Why the bailout bombed

Barely containing his temper, Virginia's Eric Cantor, deputy whip for the House Republicans, stepped to the microphone this afternoon to blame the bailout defeat on House Speaker Nancy Pelosi's "failure to listen" and her charged partisan rhetoric in condemning President George Bush's "budgetary recklessness" and "anything-goes mentality."

If only it were that simple. If only the failure of the White House to muster enough votes from its own party to avert what it calls looming financial disaster could be blamed on a few ill-chosen words uttered on the House floor by San Francisco's hyper-partisan speaker.

In fact, Monday's surprise defeat of the $700 billion rescue package - meant to blunt a burgeoning financial crisis - can be traced to a failure on the part of the president and his treasury secretary, Henry Paulson, to fully appreciate the ferocity of the popular revolt they touched off nine days ago.

Republicans today voted against the measure by two to one. With only 60% of Democrats also voting in favor, the plan to have the government buy up hundreds of billions in assets, mostly mortgage-backed securities, went down to defeat.

The voters said no
The reality is that conservative House members were less interested in the ear-ache they got from Pelosi than the earful they've been getting from constituents.

Calls to Congressional offices have been running overwhelmingly against the rescue - just five weeks before constituents go to the polls to vote on their members. In the week since Paulson and Federal Reserve Chairman Ben Bernanke rushed to Capitol Hill urging Congress to ward off a financial collapse by passing a bailout within 48 hours, they've argued that the situation is urgent and that financial markets are in crisis.

But the dire warnings didn't provide enough political cover for lawmakers facing voter wrath. They may have even backfired in some cases, stirring suspicion that the White House and Treasury were over-blowing the magnitude of the crisis to shove through unprecedented intervention in the financial markets that would benefit Wall Street's fat cats.

On the House floor today, voting members raised a host of concerns about the bailout package - from the burden it would leave on future taxpayers to fears that it "could permanently and fundamentally change the role of government in the American free enterprise system," in the words of Rep. Jeb Hensarling (R-Texas), a leader of dissenting Republicans.

'A tough vote'
But outside of staunch opponents like Hensarling, there were many fence-sitters who, as of Monday morning, the White House had assumed were in its column. Pelosi may not have helped, but the plan died because Republicans weren't willing to ignore a revolt among the folks back home and cast a rushed vote on a massively complex subject with an almost unfathomable price tag.

"If on the substance, you're undecided, then the politics tips you into the 'no' category," Rep. Jim McCrery of Louisiana, a Republican who supported the package, told Fortune. "It was a tough vote politically in their view."

McCrery's own experience leading up to the vote provides insight into what the White House was up against. McCrery is the ranking Republican on the House Ways and Means Committee. He's a Shreveport lawyer known for immersing himself in the details of complex tax and entitlement issues. He's one of the chamber's most thoughtful and studious lawmakers - and he's retiring, so he's less interested in playing it safe politically than figuring out what's right to do for the country.

McCrery has been cramming on the state of today's credit markets, reading everything he could get his hands on, consulting with every expert he could find. "It's been like drinking from a fire hose," he said.

I asked McCrery if his yes vote meant that he was now persuaded that the country faced a dire financial emergency requiring a $700 billion market intervention. His answer: "I'm still not knowledgeable enough about the credit markets."

Faced with competing views from competing experts on a subject that no one outside a few top economists understands, McCrery threw his lot in with Paulson and Bernanke. "I had to pick a group of experts whose opinion I was going to go with," McCrery said.

And for those lawmakers who have their doubts - or are in dicey districts and in danger of losing their seats come November - there are plenty of economic experts to choose from on the other side, starting with the group of 200 economists who signed a letter opposing the Paulson plan. Former FDIC Chairman William Isaac was on the Hill yesterday, peddling his own, radically more limited federal assistance plan, to the House Republican Study Group.

So those Republicans who sided with their constituents and voted against their President - but only by a close call - will find themselves the object of intense courting in the days ahead.

Both Pelosi and the Republican leadership say they are eager to try again to pass a bill, probably later in the week. "We'd like to find a way," said Republican Whip Roy Blunt, "to deliver enough Republican votes to make this happen."