A political meltdown followed the financial one

[Ron Burgundy]

A political meltdown followed quickly after the financial meltdown.

Facing the possible collapse of major Wall Street institutions, President Bush had proposed an extraordinary package, to be fueled by $700 billion in taxpayers' money. It seemed to have the support — in body language if not words — of heavy hitters in both parties.

Rarely, it seemed, had Washington responded so quickly with something so large, to a problem so dire. And it was, like the credit bubble itself, an illusion.

The package fell apart in a multitude of ways — the phone calls from angry constituents, the feeling by House Republicans that they were being snubbed, the sudden and unwelcome injection of the presidential campaign. Talks were revived Friday and a Democratic negotiator, Rep. Barney Frank, dared to predict an agreement "that people can understand" by the end of the weekend.

All the frustrations poured out at a White House meeting that officials had hoped would be a celebration, of sorts, of a quick deal. As the nation's most powerful officials sat around the White House Cabinet Room's table Thursday, it fell to one of the lowest-ranking to force the key question.

Frank, a gruff and rumpled Democrat from Massachusetts, demanded to know which of two competing financial rescue plans Republican presidential nominee John McCain supported.

With Bush, Congress's top leaders and McCain's Democratic opponent, Barack Obama, watching intently, McCain declined to say, according to one person who was present and others briefed by attendees.

The exchange touched off chaotic rounds of questions and barbs that Bush at times struggled to control. McCain's campaign later called it "a contentious shouting match."

Bush himself appealed to the group at one point, "Can't we just all go out and say things are OK?" according to two participants. That request for a publicly united front was rejected.

What McCain, Bush and other Republicans had hoped would be a moment of triumph — bipartisan in name, but more helpful to McCain than to Obama — turned into a political meltdown. Treasury Secretary Henry Paulson begged Democratic participants not to go before the cameras and reporters waiting outside the West Wing, even dropping to one knee half-jokingly.

Republicans, including Senate Minority Leader Mitch McConnell and House Minority Leader John Boehner, also slipped away without talking to reporters, unaware that one colleague — Sen. Richard Shelby, R-Ala. — went to the microphones alone to denounce the $700 billion bailout package Bush was desperately trying to enact.

"I'm probably not welcome again," Shelby said, a candid remark in a day full of confusion, obfuscation and misunderstandings.

Presidents and presidential nominees have quarreled with their party's congressional members before. But rarely have the clashes been so public nor the stakes so high as Thursday's matinee drama at the White House.

Bush and Paulson seemed almost within grasp of an agreement for some version of the bailout plan, which they said was crucial to avoiding severe economic consequences. Their plan would spend billions of tax dollars to buy toxic mortgage security packages, a bid to keep credit available. Presumably, some of the money would be recouped when the packages were eventually resold at lower prices.

Senate approval was all but assured. House Democrats, too, signaled they probably would go along, while grudgingly, aware that millions of voters hated the notion of a tax-paid Wall Street bailout.

The trouble spot was House Republicans. For days, many had complained about the Bush plan's costs and uncertainty. But not until Thursday did Democrats and even the administration realize how many of them had coalesced behind an alternative plan calling for the government to insure troubled loan packages rather than buy them.

The pivotal player was Boehner, a tall, deeply tanned and generally well-liked Ohioan. Boehner had been giving mixed signals for days, sometimes seeming inclined toward the Bush proposal, sometimes emphasizing his colleagues' misgivings.

In a meeting Wednesday with Paulson and House Speaker Nancy Pelosi, D-Calif., Boehner cited his colleagues' objections to the Bush proposal. But he did not propose an alternative, and his joint statement with Pelosi raised no alarms for the White House.

"Working in a bipartisan manner, we have made progress," it said blandly. The two agreed that "key changes" should be made to Paulson's initial request on Bush's behalf.

The next day, some of Boehner's House colleagues presented their ideas as a full-blown alternative plan, including the notion from some House GOP members to create an insurance program to replace the bailout. Hours later, at the White House meeting, Boehner gave it considerably more emphasis than he had on Wednesday.

Pelosi and other Democrats had let Obama do most of the talking for their side, but McCain was mostly silent, participants said. At one point, according to two officials, McCain expressed support for the House GOP critics of the Bush plan. That ignited Frank's sharp question to him.

McCain "did not attack any proposal or endorse any plan," his campaign said in a later statement.

The meeting ended in confusion, leaving many in Congress and the administration wondering what went wrong.

One answer, interviews Friday showed, is that the White House and others underestimated the level of resentment and skepticism among House Republicans — not just conservatives, but some moderates, too.

"Our people felt that we were not involved" in the negotiations, said Rep. Ray LaHood, R-Ill. "We're mad about it."

"We're in the dark," said Rep. Jack Kingston, R-Ga. "We're being asked to vote on the major piece of legislation of our lifetimes, and we haven't seen the bill."

He called Paulson "a terrible communicator," unable to explain the Bush proposal's details or convince lawmakers that the financial picture is as dire as officials say.

Other conservatives went further, describing the Treasury chief as politically tone deaf and stubborn. Paulson "is one of the biggest obstacles to this," said Rep. Thaddeus G. McCotter, R-Mich. "He is so married to his proposal that if Moses came down and said, 'I have a better idea,' Paulson would say, 'You're wrong.'"

As TV analysts were panning the White House meeting Friday morning, McCain reversed gears and flew to Mississippi for a debate with Obama that he had threatened to skip, absent a deal. Meanwhile, Bush and his allies tried to get the bailout plan back on track.

"There is no disagreement that something substantial must be done," Bush announced. He urged lawmakers to "rise to the occasion," and quickly.

After refusing to send a representative to negotiations hastily reconvened Thursday night, House Republicans dispatched their second-ranking leader, Rep. Roy Blunt of Missouri, to join the talks Friday. Bush called rank-and-file lawmakers, the White House said, and Vice President Dick Cheney canceled a trip to New Mexico and Wyoming to do the same.

Negotiators on all sides hinted at a compromise that might include government insurance as one of several tools for coping with toxic loans, which would also include outright government purchases.

Bush understands that lawmakers "probably do not want to support this plan," said White House spokeswoman Dana Perino. "No one wants to do this right before an election. ... But there are times in America when you put aside partisan differences."

Meetings continued throughout the day Friday in the Capitol, and Democrats and Republicans occasionally sniped at each other. But none of those episodes seemed to have the drama of Thursday's White House session, and the white-hot attention that McCain and Obama had briefly brought to Washington had already flown to Mississippi.

___

Associated Press writers Jennifer Loven, Jeannine Aversa, David Espo, Laurie Kellman, Martin Crutsinger and Ken Thomas contributed to this report.

source: AP - http://news.yahoo.com/s/ap/20080927/ap_on_el_pr/meltdown_talks_what_happened [link]