Rewriting history: the TARP legislation

I’ve been harshly critical of Barack Obama for bailing out the banks and leaving homeowners and the unemployed to twist in the winds of a harsh recession. Something that keeps appearing in the mainstream media, however, is that Obama inherited the Toxic Assets Relief Program from the Bush administration. This is true.

But it is only part of the story and it is somewhat amazing to see how quickly the details of how TARP passed have been obscured. First, we should remember that this was a program passed by a Democratic Party-controlled Congress. In the prelude to passage, on September 18, 2008, Bush Treasury Secretary Henry Paulson said, “I think we saw the best of the United States of America in the Speaker’s office tonight.” The Speaker of the House of Representatives, then as now, was and is Nancy Pelosi, a Democrat from San Francisco.

That’s high praise coming from a bitterly divisive presidential administration. And it is a little astonishing to look back at just how controversial the plan was.

At a meeting of then-President Bush, then-presidential candidates McCain and Obama, and congressional leaders at the White House, on September 25, to gather support for the bailout, Republicans refused to support the bill, possibly to allow McCain more time to appear as a “consensus-maker,” but given that they ultimately voted against the bill, maybe not.

Obama told CNN he still thought a deal could be reached, though he acknowledged that “I still think there’s still some work that needs to be done.” McCain tried to paint himself as a consensus-maker, telling ABC News “I believe we’ll reach a successful conclusion. Members are aware of the crisis situation that we’re in.

My own recollection, though I can’t now find the story, was that Obama, astonished by the failure of Bush to marshal support from his own party, said something to the effect that they (Republican members of Congress) just didn’t get it.

The House of Representatives defeated the bill on the first attempt, on September 29. “133 Republicans and 95 Democrats voted against it (with 65 and 140, respectively, voting in favor).” On October 2, Representative Brad Sherman (Democrat–California, 27th District) complained that some members of Congress were threatened with huge drops in the Dow Jones (which happened anyway) and with martial law if they did not vote for the pork-laden $700 billion bailout for the financial industry and concentration of new powers for the Secretary of the Treasury. Under the circumstances, the possibility that a coup had been threatened could not be ruled out. The Senate passed the bill that same day, partly to shame the House into acquiescence. On October 3, 2008, the bill passed with 263 votes (172 Democratic, 91 Republican) in favor and 171 (63 Democratic, 108 Republican) against.

That’s right, more Republicans–and fewer Democrats–got this right in a Democrat-controlled House. And possibly the most ugly aspect of the bailout was when AIG, an insurance company, was included. As for Obama:

“The fact that we have reached a point where the Federal Reserve felt it had to take this unprecedented step with the American Insurance Group is the final verdict on the failed economic philosophy of the last eight years,” Obama said. “While we do not know all the details of this arrangement, the Fed must ensure that the plan protects the families that count on insurance. It should bolster our economy’s ability to create good-paying jobs and help working Americans pay their bills and save their money. It must not bail out the shareholders or management of AIG.

“This crisis serves as a stark reminder of the failures of crony capitalism and an economic philosophy that sees any regulation at all as unwise and unnecessary,” Obama continued. “It’s a philosophy that lets Washington lobbyists shred consumer protections and distort our economy so it works for the special interests instead of working people; a philosophy that says we should give more and more to those with the most and hope that prosperity trickles down to the rest. Instead, the pain has trickled up – from the struggles of Main Street all the way up to the crises on Wall Street.”

Obama was spinning the AIG bailout as a repudiation of Republican economic policy, but seems to have accepted it as necessary. And with over a year’s hindsight, having watched the emasculation of health care reform and of finance reform, Obama’s hypocrisy is more than a little stunning.

But to claim that Obama inherited the bailout from Bush is to ignore his own support for the bill, his party’s support for the bill, and their support for its implementation even before the election.

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