Everything in America seemed to converge in a few meeting rooms in Washington yesterday: The rapid meltdown of the speculative economy. George Bush's desperate desire to remain relevant. The evolution of the opposition Democratic Party, in the person of Rep. Barney Frank, into a profoundly serious governing party ready to help George Bush's Treasury Secretary Hank Paulson write the bailout he should have written in the first place. And then John McCain trying to do two things at once: Shake up his campaign and win a few more news cycles, and get a hit of the only kind of legislative success he ever had, when he would sweep into the room where there was some sort of bipartisan deal to be cut, and insert himself into the middle of it. (Although that tactic almost always produced more press coverage than legislation.)
By the end of the day, it was clear that the most significant issue was the defection of the House Republicans, which could have an impact on the Republican political coalition of more lasting consequence than its derailing of the bailout. Where McCain swept in to heal a partisan breach, the real differences turned out to be between, on one side, Democrats in the House and Senate, Senate Republicans, George W. Bush, and Bush's Treasury Secretary Henry Paulson, who asked for the deal; and on the other side, the Republicans in the House of Representatives.
There was some speculation during the day that the revolt of the House Republicans was a delaying tactic to make sure that there was still something to be brokered by the time McCain ambled over from lunch. That theory was bolstered by Kevin Smith, an aide to House Republican leader John Boehner, who The New York Times paraphrased as saying that "Republicans revolted, in part, because they were chafing at what they saw as an attempt by Democrats to jam through an agreement on the bailout early Thursday and deny Mr. McCain an opportunity to participate in the agreement."
But the House Republicans have no great love for John McCain, nor he for them. And as became clear, trying to accommodate the odd demands of House Republicans, which are not amendments to the Paulson plan but an entirely different scheme, would be far harder than mediating between Paulson and Frank's modifications to Paulson's plan. It makes more sense to take House Republicans at their word: Their rebellion is their own. And it was probably driven by a public backlash that they would inevitably hear first. The House Republicans now represent white Americans of modest means -- the very opposite of the "investor class." (Most of the Republicans who represented affluent districts were wiped out in 2006.) They are the ones whose phones are ringing off the hook with opposition to the bailout, the ones already saddled with an unpopular president, an unpopular war, and an uninspiring presidential nominee.
Republican strategist Ed Rollins gave the game away on CNN: "At the end of the day, there's a lot of people thinking about how to rebuild this party, and do we want to rebuild it with John McCain, who's always kind of questionable on the basic facts of fiscal control, all the rest of it, immigration. And I think to a certain extent this 110, 115 members of this study group are saying, here's the time to draw the line in the sand."
Thus the most significant event of the day may not have taken place in D.C. but out in those Republican districts like Boehner's. The Republican coalition since at least Reagan has been a miraculous alliance of Wall Street and Main Street. Populist politics, such as the attack on "elites" now embodied by the enthusiasm for Gov. Sarah Palin, were the vehicle for Wall Street policies, the very policies that led to the crash. The alliance always seemed unsustainable. At some point it had to break -- you can't go on forever with policies that do nothing for your core constituencies. And now, in the backlash against the bailout, it has broken. The House Republicans see in that backlash an opportunity to, as Rollins says, "rebuild this party" on populist, anti-Wall Street grounds.
There are only two problems with this tactic. First, the middle of a financial crisis that's about to turn into an economic crisis is a hell of a time to suddenly start listening to your constituents. But that's the problem with playing with populism -- eventually you have to deliver something, and it's likely to be something ugly.
The second problem is that the Republicans still have nothing but reflexive Wall Street policies in their bag of tricks. The House Republicans' main alternative? Suspend the capital-gains tax for two years, to encourage banks to unload assets. Brilliant! Except that if these assets had produced capital gains, banks wouldn't be in trouble. But it would still be a nice giveaway for the top one percent.
House Republicans have used such moments to rebuild the Republican Party before, notably the 1990 bipartisan budget agreement, when their opposition to the first President Bush as well as the Democrats gave them the boost of populist, anti-establishment enthusiasm that carried them all the way to a majority four years later. But they didn't blow up the deal, and if they had, the consequences would have been minor. This time, it's easier to see how they splinter their party than to see how they rebuild.
