Bailouts Whipsaw House GOP

Posted September 19, 2008 at 6:31pm

Last week’s deepening financial crisis and the string of bailouts engineered by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke left Republicans bewildered, whipsawed and divided over how to respond.

The rhetorical somersaults of House Minority Leader John Boehner (R-Ohio) were typical.

“We don’t need more federal involvement in our markets,” Boehner told reporters Tuesday. “We need this issue to resolve itself.”

But within hours, Boehner was backing the $85 billion bailout of insurance giant AIG, and by the end of the week, he was standing foursquare behind Paulson and Bernanke and Democratic leaders supporting what may be the largest bailout in American history, with hundreds of billions at stake.

Boehner’s turnaround matched that of GOP presidential nominee Sen. John McCain (Ariz.), who said “the fundamentals of the economy are strong” on Monday and then spent the rest of the week scrambling to get ahead of the unfolding crisis, even saying he would like to fire fellow Republican and former Rep. Chris Cox (Calif.) as head of the Securities and Exchange Commission.

The uncertain financial situation pitted free-market orthodoxy against a Republican administration against a specter of a worldwide credit meltdown. The political calculus was a difficult one for a party that often allies itself with business.

As a result, Republican rank-and-file Members were all over the map.

Hours before the unprecedented deal to buy up hundreds of billions in bad loans was announced late Thursday, Rep. Jeb Hensarling (Texas), chairman of the Republican Study Committee, and a small band of conservatives ripped the Bush administration for earlier bailouts. Acknowledging the crisis, he said the maneuvers were the “slippery slope to socialism.”

“Enough is enough,” Hensarling said. “It is time to bail out the American taxpayer from bailout mania.”

“Our heads are spinning with the bailout mania,” added Rep. Michele Bachmann (R-Minn.). “What’s next? Starbucks, too big to fail?”

“We are prolonging the agony here, much like Japan did for years,” Rep. Jeff Flake (R-Ariz.) said. “We are putting an artificial bottom on this market. Let the natural bottom occur.”

But the RSC itself wasn’t united.

Rep. John Campbell (Calif.), head of the RSC’s budget and spending task force, urged his colleagues to hold their fire.

As Hensarling was calling for an end to bailouts, Campbell was saying the opposite, arguing the government needed to take “aggressive, immediate and consistent” action to stem the crisis, including many more bailouts.

Campbell said Friday he had heard from friends in the financial industry of the severity of the crisis, and he said the risk of a meltdown forced both parties to re-examine their fixed ideologies.

“We all revert to our respective ideologies and our respective responses to things,” he said. “But when you find out that the entire field I’m playing on is potentially being torn up here and being upset, you have to take a fresh look at it, and I think that’s what’s going on now on both sides.

“The standard Republican answer is let the markets work, but the problem is markets aren’t working and are nonfunctional. The Democratic response is to stop bailing out Wall Street and stop giving money to corporate CEOs and all that, but this is way beyond Wall Street, and is affecting everyone with a pension or an investment or a bank account.”

The GOP splits also extend to the $25 billion auto loan package sought by domestic automakers. Many GOP lawmakers, especially from states such as Michigan, are aggressively backing the plan, along with Democratic leaders, McCain and Democratic presidential nominee Sen. Barack Obama (Ill.).

House Minority Whip Roy Blunt (R-Mo.) and Republican Conference Chairman Adam Putnam (Fla.) also talked positively of the auto package last week, but Boehner has withheld his support, pleading ignorance of the details.

Meanwhile, Hensarling and other conservatives say the package is nothing more than another corporate bailout.

But it’s the larger financial crisis that has thrown the GOP for a loop.

One GOP aide said that while it’s understandable that conservatives would have concerns, now is not a time for ideological rigidity.

“The difficulty the GOP had this week was the situation was moving so fast and deteriorating so quickly,” the aide said. “Is this a comfortable, natural response for Republicans? No. But the severity of the situation is starting to sink in,” the aide said. “I’m not sure people like Jeb Hensarling would like to live in a world of bartering for goods and sending your kid to college with broccoli.”