.
President Bush’s lame duck status, and his heavy hand in dealing with lawmakers in his own party for the last seven-plus years, is also coming back to haunt the White House, as House Republicans grumble that Bush is “trying to tear up the Constitution” by committed the federal government to such a massive intervention in the U.S. financial markets.
Paulson traveled to Capitol Hill Thursday night to see if he could get the negotiations back on track, but it wasn’t clear if the he could be successful considering what occurred throughout the day. a late-night meeting with lawmakers broke up with no deal.
Asked what Americans should know when they awake Friday morning, Paulson said: “It’s Friday.”
Senior House Democrats slammed McCain and House GOP leaders for the breakdown in the discussions, claiming that they are pushing a proposal that Paulson and the White House have already rejected.
After a wild meeting at the White House, House Financial Service Committee Chairman Barney Frank (D-Mass.) was asked whether the Congress and the president were close to a deal.
“Yes and no,” he said. "We're closer to a deal between House Democrats, Senate Democrats, Senate Republicans and the administration. I cannot tell you, but we seem further away with the House Republicans because we thought we might have some differences of opinion over the president's approach. They're now talking about a very different approach."
Frank bashed McCain for becoming involved in the bailout talks, suggesting he was doing it only for political gain in the presidential race.
"I think Sen. McCain was hurting politically on the economic issue," Frank just told reporters. "I think this was a campaign ploy for Sen. McCain. I think they then had this problem that there might not have been enough of a deadlock for him to resolve. I don't know what motivated what, but the next thing we know, he's in a position, frankly, where he's making it harder to get things done rather than negotiate differences.
"He's slowed it down, I don't know whether he caused it or what," Frank said. "We are trying to put it back together."
House Majority Leader Steny Hoyer (D-Md.) reiterated that Speaker Nancy Pelosi (D-Calif.) will not bring any bailout plan to the floor that does not have bipartisan support. Pelosi and House Minority Leader John Boehner (R-Ohio) held their own discussions of Thursday night.
"This needs to be bipartisan. If it's gonna pass, it needs to be bipartisan," Hoyer said. "We need to have significant bipartisan support if this is gonna pass."
House Republicans, of course, have their own take on what happened. They blame Frank and Sen. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee, for trying to force through an agreement lacking bipartisan backing once they knew McCain had suspended his presidential campaign in order to return to Washington. Republicans said it was a blatant attempt by Democrats to deny McCain – and House Republicans - a role in the discussions.
"There is an agreement between Sen. Dodd and Chairman Frank," said Michael Steel, spokesman for House Minority Leader John Boehner (R-Ohio).
Steel reiterated that Rep. Spencer Bachus (R-Ala.) — who, as ranking member of the House Financial Service Committee participated in talks on the compromise — "wasn't empowered to negotiate" any agreement on behalf of other House Republicans.
House Republicans also complained privately that the Treasury Department has refused to supply them with technical help needed to draft their own detailed alternative plan, leading to a delay in releasing a counter-proposal that conservative Republicans can rally around.
On Thursday afternoon, Reps. Eric Cantor (R-Va.), Paul Ryan (R-Wis.) and Jeb Hensarling (R-Texas) introduced a series of “principles” that House Republicans want to see incorporated in any bailout plan. Boehner then surprised Bush and Houses and Senate Democratic leaders when – in the middle of a meeting at the White House -- he introduced those principles as a conservative alternative to Paulson’s bailout plan.
Aides to the conservative trio began drafting the principles Wednesday afternoon, before McCain changed the dynamic by announcing his intent to return to Washington.
The plan, which has not been transformed into legislation, seeks to insure mortgage-backed assets at prices and premiums set by the government, creating a virtual backstop for all the debt. This would not require an initial outlay of taxpayers’ funds in the neighborhood of Paulson's $700 billion.
But the Treasury Department has expressed concerns about whether an insurance model would provide the economy with the immediate stimulus it needs. And taxpayers would have to foot the cost for a major financial slide because the government would be required to make up those losses.
Utah Sen. Bob Bennett – who participated in Thursday’s bi-partisan, bicameral meeting at the Capitol – said he didn’t know Thursday morning that House Republicans were working on their own plan.
It’s not clear whether McCain supports the new House GOP plan principles. Dodd said after the White House meeting that he did, but Frank said McCain hadn’t answered when asked.
The McCain campaign issued a statement saying it was “optimistic” that McCain “will bring House Republicans on board without driving other parties away, resulting in a successful deal for the American taxpayers.”
But conservative Republicans in the House – and some in the Senate, such as Richard Shelby of Alabama – remain angry over the prospect of a massive government bailout.
“The Republican Party right now is fractured," said one GOP member who didn't want to be named. “’Fractured’ is not even the right word...Human nature is taking over."
This Republican lawmaker said that "there are two or three groups trying to write their own bill, which is virtually impossible. Six or seven of these guys get together and think they can write their own bill.”
The Republicans taking the lead in crafting new bills, this lawmaker said, are the members who hew most closely to free-market ideology and don’t want to see the government dump hundreds of billions of dollars into a Wall Street bailout.
Rep. Mike Pence (R-Ind.) is one of the House Republicans pushing for a free market solution to the financial crisis. Pence said that he's working on his own package – one that would include loan guarantees instead of money to purchase assets. He said he's also exploring using some money for a fund to insure loans, but to keep them on the books of the banks.
Pence, for one, said he was glad to have the GOP’s presidential candidate on the case.
“I think we’re encouraged to see John McCain on Capitol Hill. With the possible exception of Ted Kennedy, he’s the most accomplished legislator over the last 25 years," he said. “He has a deep commitment to free market values... He’s not shy. From the perspective of House Republicans, he’s the right man to have around.”