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Politics complicates financial bailout

Both parties have had to make quick compromises in the face of the gravest threat to Americans' standard of living since the Great Depression.
/ Source: The Associated Press

Democrats began the week with a you-break-it-you-buy-it approach to the financial crisis: It's President George W. Bush's fault, let him fix it.

But disarray approached a meltdown and possible collapse of the entire economy. Only then did the Democrats, who control Congress, and presidential candidate Barack Obama pledge to work with Republicans on a bailout that the Bush administration puts at $700 billion.

They also are seeking help for the unemployed and people who are at risk of losing their homes. Bush is admonishing them that "the cleaner the better" for legislation he hopes Congress approves in the week ahead.

The turnabout reflects the political crosscurrents as both parties and their White House nominees confront the gravest threat to Americans' standard of living since the Great Depression.

House Speaker Nancy Pelosi, a Democrat from California, was an outraged spectator Wednesday when she said about the administration, "This is their problem. This is their solution." A little more than 24 hours later, she was a grim-faced team player: "We hope to move very quickly. Time is of the essence."

The Republican party, too, shifted its stand.

Minority Leader John Boehner, from Ohio, began the week railing against any more taxpayer-financed bailouts — a sentiment Republican presidential nominee John McCain seemed to share — and ended it promising to work with Democrats on just such a plan. By then, McCain had come out with his own proposal for a new government entity to take on bad debt from struggling financial institutions.

The financial crisis moved so quickly that it outpaced lawmakers' ability to keep on top of developments, much less develop a coherent strategy or message.

'Frustration among Democrats'
For Democrats, it is a chance to highlight what they characterize as hands-off policies by Bush and the Republicans that favor the wealthy. Yet the crisis demands swift action for which Democrats, as the leaders of Congress, will bear a hefty share of responsibility. They do not relish being seen as complicit in a Wall Street rescue when voters are feeling an acute economic pinch.

"There's a lot of frustration among Democrats who view this cataclysm as the logical consequence of a philosophy of deregulation," said William A. Galston, a domestic policy adviser in the Clinton White House. At the same time, "Does anybody really want to go down in history as part of the sand in the machinery that helped bring about the repeat of 1930?"

Rep. Barney Frank, chairman of the House Financial Services Committee, said Democrats cannot duck the issue after spending eight years hammering Bush for making end-runs around Congress.

"There have been people on my side complaining about executive overreaching, too much power for the executive. I think it would be grave hypocrisy to then sit back and ... say, 'OK, you guys do it on your own,'" said Frank, a Democrat from Massachussetts. "We can't be for ... a two-branch operation — unless it's a tough issue."

Frank was the first lawmaker to float a possible solution, a government entity along the lines of the Resolution Trust Corp. of the 1980s that took over hundreds of failed savings and loans and sold off their assets before folding.

'Nobody can attack us'
Democratic leaders quickly backed away from the idea and said it would be months before Congress was ready to take such action. Pelosi resorted to hearings to investigate whether fraud played a part in the financial collapse and what Congress might do about it in the future. She said the rescue of insurer American International Group was "outrageous."

"There was a reluctance for us to announce the first big-government proposal," Rep. Brad Sherman, a Democrat from California, said before the actual size of the administration's plan became clear. Now, "Nobody can attack us for being big government spenders."

He said he and many colleagues worry that that top Democrats are being stampeded into accepting what Bush and Wall Street want. "Leadership has to worry that the press will vilify Democrats for not immediately rubber-stamping this urgent proposal," Sherman said.

The challenge is acute, too, for Republicans. They philosophically are opposed to government intervention in the market, yet acutely aware that economic woes could cost their party dearly in November's elections.

"It's precisely at moments like this that the momentum is there for a further growth in government, and they're fearful of that," said Michael Franc of the conservative Heritage Foundation. "They don't want to be co-opted."