WASHINGTON -- A foreboding sense of deja vu is growing among Democratic lawmakers on Capitol Hill. The debate over raising the nation's debt ceiling, already mired in partisan rift, seems increasingly likely to end in the same dramatic fashion as the passage of the Troubled Asset Relief Program, where an adverse market reaction proved necessary to push congressional action.
Politicians are loath to make the direct comparison publicly out of fear that the markets may react negatively to the very specter of the debt ceiling being breached -- as is set to happen in early August. When they do make the comparison, however, they warn that the fallout would be more destructive then when the stock market crashed between the first failed TARP vote and its later successful passage.
"This is a different situation because this has even more serious consequences if we say we are not [going to raise the debt ceiling]," House Minority Leader Nancy Pelosi told The Huffington Post. "We have to [raise the debt ceiling]. We have to."
Speaking just hour after the House held a vote on a "clean" debt ceiling bill on Tuesday night, Pelosi noted that GOP leadership told Wall Street officials in advance "not to pay attention" to the outcome, knowing full well that the bill would fail.
"The fact is they still have to get the votes and some of their friends on Wall Street are going to have to weigh in on that," she added. "TARP, I think, showed you how irresponsible they were prepared to be. But now they are in control and they are going to have to deliver."
While Republican leadership firmly rejects claims that they are acting irresponsibly, they do seem at least cognizant that they do have to deliver something. Speaking to reporters on Wednesday, House Speaker John Boehner (R-Ohio) stressed that a bill to raise the debt ceiling "really needs to be done over the next month if we're serious about no brinksmanship, no rattling investors."
But for all the bowing to the idea that something needs to get done, at the negotiation table the two parties seem to be moving further apart. On Sunday, Senate Minority Leader Mitch McConnell (R-K.Y.) turned heads when he insisted that House Budget Committee Chairman Paul Ryan's controversial Medicare reform plan should be "on the table" with respect to debt ceiling legislation. Days later, Democrats responded sharply: "If they are demanding that Medicare be terminated then we are going to blow through the debt ceiling," Rep. John Garamendi (D-Calif.) told The Huffington Post. By Wednesday, at a White House meeting between the president and the House Republican caucus, each side was quibbling over the treatment they were receiving from the other.
On the Hill, aides have begun looking into contingency plans should the debt ceiling hit, although those plans -- even though they may end up proving necessary -- have taken a back seat to more immediate discussions on raising the debt ceiling itself.
"We probably won't get to that kind of conceptual agreement without experiencing at least some temporary turbulence in the bond market a la what happened with the TARP vote," former Office of Management and Budget Director Peter Orszag, no stranger to delicate budget negotiations, said during a speech last week.
The similarities between the TARP vote and the debt ceiling debate are, in the end, bound to be more symbolic than structural.
In September of 2008, Congress was presented a choice: cut a check to buy toxic assets from major banks or risk a market collapse (only later would the underlying plan change to injecting capital into those banks). When the first vote took place, in the height of a presidential campaign, lawmakers blinked: 228 House members, including 133 Republicans and 95 Democrats, voted no; 205 voted yes (140 Democrats, 65 Republicans).
Pelosi, in an attempt to correct established lore, insisted that it was then Senator Barack Obama, not the diving economy, who convinced skeptical Democrats to re-think their votes. "Republicans were not going to vote for this," she said. "They are non-interventionists. They didn't want supervision, they didn't want regulation; they didn't want intervention even when the walls were tumbling down."
The more common rendering, however, is that lawmakers panicked as the stock market dropped 777 points. Days after the first vote, TARP passed, with 263 lawmakers voting yes, including 172 Democrats and 91 Republicans.
Should Congress fail to raise the debt ceiling it could be, like with TARP, that a bipartisan group of objectors are at fault (though Democrats, at this juncture, seem more inclined to support a bill even if it is far removed from the "clean" legislation they initially wanted). The ramifications, however, could extend far further.
While several Tea Party members have insisted that the government could operate just fine once its debt ceiling is hit, Treasury Secretary Tim Geithner has warned Congress that the faith and credit of the U.S. would be compromised, investors would be scared away and those investors remaining would demand higher interest rates on Treasury securities, which would increase the cost of borrowing for families, businesses and local governments.
On Thursday, Moody's Investors Service said that if no progress was made on increasing the debt limit in coming weeks, it would likely place the US government's rating under review for possible downgrade.
"I remember the TARP debate," said Rep. Louise Slaughter (D-N.Y.) in an interview with The Huffington Post. "I got to see Too Big To Fail [on HBO] the other night. It was done really well ... That bill was tough enough. But I consider the debt limit in a class by itself. I don't think I can even compare that to TARP. It is more necessary. It is absolutely essential."
Warnings like these have dismissed as cynical attempts to raise the stakes of the debt ceiling debate. Nearly everyone in Congress believes the debt ceiling should be raised. The question is what should be attached to the legislation. Moreover, it's not entirely clear whether evoking a TARP-redux is tactically a smart move. The bank bailout remains toxic for Republicans and hardly a point of pride for Democrats.
But even for lawmakers who opposed that bill, the prospect of living through a similar, let alone worse, economic crash, has begun weighing on their conscience.
"I am still angry with my colleagues who panicked because [Wall Street] took a one-day nosedive when we killed off the TARP program," said Rep. Pete DeFazio (D-Ore.), a TARP opponent. "This one is tougher because I don't care about the Wall Street speculators. The problem here is you are talking about bonds, which have been looked at as the safest investments in the world by pension funds, by everybody ... It would be much more damaging than a one day blip in the stock market because we voted against bailing out Wall Street."