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The Failed Bailout Vote: Channeling Tip O’Neill?

- October 1, 2008

Worrisome times for the nation’s economic welfare, but exciting times for Congress watchers, that is for sure. Before Monday’s failed House vote to pass the Administration’s $700 billion bailout plan, I don’t think I’d ever watched a congressional vote tally side-by-side with the Dow Jones industrial average.

I spent Monday afternoon ginning up an empirical model of the House vote with a colleague, Mark Spindel (who, as chief investment officer for Potomac River Capital, actually understands what mortgage-backed securities are and why Hank Paulson wants to buy them). The estimates reveal a clear narrative about the forces that brought down the vote. In short, party leaders called on their members to cast votes for the nation’s financial welfare. Legislators responded by casting votes for their own electoral safety, guided by entrenched ideological commitments.

A brief run through of the findings is instructive:

First, as Tip O’Neill surely told Barney Frank when O’Neill was Speaker of the House, all politics is local. Both Democrats and Republicans revealed themselves to be single-minded seekers of re-election (hat tip to David Mayhew), as the most vulnerable legislators voted no. Election watchers identify over fifty contested House seats this season. Over seventy percent of those legislators voted against the bill. They clearly calculated that voting for an unpopular bill would be political suicide just weeks before the election. Members who secured election in 2006 with under sixty percent of the vote also tended to vote against the bill.

Unfortunately for the administration, these electoral calculations occurred on both sides of the aisle. Both Democrats and Republicans concluded that there was little upside to supporting the bill. Nor was the Administration able to curry support amongst Republicans running for re-election in safe seats. These Republicans were no more inclined to support the bill than their colleagues at risk of losing their seats. Barely a third of the safe GOP voted aye.

Second, on both the left and right legislators were guided by their ideological commitments. Within the GOP conference, the more conservative the Republican, the more likely she voted against the bill. Nearly three quarters of Republican conservatives voted against the bill, joined by more than half of their moderate brethren. Ideological effects are visible even after we take into account the state of play for November. Conservatives running in safe seats were far more likely to vote against the bill than moderates in a similar boat. Conservatives’ antipathy towards a massive government intervention into financial markets undermined leaders’ efforts to cobble a majority for the bailout.

Democrats’ votes were also shaped by their ideological inclinations. The more liberal the House Democrat, the more likely she was to vote against the bill, even among those running in the most competitive seats. Arguing that the package bailed out financial firms while doing little to help homeowners on the verge of foreclosure to stay in their homes, liberal votes against the plan are not surprising. Democrats from states with high subprime foreclosure rates were just as likely as Democrats untouched by the subprime crisis to vote for the bill.

In many ways, the vote was an assembly of odd bed-fellows. Moderate Republicans and conservative Democrats by and large came together to support the bill, while their more extreme colleagues on the right and left abandoned their leaders in droves. Of course, in a period of intense partisanship, there are simply not enough moderate legislators to build a strong bipartisan majority. In fact, the only reliable votes for the bailout came from the two-dozen or so House members about to retire. No electoral calculations for these folks; they followed their leaders’ pitch for the nation’s economic welfare. Or, their eyes were closely fixed on the plummeting Dow.

Stepping back to think about the debacle more broadly, in many ways the vote should have been far less surprising than it seemed. As Doug Arnold argued nearly twenty years ago in The Logic of Congressional Action, legislators are loath to cast tough votes—unless leaders limit the traceability of those votes to make it harder to attribute blame for unpopular choices. With so many eyes on the vote to pass an untested package with a huge price tag, it is not surprising that party leaders were unable to corral their rank and file to pass the bill.

Efforts to massage the bill to get twelve members to switch their votes may yet succeed. A handful of electorally-safe, moderate legislators may come forward if leaders succeed in fine-tuning the package and if the markets slump again after Tuesday’s climb. But an equally plausible outcome is that House members are unlikely to risk political suicide or to throw aside their ideological commitments in the run up to the November elections. Tip O’Neill would not be surprised.