Bailout Plan Makes Strange Bedfellows

At almost the same moment, two unusual scenes were playing out on the House side of the Capitol last Tuesday. Beneath the ornate ceiling of a House caucus room, angry conservative Republicans were confronting Vice President Dick Cheney over the Bush administration’s $700-billion financial bailout plan.

Not far away, in a windowless room of the Rayburn House Office Building, a band of disgruntled House Democrats — members of the self-styled Skeptics Caucus — were airing their displeasure over the bailout plan and the demand for quick action by House Speaker Nancy Pelosi (D-San Francisco).

In normal times, Cheney is an iconic figure to Washington conservatives, and Democrats have shown remarkable cohesion since winning control of the House two years ago.

But the global credit freeze-up and the proposal to address it with billions of taxpayers’ dollars have exposed deep fracture lines in both political parties — complicating the effort to avert a wider economic disaster and creating serious challenges for their presidential candidates.

The divisions will be there even after an agreement on the bailout plan is reached — probably this morning — and will remain evident as the details of the rescue emerge and are put into motion.

The splits reflect the often-uneasy coalitions of smaller interest groups — economic, regional, social and ideological — that make up the major political parties. And the internal fault lines are especially likely to create problems on issues that run as deep as the current economic crisis, which includes not only moribund financial markets but also rising unemployment and the declining worth of houses that are most Americans’ most valuable possessions.

As a result, the crisis exposed sharply different outlooks among Republicans who consider financial markets and big corporations the main engines of the U.S. economy, for example, and those whose sympathies are closer to small business, as well as conservative purists who see government intervention in the marketplace as an intolerable violation of basic principles.

For the Democrats, those who consider strong financial markets vital to the United States and its place in the global economy found themselves at odds with others who identify more with working Americans and nurture a long-standing distrust of Wall Street.

In both parties, that meant that some of the hottest reactions against the $700-billion plan came from core constituencies. The president of the conservative Club for Growth, for instance, former GOP Rep. Patrick J. Toomey, dismissed President Bush’s call for support out of hand, saying the bailout “is fundamentally unfair to American taxpayers and responsible borrowers and lenders. It misallocates capital, risks massive inflation and invites political manipulation.”

Meanwhile, labor leaders, whose organizations have long supplied money and political muscle for Democratic candidates, erupted in dismay over the proposal.

Terence M. O’Sullivan, president of the Laborers’ International Union, angrily denounced the rationale for the plan. Wall Street investment bankers are “pigs at the trough,” he said. “They put themselves in this position, and now they line up to get themselves bailed out by taxpayers.

“Where is the line for the 3 million ordinary Americans who face foreclosure? Tell me what line they get in. On behalf of our members, who are livid, I resent this.”

A labor lobbyist working on Capitol Hill said Democrats he talked with were uncertain how to respond, in part, he believes, because they effectively report to two constituencies: labor unions and working households that have “been the backbone of the Democratic Party” and Wall Street firms that have “been providing them campaign contributions.”

In fact, the securities, banking and mortgage industries have been the top category of donors to both political parties in the past decade, according to the Center for Responsive Politics, a nonpartisan research organization.

Since 2002, the sector has contributed more than $1.1 billion to congressional candidates, with Republicans getting an edge during that period, according to federal records. The figure does not include millions more donated to the favored charities of prominent politicians and the hundreds of millions spent on lobbying.

The influence of the financial industry in recent years is a major reason Byron L. Dorgan of North Dakota, a senior Senate Democrat, is leaning against supporting a financial rescue deal. The industry’s largely successful drive to prevent effective federal regulation of the fast-changing system is a major cause of the current crisis, he believes.

The divisions have left the two presidential candidates, Republican Sen. John McCain of Arizona and Democratic Sen. Barack Obama of Illinois, struggling to strike the right balance — as candidates and, for the first time, as titular leaders of their parties.

Both have spent much of the last few days consulting with administration officials and leaders on Capitol Hill, each pressing skeptics to accept a deal of some sort but carefully avoiding endorsing a specific plan.

Obama has gone further on the specifics than McCain, rankling some Democrats and labor advocates by suggesting that a proposal to ease bankruptcy provisions as a way to help homeowners — an approach that is anathema to many Republicans — does not belong in the final bailout plan.

“It’s not a secret that Obama’s closest advisors come from Wall Street,” snapped Dean Baker, an economist who advises labor and community activist groups in Washington. “He has decided to run a low-risk campaign from the center, and that’s what we are seeing here.”

Because of their shared indignation at the idea of taxpayers bailing out the financial industry, some Democrats find themselves sharing common ground with conservative Republican activists, who fear their party too is bowing to pressure from Wall Street.

One result is that dissident liberals and conservatives have been reaching out to each other. “There’s a lot of people in their conference who are not thrilled with the plan . . . and they are looking for options,” said Rep. Jeb Hensarling (R-Texas), chairman of the Republican Study Committee.

“The different factions of the Republican Party have always been held together around the basic understanding that we were going to keep the government out of people’s business,” said Matt Kibbe, president of FreedomWorks, a conservative advocacy group.

“I’m afraid that McCain is making the same mistake.”

Such comments about McCain and the criticism of Obama over the bankruptcy issue reflect the risks of getting involved in the crisis, but their efforts have also drawn praise from some participants.

“Both McCain and Obama are playing a significant role” moving a deal forward, said Rick Hohlt, a prominent Republican lobbyist representing banking and other interests. “Both candidates are perceived as change candidates who are anti-Washington.”

Those credentials are important to win over skeptical Republicans and Democrats, he said.

GOP lawmakers credit McCain with working quietly Friday and Saturday to coax some of those skeptics into supporting a deal of some kind. On Saturday, McCain worked from a call list of at least 20 lawmakers, aides said — and some lists even included skeptical Democrats.

“He understands what the House Republican concerns have been and has been helpful in moving the bill in that direction,” said Rep. Adam H. Putnam (R-Fla.), a member of the House GOP leadership. “But he has done so in a low-key, under-the-radar way that doesn’t defeat the larger purpose.”

Putnam, who received a phone call from McCain on Saturday morning, said both McCain and Obama have, in the end, helped push lawmakers closer to a deal.

“I thought the most helpful thing they can do is come together and detox this town to essentially give their blessing to a bipartisan deal,” Putnam said.

“It appears that that’s what they have done.”