It was the most tense meeting I ever attended on Capitol Hill. Roy Blunt was then the House Majority Whip. He was the person responsible for getting Republicans to vote the way the party leadership wanted them to. He stood at the lectern of one of the House office building’s beautifully-appointed conference rooms. The room was filled with members of the House Republican Study Committee, conservatives dismayed by the Bush Administration’s plans to deal with the growing financial crisis.

That December of 2008 was a dark time for the country. The economy had tanked. There was talk of nationalizing the banks. The lame-duck president George W. Bush was trying to sell Congress on the $700 billion “Troubled Asset Relief Program” program. Conservative Republicans were not happy.

As the Heritage Foundation’s Norbert Michel put it, when they went to Congress asking for the money, “Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson basically said: We need $700 billion to fix the problem, but we can’t tell you why, and we can’t tell you what we’re going to do with the money.” 

Blunt’s Rough Time, and the Country’s

Blunt had been sent by then-Speaker of the House Dennis Hastert. Hastert sent him to convince his colleagues, in his calm Midwestern way, to vote for massive federal spending designed to save financial, banking, auto and other companies. These were “too big to fail.” Blunt was having a rough time.

That meeting was the only time in my years on the Hill I thought a fist-fight might break out among the members. My then-boss, Rep. Bill Sali of Idaho, maintained his characteristic evenness in the midst of it all. He made his point in a House Oversight Committee hearing when he asked the witnesses, “Is anybody going to go to jail for all of this?”

It was a good question. It was hard not to wonder why these massive lending firms had thrown money around like children throw sand at the beach. And whether the bosses would be held accountable for wrecking the world’s economy.

One particular memory stands out. The owner of a small chain of community banks in Idaho came to Sali’s office with his son. They were distressed and earnest. When I met with them, they told me that community banks nationwide were more than open for business. They had nearly $100 billion available to provide loans for struggling companies. And the federal government was ignoring them.

Using the Panic

There are almost always two sides to every story. I don’t know all the ins-and-outs of the financial crisis of 2008-2009. I do remember the words of Obama’s chief of staff Rahm Emmanuel. “Never let a serious crisis go to waste,” he said as the Obama administration got underway. When the people are desperate, you can use their panic to push through things that otherwise would never fly. Including massive new federal regulation of the private sector.

I don’t question the motives of any of the leading players of those difficult months. But consider two of them: Treasury Secretary Hank Paulson, a Republican, and his successor, Democrat Timothy Geithner. Their judgment demands scrutiny.

Paulson began his career working in the Nixon White House. Prior to becoming Secretary of the Treasury, he was chairman and CEO of Goldman Sachs, an international investment firm. Last year, it had total revenue of more than $32 billion. Geithner had been at the International Monetary Fund, the New York Federal Reserve, and the Clinton Administration’s Treasury Department. He’s now head of a Wall Street private equity firm, Warburg Pincus.

Put simply, the people involved in addressing the housing, banking, lending, and finance crisis were men whose whole careers had been at gigantic financial houses. Or the highest levels of the federal government. Their perspective drew from the corporate boardroom, the exercise of federal power, and the cutting of huge financial deals. Private sector solutions were on the far side of their line of vision. Their backgrounds kept them from seeing anything but the big, sweeping, and interventionist.

The Market Magic

Economist Dean Baker predicted the “housing bubble” collapse. He wrote recently that “if the market had been allowed to work its magic, we could have quickly eliminated bloat in the financial sector and sent the unscrupulous Wall Street banks into the dust bin of history.”

That’s not what happened. As Baker notes, “Saving the banks became the priority of the president and Congress. Saving people’s homes and jobs mattered much less or not at all.” 

On a political level, the most disappointing thing was that many Republicans, led by President Bush (in whose administration I proudly served), went in for big government solutions from the get-go. “When given an opportunity to spend, the GOP grabs on to the opportunity with all its might,” writes Ryan McMaken of the Mises Wire.

Where to Go From Here

For one thing, conservative statesmen need to make the case for the benefits of limited government whose spending is constrained by the Constitution. Not just a case based on enduring principles, vital as they are, but practical considerations. For example, they must show how ordinary Americans do better when the tax burden is lower, government spends less, and the engine of the open market is firing on all pistons. We need to tell stories about how real people benefit when government contracts and economic liberty expands.

Roy Blunt still serves in Congress. He’s now a senator. I’m glad he’s there. But it’s time he and all his Republican colleagues show their willingness to do something politically difficult, even painful: Saying “No” to the Democratic Party and its allies in the media who yell “Spend more!” at ever turn.