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In the leadership meeting Pelosi convened after her phone calls with Bernanke and Paulson, the Federal Reserve chairman described a “very severe financial crisis—hundreds of billions in losses.” The administration was forced to turn to Congress, Bernanke declared, because the Fed was “no longer able to use the tools we have to maintain stability. It is a matter of days,” the chairman warned, before “a major meltdown [would occur] in the United States and globally.” Paulson agreed. “I’ve never seen anything like it,” he said. “Once in 100 years.”
Congress would have to authorize the Treasury to purchase the toxic assets. “If we don’t deal with it by next week, the country could collapse,” Paulson warned. The alternative, Bernanke predicted, was a “deep, long recession.” Congressional leaders, many of whom considered the two financial managers politically naive and partly responsible for the unfolding catastrophe, were stunned. Senate Majority Leader Harry Reid asked how much the purchase would cost. “Hundreds of billions,” Paulson admitted, and even then, it was inevitable that widespread foreclosures would cost millions of Americans their homes.
Democratic leaders immediately seized on the strategy of using Wall Street’s crisis to benefit millions of Americans on “Main Street” who were seeing their homes, savings, and jobs evaporate without generating any comparable urgent response. Congress had negotiated with Paulson and the Bush administration a meager $168 billion stimulus bill in February, but the law had minimal impact on the worsening recession. Pelosi and Senator Chuck Schumer of New York insisted that something like Paulson and Bernanke’s audacious proposal could only secure Democratic votes if it included billions of dollars in anti-recessionary spending to promote job creation, extend unemployment assistance, and fund other initiatives to reduce the “perception the bill is a [corporate] bailout.” Barney Frank, the chair of the House Financial Services Committee, also demanded restrictions on the exorbitant executive-compensation packages of financial-services companies to help secure the needed votes.
The administration and congressional Republicans reacted negatively to these efforts to expand the scope of the legislation. “We won’t get there if you take that approach,” Paulson admonished. The House Republican leader, John Boehner, agreed, advising the Democrats, “Don’t play politics.” Other Republicans raised their own concerns. Dick Shelby, the senior Republican on the Senate Banking Committee, skeptically described the administration’s proposal as “a blank check.” Reid explained that Democrats would also face challenges rounding up votes without incentives. “It’s political reality,” Reid declared in defense of the additional spending. Without the anti-recessionary provisions, Frank advised, “I can’t tell you the bill will pass.” After a tense moment, Paulson glumly responded, “Then God help us.”
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Now, instead of adding billions of dollars to create jobs or prevent foreclosures, as she had wished, the tarp bill would provide, at the insistence of the Senate, tens of billions of dollars not only for the energy producers’ industry but also for special interests, including racetrack facilities, wool manufacturers, and rum producers. Yet facing the inevitable, Pelosi brought up the Senate bill on October 3, and it passed 263–171. Democratic votes rose slightly, to 73 percent of caucus members, but Republicans contributed only 91 votes, still short of Boehner’s promise.
Working with the Republicans “turned out to be the biggest waste of time,” Pelosi charged. “We should have written the bill we wanted on the first night. We still didn’t get 100 Republican votes!”
more:
http://www.theatlantic.com/ideas/archive/2019/01/john-lawrence-inside-2008-financial-crash/576574/
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