Seeds of populist anger sown in Wall Street bailout that never reached Main Street

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The revolution launched 10 years ago Saturday, when a ragtag group of unknown lawmakers went up against the most powerful political coalition possible.

The “Skeptics Caucus,” as the bipartisan group of House rank-and-file lawmakers dubbed themselves, defeated the first version of the $700 billion Wall Street bailout on Sept. 29, 2008, a temporary victory that foretold the next decade of tumult in Washington and nationwide, shaking the Republican and Democratic establishment.

Ever since, conservative grass-roots activists have dominated GOP politics and rejected calls to diversify their ranks and adopt moderate positions on many topics, including immigration and banking.

“That’s what I think helped launch this grass roots — whether you call it the tea party, conservative, populist — and it helped President Trump get elected,” said Rep. Jim Jordan (R-Ohio), a first-term lawmaker in 2008.

Democrats took longer to reach that same burn rate, because the 2008 financial crash helped cement an eight-year run of Barack Obama’s presidency. But that rage was fully unleashed in 2016 as Sen. Bernie Sanders of Vermont went from a backbench independent railing against big banks to nearly toppling Hillary Clinton in the 2016 Democratic primary.

“It was a breach of faith by the elites toward middle America, toward average America. It was the beginning of distrust,” said Rep. Brad Sherman of California, the Democratic ringleader of opposition to the Troubled Asset Relief Program, as the bailout was formally known.

It did not matter that, four days after the failed House vote, the establishment regrouped and passed a slightly modified version of TARP. The seeds were sown and, in the ensuing years, the rebellion only grew into other policy areas.

Most lawmakers still can’t believe the Skeptics Caucus ever won.

“A phenomenally bad idea was beaten by a phenomenally unpowerful group of members,” Sherman recalled recently.

Rep. Joseph Crowley (D-N.Y.) remembers the “deer in headlight” looks as the vote unfolded. Crowley held a whip list in his hands, lawmakers he was supposed to convert, but he resorted to a primal scream on the House floor calling out updates as the Dow Jones industrial average crashed: “300 down, 400, 600, what’s it going to take?”

The sitting president, George W. Bush, had negotiated the deal with the Democratic House speaker, Rep. Nancy Pelosi (Calif.), and Democratic Senate majority leader, Harry M. Reid (Nev.). It had the backing of both presidential nominees, Obama and Sen. John McCain (R-Ariz.), as well as the U.S. Chamber of Commerce and all the tentacles of the Wall Street financial industry.

McCain briefly suspended his presidential campaign to help negotiate the deal, leading to a caustic White House meeting with Bush, Obama and the bipartisan congressional leadership. He stormed out and, thinking the deal was collapsing, Bush’s treasury secretary, Henry M. Paulson, bent down on knee to plead with Pelosi to stay in talks.

She did, and a few days later, after marathon negotiations that began on a Saturday morning and stretched into Sunday, Paulson emerged from Pelosi’s office about 1 a.m.

The exhausted former Goldman Sachs chief held onto Sen. Charles E. Schumer (D-N.Y.), the future Senate Democratic leader, and then-Rep. Rahm Emanuel (D-Ill.), Obama’s soon-to-be chief of staff and future Chicago mayor.

But Sherman and Rep. Jeb Hensarling (R-Texas) had been leading bipartisan meetings of angry rank-and-file members. In just his third term, Hensarling led a conservative caucus but held little clout.

Pelosi wanted a big bipartisan vote, but in a sign of how weak he would become as the House speaker a few years later, Minority Leader John A. Boehner (R-Ohio) simply could not coax his side to back the plan.

Jordan at first feared the call from Boehner, but he didn’t even put on the hard sell. “I only fish in ponds where I can catch fish,” Boehner told Jordan.

Less than a third of House Republicans voted yes. Emanuel thought he had a reserve count of Democrats who would switch to yes if Republicans delivered, so he raced around the GOP side asking for more support.

The votes weren’t there, the gavel landed: 205 yeas, 228 nays. The chamber fell silent.

“The only thing I remember is not cheering,” Sherman said. “You don’t celebrate when you’re still in a financial crisis.”

Some were already questioning what they had done.

“I went home, after that first vote, to ticker-tape parades, people bragging on me, patting me on the back, hugging me and smooching me, because I voted no,” said Rep. K. Michael Conaway (R-Texas), then in his second term. “In my heart of hearts I knew there was a good chance that I would vote yes the next time it came up.”

Over the final week or so of talks, leaders modified the bill to allow the Treasury to choose between buying the bank’s toxic assets, the result of the mortgage industry collapse, or to just inject money into the financial firms. The latter option led to something most voters don’t realize, that the banks repaid with interest almost every penny from the bailout.

“If you do cash for trash, you make the banks richer and therefore more creditworthy. If you buy preferred stock, you make the banks more creditworthy but you get repaid,” said Sherman, who opposed the do-over vote but thinks it helped avert a depression.

Conaway spent several days in Texas praying over the decision as financial markets reeled. He awoke on Friday morning, back in Washington, ready to be one of the dozens who switched to yes. The revised bill passed, 263 to 171.

“Whether it was the right thing or not, we needed to do something,” Conaway said.

Jordan never budged. He went on to fiercely oppose every Obama initiative, particularly the Affordable Care Act. He eventually formed the House Freedom Caucus, 30 to 40 Republicans who helped drive out Boehner as speaker and now regularly clash with Speaker Paul D. Ryan (R-Wis.). He is one of Trump’s fiercest supporters.

“It started with that vote,” he said of TARP.

Trump played on the anger that voters still felt in 2016. Small-town America, where people’s homes and businesses never got a bailout. The biggest banks now crank out record profits.

“No one went to jail, there wasn’t the full comeuppance that I think people had demanded,” Crowley said.

Crowley spent the subsequent decade soaring through Democratic ranks, many thinking he would become the next House speaker.

In June, however, he lost his primary to a Sanders acolyte who had never before run for office.

One of the biggest weapons used against him? Crowley supported TARP.

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