The World

Never under-estimate the ability of Congress to muck things up. In the 1930s, the US Congress did a lot to turn a financial crisis into a depression by passing the Smoot-Hawley tariff act. Have America’s politicians just done it again, by rejecting the Paulson bail-out?

I suspect not – but only because I think that the market reaction last night was so strong that Congress will have to re-think and pass some version of the bail-out soon.

The Congressional naysayers, it seems to me, were motivated by three emotions: political fear, political pique and genuine ideological or practical reservations. The first two motivations will have been undermined by the collapse in the Dow after Monday’s vote. The huge fall in the stock market made the point that there is indeed a connection between the fate of Wall Street and the fate of Main Street in a much more eloquent fashion than any American politician has so far managed. Congressmen who feared being punished at the polls in November, if they voted for the package, may now have to recalculate.

The pressure to change position will also mount if the impression grows that Republicans voted against the bail-out because they felt that Nancy Pelosi – the speaker of the House – had somehow insulted them, with her speech just before the vote. Barney Frank, the Democrat, mocked the Republicans cleverly when he accused them of effectively saying – “Somebody hurt my feelings, so I’m going to punish the country.”

If the Republicans end up looking childish and self-centred at a time of national crisis, it will be political poison. The whole episode reminds me of when Newt Gingrich was Speaker of the House in 1995 and was accused of shutting down the government because he was annoyed with Bill Clinton for making him sit at the back of Air Force One. I don’t think Gingrich ever fully recovered from the brilliant New York Daily News front page – showing him as angry toddler, under the headline “Cry Baby”.

Finally, there is ideology. It is rather touching that so many Republicans are keeping the free-market faith at this time of crisis (including Newt Gingrich, incidentally). But they look rather odd, since they are opposing a bail-out that has been put together by a Republican president. George W. Bush may be many things, but he is surely not a socialist?