Fault Lines

by Kevin M. Kruse

  Such changes in Washington encouraged Wall Street firms to take greater risks with less worry of ever getting caught. But there was still a reckoning. In March 2008, the giant global investing firm Bear Stearns went under, sparking a massive banking crisis. The government intervened to keep the firm afloat, but that only delayed the inevitable meltdown. On September 15, 2008, Lehman Brothers, the fourth largest investment bank in the United States, declared bankruptcy—the single largest bankruptcy in all of American history. This time, the government decided that it would not, or could not, save Lehman Brothers from failure. As it went under, anxiety swept through other institutions on Wall Street. Merrill Lynch, also in deep trouble, was swallowed up by Bank of America in another panicked merger. And it looked quite likely that American International Group (AIG), a giant multinational insurance corporation, would soon go bankrupt too. “My goodness,” remarked Peter Peterson, who had headed Lehman in the 1970s and served as Nixon’s secretary of commerce. “I’ve been in the business 35 years, and these are the most extraordinary events I’ve ever seen.” Panic set in across the financial sector. The Dow Jones Industrial Average, which stood at 11,400 in mid-September 2008, plummeted 3,000 points over the next month, losing more than a quarter of its total value. As the financial hysteria spread, fueled by round-the-clock coverage on cable news, many worried that the nation might be headed into a second Great Depression.6

  With a Republican in the White House, the financial collapse further damaged the standing of the party in power. Although the GOP’s economic policies typically revolved around free-market approaches like tax cuts and deregulation, President Bush turned to federal relief. He tried to forestall the financial crisis with an emergency stopgap, the Troubled Assets Relief Program (TARP), which would use government funds to purchase assets and equity from private firms that were in trouble. As Bush noted in his speech introducing the proposal, it was a bit jarring for Americans to hear a Republican leader—who had previously called for a reduction in the role of government, especially in the financial sector—now call for a massive new bailout of Wall Street. Democrats vowed to cross party lines and support the president, but rank-and-file Republicans in the House refused to do so. TARP, in their minds, represented “big government conservatism” at its worst. With conservatives holding out, TARP initially failed in the House by a vote of 228 to 205 on September 29. The following Monday, the stock market plunged by 777 points. As the situation spiraled out of control, an analyst on the financial news channel CNBC was asked what positions he would recommend. He responded grimly: “cash and fetal.” 7

  The TARP issue threw the 2008 presidential election into chaos. McCain, who had stated his support for TARP, temporarily suspended his campaign on September 24 due to the crisis. The move only angered Republicans, who believed it made him seem unsure how to handle the situation. Even the White House was shocked. “We’d devised TARP to save the financial system,” Secretary of Treasury Henry Paulson recalled. “Now it had become all about politics—presidential politics. . . . I wondered what McCain could have been thinking.” 8 In stark contrast, Obama’s response suggested a steadier hand. “It’s my belief,” Obama said, “that this is exactly the time that the American people need to hear from the person who in approximately 40 days will be responsible for dealing with this mess.” The Democratic candidate lobbied key constituencies in his coalition, such as the Congressional Black Caucus, to support the measure. In the end, the House did pass the TARP program on October 3, 2008, authorizing the extension of $700 billion to the financial services industry. It proved to be the most expensive intervention in markets to that point in American history.9

  As the financial sector began to stabilize, Obama won the election handily. The Democratic candidate secured a margin of 53 percent to 46 percent in the popular vote and had an even larger landslide of 365 to 173 in the electoral college. Notably, Obama had crafted a new coalition that included African Americans, immigrants, women, suburbanites, and younger voters who saw themselves as socially liberal but fiscally conservative. In many ways, his victory offered Democrats the first glimpse of a new base to replace the old New Deal coalition that had crumbled in the 1970s. Meanwhile, Democrats not only maintained control of both houses of Congress but also increased their margins, picking up 21 seats in the House for an edge of 257 to 178, and 8 seats in the Senate for a new margin of 59 to 41. It was so significant a defeat for the GOP across the board that observers wondered if it meant the end of the Republican Party. “We were in disarray,” Representative Pete Sessions of Texas remembered. “People were comparing us to cockroaches, saying we weren’t even relevant.” If the GOP were a brand of dog food, one retiring Republican said, it would get pulled off the shelves.10

  In contrast, Democrats were thrilled with the election returns, especially over the milestone they had reached in electing the nation’s first-ever African American president. The landmark moment led off media coverage of the election, with wild expectations for what the milestone meant. “Barack Hussein Obama was elected the 44th president of the United States on Tuesday, sweeping away the last racial barrier in American politics with ease,” began the New York Times’ front-page report. “As the returns became known,” it continued, “many Americans rolled into the streets to celebrate what many described, with perhaps overstated if understandable exhilaration, as a new era in a country where just 143 years ago, Mr. Obama, as a black man, could have been owned as a slave.” Those who had paved the way for the nation’s first black president were overwhelmed by the moment. At a victory celebration in Chicago’s Grant Park, cameras caught the Rev. Jesse Jackson wiping away tears of disbelief.11 Gallup reported that two-thirds of those polled believed Obama’s election was among the top three moments of progress for African Americans in the past hundred years; the same proportion said the election made them feel more confident there would be breakthroughs in race relations in the coming years.12

  The Persistence of Partisanship

  Having broken down the racial barrier to the presidency, Obama hoped he could do the same with other fault lines of national division. Notably, he remained optimistic that he could adhere to his campaign promises about ushering in a “postpartisan era.” As he formed his cabinet, for instance, the president-elect worked to bring an unprecedented number of Republicans into his circle. He kept Bush’s Secretary of Defense Robert Gates in that role, brought on Republican congressman Ray LaHood to serve as secretary of transportation, and tried to recruit a third Republican, New Hampshire senator Judd Gregg, to serve as secretary of commerce. Gregg initially accepted, but then reneged when GOP partisans complained. The incoming president, Gregg said apologetically, “has been a person who has reached out and aggressively reached out, across the aisle,” but ultimately Gregg had “irresolvable conflicts” with Obama’s agenda. Taking stock of these early moves, conservative observers marveled at Obama’s apparently sincere drive for bipartisanship. Bush strategist Karl Rove, who had stoked partisan animosities in a “play-to-the-base” strategy in the previous two elections, called Obama’s economic team “reassuring.” Other Bush alumni agreed. “Obama is doing something marvelously right,” noted Michael Gerson, a former speechwriter for the Bush White House. “He is disappointing the ideologues.” 13

  While the new president secured a level of bipartisanship in his cabinet that hadn’t been seen since the unity government of the Second World War, he quickly found Congress to be more resistant to the call for “postpartisanship.” Legislators in both parties had little incentive to cross the aisle, as their gerrymandered districts created homogenous voting bases and the fractured media fostered political echo chambers. Increasingly, both of these factors led congressmen toward confrontation rather than compromise. When Obama met with the Democratic caucus in December, he told legislators that he hoped to restore civility to political debate and reach out to Republicans to work with them on legislation. Democratic leaders looked at the president in disbelief, concluding
that he simply didn’t grasp the depth of the two parties’ hatred for each other. Republicans likewise waved such comments away as nothing but empty rhetoric. “He believes he’s a game changer, but I don’t believe the game has changed,” argued Representative Tom Cole. “It’s captivating, it’s intoxicating, but it’s not going to last.” 14

  From his very first day in office, the president found it hard to win Republican support on virtually any piece of legislation. Even with the nation still struggling with the economic crisis, the GOP refused to budge. The most important item in the president’s early agenda, for instance, was the economic stimulus bill. During the transition period, the incoming administration had done several things to make the bill more attractive to Republicans. First of all, while most economists argued for a Keynesian plan that relied solely on government spending, the proposed legislation instead dedicated roughly a third of the overall $787 billion in the plan to tax cut proposals that had been previously advanced by Republicans. Second, Obama officials spent a great deal of time meeting with both the GOP leadership and moderates in the House and Senate to seek their advice and act on their recommendations. Third, as a result of these meetings, the administration struck a number of liberal proposals from the stimulus bill, things like family planning funding, in an effort to win Republican votes. Liberals complained that such political concerns weakened the economic impact of the plan. “Whatever the explanation,” wrote the economist Paul Krugman, “the Obama plan just doesn’t look adequate to the economy’s need. To be sure, a third of a loaf is better than none. But right now we seem to be facing two major economic gaps: the gap between the economy’s potential and its likely performance, and the gap between Mr. Obama’s stern economic rhetoric and his somewhat disappointing plan.” 15

  House Republicans had a different perspective. After hearing from constituents who thought TARP had been a sellout by big government Republicans who had teamed up with liberal Democrats to bail out Wall Street, they were in no mood to spend anything near the levels that the president proposed. More important, the Republican leadership had decided that it would be politically beneficial to oppose the measure. House Whip Eric Cantor of Virginia, for one, thought that the GOP should do everything it could to deny Obama the honeymoon period that presidents are traditionally afforded and instead fight him immediately and at every turn. “We’re not here to cut deals and get crumbs and stay in the minority for another 40 years,” Cantor told his fellow Republicans in a December 2008 meeting. “We’re not rolling over. We’re going to fight these guys. We’re down, but things are going to change.” 16

  To win the battle, Cantor decided that the most important thing Republicans could do would be to keep their members united in opposition to the president’s proposals. If they closed ranks, the GOP could thus deny Obama the ability to claim any sign of bipartisanship, no matter how small. In early January 2009, the House Republican leadership team held a retreat in Annapolis, Maryland. Representative Pete Sessions, the new GOP House campaign chair, showed the assembled members a PowerPoint presentation. The first slide asked: “If the Purpose of the Majority is to Govern, What Is Our Purpose?” The next answered: “The Purpose of the Minority is to become the Majority.” House Republicans’ goal for the next two years would not be promoting their own policies or making Democratic bills more acceptable to their base; it would be doing whatever it took to win back the House. The House Republicans decided to become, in the words of Minority Leader John Boehner, “an entrepreneurial insurgency,” focused solely on fighting the Democrats. In a sign of how far they were prepared to go, Congressman Sessions suggested that the Republicans could learn lessons from the disruptive tactics of the Taliban, then waging an insurgency against American troops in Afghanistan. Meanwhile, Senate Republicans took the same tactic. At their own meeting in January 2009, Minority Leader Mitch McConnell of Kentucky laid out a plan that echoed Cantor and Sessions’s proposals in the House. As Senator George Voinovich of Ohio later recalled, the plan was simple—whatever Obama proposed, they would oppose: “If he was for it, we had to be against it.” 17

  As negotiations over the economic stimulus began in earnest, Democrats finally realized that all of Obama’s outreach had been for nothing. Congressman David Obey of Wisconsin, then chairman of the House Appropriations Committee, met with his Republican counterpart, Congressman Jerry Lewis of California, to explain what Democrats had in mind and to ask what Republicans wanted to include. “I’m sorry,” Lewis responded, “but leadership tells us we can’t play.” Obey was stunned. “What they said right from the get-go was, ‘It doesn’t matter what the hell you do, we ain’t gonna help you. We’re going to stand on the sidelines and bitch.’ ” When asked by reporters, Lewis confirmed the story. “The leadership decided there was no play to be had,” he told Time. Because Obama had made big promises on bipartisanship, the GOP realized they could effectively break those promises for him simply by refusing to cooperate. As Congressman Tom Cole, a deputy whip in the House, explained, when it came to the economic stimulus, what the Republicans wanted most of all was “the talking point [that] ‘The only thing bipartisan was the opposition.’ ” 18 And in the end, the Republicans got their talking point. Even in the midst of a severe economic crisis, not a single Republican in the House voted for the stimulus bill, which passed 244–188.

  In the Senate, Republicans had more power given the rights of the minority, especially after recent developments that effectively set a sixty-vote threshold for all major bills. And as Minority Leader Mitch McConnell later said: “The single most important thing we want to achieve is for President Obama to be a one-term president.” The GOP Senate campaigned for larger tax breaks than the president had proposed when they took up the bill in early February, and were able to force Senate Democrats down from the $900 billion they were demanding. Throughout the negotiations, conservative organizations placed immense pressure on senators to avoid cooperating with the administration. The president remained optimistic that he would be able to persuade a substantial number of Republicans to vote in favor of the plan based on the logic of the legislation and the urgent need for reform. “I’ve done extraordinary outreach, I think, to Republicans,” he explained.19

  On February 10, the Senate passed the bill by a vote of 61 to 37. The final vote had been close. The roll call went on for hours, as Democrats could not muster the sixtieth vote to end a filibuster. Senator Ted Kennedy was away struggling with a serious illness, so Ohio Senator Sherrod Brown had to be flown back to Washington from his mother’s wake so he could cast the deciding vote. Three moderate northeastern Republicans—Arlen Specter, Olympia Snowe, and Susan Collins—represented the total amount of bipartisanship that the president was able to win from the GOP. Notably, all three were immediately dismissed by the Right as “RINOs” or “Republicans In Name Only.” The abuse got so bad for these three moderates that Specter switched to the Democratic Party in April 2009. Snowe, meanwhile, decided not to run for reelection in 2012, citing “an atmosphere of polarization and ‘my way or the highway’ ideologies” that had taken over the Senate during her last term.20

  The final stimulus legislation, formally known as the American Recovery and Reinvestment Act, was signed into law on February 17, 2009. The legislation included more than $575 billion in new spending for health care, infrastructure, education, and energy as well as an expansion of unemployment compensation. At the same time, there was roughly $211 billion in a diverse array of tax cuts. Although some progressives argued that its spending totals were not nearly enough, and that the legislation was skewed too much in favor of the tax breaks, President Obama and his supporters insisted that this was the best that they were going to get. “None of this will be easy,” he cautioned. “The road to recovery will not be straight. We will make progress, and there may be some slippage along the way.” Still, he remained confident: “We have begun the essential work of keeping the American dream alive in our time.” 21

  For those on t
he right, however, Obama’s efforts represented not an effort to save the American dream, but a scheme to sabotage it. The same week the president signed the stimulus into law, CNBC reporter Rick Santelli attacked another administration proposal meant to help homeowners hurt by the housing collapse avoid foreclosure. “The government is promoting bad behavior!” he shouted from the floor of the Chicago Board of Trade on live television. Obama, he said, “should put up a website” where Americans could vote “to see if they want to subsidize losers’ mortgages!” As the traders around him booed the idea, Santelli suggested that Americans needed to rise up in protest, perhaps in a “Chicago Tea Party.” The video clip, replayed endlessly on cable news, quickly went viral on the internet. Within hours, it became the lead clip on the Drudge Report; after a few days, CNBC reported that the segment had been viewed nearly 1.7 million times, a record for its website.22