The Financial Bailout: An Examination of House Votes on the Emergency Economic Stabilization Act of 2008 *

The Emergency Economic Stabilization Act of 2008 allocated $700 billion of Federal money to troubled financial institutions. Representatives’ support for the bailout legislation is based on campaign donations from the financial services industry during the 2008 election cycle, the industry’s economic impact on a district, and membership on the House Financial Services Committee. Additionally, this paper considers the effect of political party, ideology, and district competitiveness. While the industry supported the bailout, the House rejected the first proposal before passing H.R. 1424 with bipartisan support. Data for this study comes from the Congressional Record, published reports, and campaign finance reports. This paper challenges the assumption that Congressional votes are based on party affiliation or ideology, arguing that monetary donations received from special interests influence representatives' votes on important legislation. The passage of the Emergency Economic Stabilization Act illustrates the influence of the financial services industry over the House. When the U.S. financial markets were experiencing turmoil in the fall of 2008, then-President George W. Bush asked Congress to approve legislation allowing the Federal government to purchase illiquid assets and ease banks’ balance sheets. Both the Chairman of the Federal Reserve and Secretary of the Treasury argued that the U.S. and international markets would crash without Federal intervention. Despite the administration’s warnings, the House of Representatives initially voted to reject the first bailout proposal, H.R. 3997, 205 to 228. Just days later, however, the House reversed its original position and passed the second proposal, H.R. 1424, with bipartisan support. The final House vote on the bailout legislation occurred one month before the 2008 election, placing national pressure on each member of the House, especially those in competitive districts, at a time when each member would be facing their constituents at the polls. Given Stratmann’s (2002) finding that members of the House are influenced by the monetary support they receive from the financial services industry, I believe support for H.R. 1424 was based on the amount of campaign donations members received from the financial services industry, membership on the House Financial Services Committee, and the role of the financial industry in each Congressional district. This paper examines the factors that explain members’ voting decisions on both versions of the Emergency Economic Stabilization Act of 2008. In addition to studying the financial services industry’s impact on each Congressional district, this study examines campaign donations at the committee level, specifically donations received by members of the House Financial Services Committee, who have developed lasting relationships with the industry as a result of their jurisdiction over financial services legislation. Previous research shows that a relationship exists between the financial services industry’s campaign donations to representatives and representatives’ support for legislation affecting the industry. Stratmann (2002) and Mian, and Sufi and Trebbi (2008) argue that interest groups