When Treasury Secretary Henry Paulson called congressional leaders early last week to ask for $700 billion in public funds to buy distressed loans and securitized loans from the nation’s failing financial institutions, he was told that such a package could pass only with bipartisan support. Members of Congress from both parties who faced tight reelection fights could not be relied on for support. The leadership on both sides of the aisle would have to join hands and jump off the cliff together. Each party in each of the two houses would have to provide roughly half the votes needed for passage. Paulson, White House negotiators, and the bipartisan, bicameral leadership of Congress agreed and sat down to piece together a package that no one liked but everyone recognized was necessary.

For the first time since the weeks following the September 11 terrorist attacks, the Bush administration and Congress began to work together in a constructive and bipartisan spirit. But by Thursday it was apparent that the same radical faction within the House Republican Conference that has derailed responsible policy for nearly two decades was at work again—even though the proposal at stake was being put forward by their own president and supported by their party’s presidential nominee.

When Speaker Nancy Pelosi insisted on bringing the House back into session on Thursday morning last week after a meeting of the Republican Conference had extended well beyond its scheduled time period, she was warned by Republican leadership staff that if she did so the Republican leaders who would return would not be those she had been working with all week.

As I pointed out in a column posted on Friday, an organization within the House Republican Conference used by former Rep. Tom DeLay in his rise to leadership, the Republican Study Committee, has been threatening for some time to dump Minority Leader John Boehner (R-OH) for being too moderate. In their mind, the “bailout package” presented a perfect opportunity to make their move. Boehner did the only thing he could do under the circumstances and reversed field.

That created the first crisis in the effort to get a recovery package to the president’s desk before the scheduled adjournment. Senior White House officials were deployed to smooth the waters and bring the errant renegades back into line. Potential Boehner adversary Congressman Eric Cantor (R-VA) was brought more directly into the negotiations. Minority Whip Roy Blunt of Missouri, another likely candidate against Boehner, was put directly in charge. A hair-brained scheme by Rep. Paul Ryan (R-WI) to force financial institutions to pay more insurance on their deposits—payments that the federal government would be likely to have to lend money to the institutions in order for them to make the payments—was incorporated into the bill. President George W. Bush agreed to address the country and underscore the importance of the package to the country.

Working through the weekend, Democratic and Republican leaders in both the House and Senate signaled to the White House that they had a deal. Senate Majority Leader Harry Reid (D-NV) and his counterpart Sen. Mitch McConnell (R-KY), who himself is facing a tough reelection battle in his home state, both indicated that they had more than enough votes to pass the measure in the Senate. House Democrats said they were certain that they could muster more than 100 votes, and Blunt, the chief Republican vote counter in the House, indicated that he had 100 votes. All parties left the table with optimism that the grueling effort to construct a package that met the needs of the financial system and the political parameters required for passage were finished.

Later Sunday evening, Blunt, who was not only the lead negotiator for House Republicans but also their top vote counter, called the office of Democratic Whip Jim Clyburn (D-SC) to report that Republican support stood at 90 votes. The following morning, however, Blunt approached Clyburn on the floor to report that Republican strength might be as low as 80. The House leadership contacted Secretary Paulson to say that despite the agreement that Republicans were to provide a proportionate share of the votes, they were working the Democratic Caucus to see if they could find Democrats to make up the difference for the Republican defections. The outcome at that point, however, was uncertain.

Paulson said they should proceed with the bill. He obviously recognized that an announcement that there were insufficient votes to move the package, and that the vote had to be delayed, would shake the already uneasy markets. The decision was made to move forward. A loss would be little worse than a delay in terms of market sentiment, but it would at least provide the White House, the public, and the business community with a list of the problem members before the proposal was reconsidered later in the week.

Blunt would contact the Democratic Leadership yet another time after consideration of the bill had begun, to report that his whip total added to only 65. The problem facing the Republican leadership was apparent shortly after the debate began. The leader of the revolt against his party’s president, Treasury secretary, presidential nominee, and leadership in both Houses of Congress was Jeb Hensarling (R-TX), the chair of the Republican Study Committee. He told the House of Representatives:

“…The Paulson plan should never have been our only option…I fear that under this plan, ultimately the Federal Government will become the guarantor of last resort and…that does put us on the slippery slope to socialism. If you lose your ability to fail, soon you will lose your ability to succeed.”

Hensarling was joined by Republican Study Committee member Thaddeus McCotter (R-MI), who told the House:

“It has always been the temptation in a crisis especially to sacrifice liberty for short-term promises of prosperity, and it was no mistake that during the 1917 Bolshevik Revolution the slogan was ‘peace, land and bread.’ Today you are being asked to choose between bread and freedom. I suggest that the people on Main Street have said that they prefer their freedom, and I am with them.”

Blunt’s final vote count had been almost on the money. When all time had expired he had 66 Republican green lights on the big tally board on the wall behind the House Press Gallery against 133 red lights posted by Republicans who had denied the united pleas of their normally fractured leadership. The Democrats put up 140 votes. Had any of Blunt’s earlier vote counts proven correct, or if the promises made by House Republican leaders during the bargaining sessions proven correct, the unexpectedly strong Democratic vote would have been more than enough to pass the measure. It was about 30 more votes than had been promised.

At the request of the Republican leadership, the chair refrained from gaveling the roll call to an end and left the tally board open after all time had expired. President Bush was on an open line in the House Republican Cloak Room talking to any of the defectors who would listen. The White House needed to switch 12 votes but in the end no votes were changed. By the end of the day the Dow Jones Industrial Average had lost 777 points, or more than 7 percent of its value. Other indexes were down by larger amounts and the total loss in the capitalization of American business was $1.2 trillion—70 percent more that the price of the legislation that had just been defeated.

The radical elements within the Republican Conference who had sent their leadership back to the bargaining table to negotiate policy concessions that neither the Bush administration nor congressional Democrats or even Senate Republicans thought were sensible walked away from the concessions they had won and the clear need for timely action to prevent a potential meltdown of the nation’s banking system.

So where do these shenanigans leave the country and the world financial system? One option is to make further concessions to Democrats, who recognize the need for intervention but think the current package is not balanced enough in terms of addressing the needs of ordinary Americans. That would result in some Republican defections, but attract possibly enough Democratic support to offset Republican losses and the 12 additional votes required to send the measure to the Senate.

A better solution, however, is to keep the plan bipartisan. The American business community has been the mainstay of Republican Party finances for generations. Little effort was expended by that community before the House vote, largely because business leaders thought it impossible that such a large portion of those with whom they had been allied for so many years could act with such total disregard for the consequences to the economy. That assessment is changing. Following the floor vote the U.S. Chamber of Commerce sent members of Congress a letter stating the following:

“Today’s failure to approve legislation addressing the financial crisis has resulted in uncertainty and turmoil that have dramatically affected the markets, and lowered equity prices, eroding individual savings and destroying billions of dollars of household wealth.

Make no mistake: when the aftermath of Congressional inaction becomes clear, Americans will not tolerate those who stood by and let the calamity happen. If, on the other hand, Congress supports a plan to successfully restore the financial system and preserve the flow of credit to the economy, the American people will recognize that act of courage.

The Chamber urges Congress to immediately pass financial rescue legislation. The Chamber will score votes on, or in relation to, this issue in our annual How They Voted scorecard.”

Nearly all of America’s corporations recognize the enormous risk posed to the U.S. economy and the global economy as a result of the reckless actions of those who have represented themselves over the years as stalwart allies of business. They have a responsibility to resolve this situation and assure the White House and leaders in Congress that the votes will be there when Congress reconvenes later this week.

Scott Lilly is a Senior Fellow at the Center for American Progress Action Fund. This article first appeared at AmericanProgress.org.

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Scott Lilly has been writing about public policy for more than four decades. He is widely viewed as one of the leading experts on the federal budget process and the impact of changes in federal spending policy on local communities, national security and the economy. For 31 years, he worked as a Congressional staffer during which time he directed the staffs of the Joint Economic Committee, the Democratic Study Group and the House Appropriations Committee. He has traveled widely probing the effectiveness of government programs across the U.S. and overseas. He is a Senior Fellow at the Center for American Progress and an Adjunct Professor of Public Policy at the LBJ School of Public Policy, University of Texas. He has testified before numerous Congressional committees and has been a guest on CBS, CNN, Fox News, MSNBC and various other television and radio networks. He has been frequently quoted in the Washington Post, the New York Times, the Los Angeles Times, the Chicago Tribune and other major newspapers.