After the Meltdown
How the 2008 Wall Street bailout revealed the clashing styles of Clinton and Sanders
Eight years ago, as the nation faced its worst economic crisis in more than half a century, the Treasury pressed Congress to immediately deliver $700 billion for stabilizing a financial services industry crippled by a wave of housing losses.
The enormity of such a bailout was infuriating to the public and, at least initially, too much for many lawmakers in both parties to swallow. Even New York’s junior senator, Hillary Clinton, railed against Wall Street’s excesses. Less surprising was the righteous indignation from the freshman senator from Vermont, Bernie Sanders.
But the ways in which they ultimately diverged on the bailout remains as good an illustration as any about their approaches to governance. She favors a search for policy alternatives and rhetoric that straddles the middle ground. He’s fond of populist stem-winders and willing to accept Pyrrhic victories.
Their differing styles have become clear during their longer-than-many-expected contest for the Democratic nomination. But they’ve gained out-sized notice recently, ahead of next week’s crucial New York primary, as each has suggested tartly that the other’s record and credentials leave them unqualified for the presidency.
Before this campaign, Clinton and Sanders got to size each up closely only during the 110th Congress, in 2007 and 2008, when he started his tenure as a senator and she waged her first bid for the White House before relinquishing her Senate seat to become secretary of state.
Back then, their reputations were clear to insiders on the Hill as they have become to the voters of this year. Clinton, the former first lady, could have rested on her celebrity but had doggedly positioned herself as a legislating technician, whose submersion in all sides of an issue subjected her to criticism as a double-talker.
Sanders, the independent democratic socialist, was hoping to gain credibility as a policy shaper after spending 16 years in the House as a liberal provocateur focused on crusades at the margins.
For much of the period, they worked in sync. Both were on the Health, Education, Labor and Pensions Committee as well as the Environment and Public Works panel. They collaborated to win enactment of a $100 million authorization to train workers in energy-efficient “green-collar jobs.”
They paired up again, during the drafting of cap-and-trade legislation for combating climate change, on an unsuccessful effort to limit the carbon credits that industrial polluters would have been awarded for free. (The bill never got beyond committee.)
On the Senate floor, they took the Democratic position on votes that broke mainly along partisan lines, and they opposed the wishes of President George W. Bush, much more often than most others in their caucus.
In fact, they voted the same way 96 percent of the time, parting company on just 31 roll calls – many to do with an immigration bill, which she favored and he opposed, and continuing the wars in Iraq and Afghanistan, which she supported and he did not.
Financial collapse Their workhorse-versus-horsefly dichotomy was crystalized in the fall of 2008, when a global financial collapse loomed. Earlier in the year Congress had enacted a tax-driven stimulus bill and a measure to stem rising foreclosures.
The Treasury had taken over the mortgage giants Fannie Mae and Freddie Mac and, along with the Federal Reserve, had bailed out AIG, the country’s largest insurer. But all that was palpably not enough, which is why the administration asked lawmakers for $700 billion in hopes of stanching the meltdown.
In the end, Clinton found a characteristic path to “yes,” while Sanders stayed on an emblematic route to “no.”
On Sept. 18, three days after the request, Clinton railed against the situation on the Senate floor. “After years of laissez-faire policies for the middle class, the Bush administration has acted on behalf of Wall Street, with the largest and most significant federal interventions in the history of our modern financial system,” she said.
“The largest banks in the world could have closed-door meetings with the White House and the Federal Reserve and Treasury Department to discuss their bailout options, but millions of homeowners with mortgages worth more than their homes, or who are facing default and foreclosure, don’t have the same opportunity.”
Two approaches Her next public move was to develop her own multi-pronged policy prescription, which deemphasized any bailout for her state’s iconic investment banking industry (and most generous campaign donors) and focused instead on helping homeowners (the bulk of her constituents) by imposing a moratorium on foreclosures, freezing adjustable rate loans and creating a quasi-governmental mortgage refinancing agency.
“If we do not take action to address the crisis facing borrowers, we’ll never solve the crisis facing lenders,” she wrote in the Wall Street Journal.
Her plan was ignored, and within days the Democratic leadership on the Hill, along with GOP leaders and the White House, had agreed on creating the Troubled Asset Relief Program to deliver in stages all the bank stabilization money that Treasury wanted. Clinton was among 39 Democratic and 34 Republican senators voting for TARP, but not without offering a mixed blessing.
On the Senate floor, she derided the “culture of recklessness in our financial markets endorsed by an ideology of indifference in Washington.” On a New York radio station, according to ProPublica, she said: “Financial institutions are probably the biggest winners in this,” and that “is one of the reasons why, at the end, despite my serious questions about it, I supported it.”
There was never any such nuance in the Sanders approach, only a price to be paid for his willingness to suspend his rhetorical warfare before joining just nine liberal Democrats and 15 conservative Republicans in voting against TARP.
Sanders understood the bill had a solid bipartisan majority — but also that, especially at that moment of intense economic anxiety, a single senator’s power to slow things down gave him leverage to get something in return for quieting down.
His reputation in the House was for proposing tangential alterations to a bill, which often yielded minor victories with minimal fanfare, or else offering politically unpalatable “poison pill” changes and then boasting about making colleagues take sides on his lost cause.
For the TARP measure, he chose a modest version of the latter approach. Democratic leaders permitted him to offer an amendment that would have financed much of the bailout with a surtax on the very rich – but only after he agreed to limit his own excoriations to an hour and then watch his plan get rejected on quick voice vote that would leave no record of how senators sided.
Maybe the clearest indication of all about the past being prologue, however, was the way the Sanders remarks against the bailout so closely prefigured his stump speech of today:
“Under this bill, the CEOs and the Wall Street insiders will still, with a little bit of imagination, continue to make out like bandits,” he declared. “This bill does not address the major economic crisis we face: growing unemployment, low wages, the need to create decent-paying jobs, rebuilding our infrastructure and moving us to energy efficiency and sustainable energy.”
And if a bailout is necessary, he thundered, then the “millionaires and billionaires, those people who have taken advantage of deregulation, those people are the people who should pick up the tab, and not ordinary working people.”