About the Book:A Washington Post Notable Book
An eye-opening account of how Congress today really works—and how it doesn’t—that follows the dramatic journey of the sweeping financial reform bill enacted in response to the Great Crash of 2008. Act of Congress focuses on two of the major players behind the legislation: colorful, wisecracking congressman Barney Frank, and careful, insightful senator Christopher Dodd, both of whom met regularly with Robert G. Kaiser during the eighteen months they worked on the bill. In this compelling narrative, staffers play a critical role, writing the legislation and often making the crucial deals. Kaiser’s rare insider access enabled him to illuminate the often-hidden intricacies of legislative enterprise and shows us the workings of Congress in all of its complexity, a clearer picture than any we have had of how Congress works best—or sometimes doesn’t work at all.
Read an Excerpt
Excerpted from the hardcover edition.
“I Could Hear Everyone Gulp”
Thursday, September 18, 2008, was a fine late-summer day in Washington—blue skies, temperatures in the seventies. But the politicians on Capitol Hill were in no mood to notice the weather. They were thoroughly distracted by chaos in the financial markets brought on by a series of seismic events: the nationalization of the government-supported agencies that provided most of the financing for home mortgages, Fannie Mae and Freddie Mac; then the sudden death of one enormous Wall Street institution, Lehman Brothers; and a unprecedented government bailout of another, the American International Group (AIG), a huge insurance company that traded financial products too. The stock market was suffering convulsions. The Dow Jones Industrials fell 504 points on Monday the 15th, the day Lehman Brothers went broke, then jumped 142 points on Tuesday, when the Federal Reserve Board, the American central bank, saved AIG, then dropped another 449 points on Wednesday, when several huge financial institutions were teetering.
The United States Congress is normally immune to emotional reactions. It is a ponderous institution, usually cautious and always reactive. But some events break through the protective layers of ceremony and custom that typically insulate the House and Senate from high emotion. One such event was unfolding in those September days.
“This is what a Category 4 financial crisis looks like,” members of Congress and other Washingtonians read on the front page of their morning newspaper that Thursday. Steven Pearlstein, The Washington Post’s economics columnist, captured the sinking feeling that gripped the nation’s capital: “Giant blue-chip financial institutions swept away in a matter of days. Banks refusing to lend to other banks. . . . Daily swings of three, four, five hundred points in the Dow Jones industrial average. What we are witnessing may be the greatest destruction of financial wealth that the world has ever seen—paper losses measured in the trillions of dollars. . . . Finance is still a confidence game, and once the confidence goes, there’s no telling when the selling will stop.”
Open-ended bad news, a national and global disaster bound to get still worse—this was a formula for unbridled fear among members of the House and Senate. They all knew that they would be blamed for whatever had gone wrong whenever angry voters got a chance to register their reactions. The politicians always got blamed—this was an article of their professional faith. Fear of being blamed might be the single most potent motivator in the House and Senate. When Congress actually does something dramatic or unexpected, fear is often the best explanation.
This financial crisis had undermined congressional confidence. In normal situations members and especially senior leaders exude a sense of being on top of events, in control. This is an act, and often misleading, but rarely exposed. During this week in September, the actors stumbled. Congress was visibly on the defensive. Its pretentious facade crumbled. On the 16th, when leaders of the House and Senate met with Hank Paulson, the secretary of the treasury, and Ben Bernanke, chairman of the Fed, the fear was palpable.
That meeting was scheduled as Paulson and Bernanke were finalizing the plan for the Fed to put $85 billion into AIG, transforming the gigantic firm into a ward of the state. Paulson realized they needed to give key members of both houses advance warning for what was about to happen. For decades, administrations of both parties had realized that Congress usually did not want to do much, but it always wanted to be consulted.
Paulson had arranged for such a consultation with Harry Reid, the Democratic senator from Nevada who was the majority leader. They would meet at 6:30 p.m. in the conference room of the Senate Rules Committee in the Capitol. The majority leader invited key senators and congressmen, including the chairmen of the two committees that had jurisdiction over the Fed, Senator Chris Dodd of Connecticut and Representative Barney Frank of Massachusetts. There were only a few chairs in the room, so all stood.
When Paulson and Bernanke explained what was going to happen, the room was hushed. “There was an almost surreal quality to the meeting,” Paulson later recounted. “The stunned lawmakers looked at us as if not quite believing what they were hearing.”
Frank and Dodd both marveled that the Fed had the legal authority to simply make $85 billion available to AIG without anyone else’s approval; theoretically these two men were responsible for overseeing the Fed. That evening they discovered that the central bank had powers they never knew existed. At the end of the meeting Senator Reid was blunt: “I want to be absolutely clear that Congress has not given you formal approval to take action. This is your responsibility and your decision.” That was the true voice of Congress, covering its own flanks before all else.
Now, on the 18th, Speaker Nancy Pelosi had gathered the leaders of her Democratic majority in her grand office on the second floor of the Capitol. On this day the stock market had perked up, apparently encouraged by rumors that the administration was planning some new initiative to help banks cope with their suddenly rotten housing assets. We need to get Hank Paulson up here to talk with us, Pelosi told her inner circle. “I’ll call him and set up a meeting for tomorrow.” After this meeting broke up, she put in a call to the treasury secretary. She wanted to be consulted.
For Paulson, a large, energetic man of high intellect, rich Wall Street experience, and no detectable political talent, this was another in a long string of very bad days. At nine that morning the vice chairman of Morgan Stanley had called to warn that his investment bank was teetering. The world’s banks refused to lend money to one another—credit markets were truly frozen. Disaster loomed. Paulson spent the next several hours exploring alternative responses to the crisis with Treasury colleagues. He spoke to President George W. Bush on the phone and arranged a meeting with him for that afternoon to discuss what to do. In a conference call with Bernanke and other Fed officials, everyone agreed that they would have to make a formal request to Congress to appropriate hundreds of billions of dollars to save the financial system.
No member of Congress was invited to join these conversations. This was typical of modern practice in a crisis: The executive would formulate a response, then bring it to Capitol Hill for approval. In this case, Paulson and Bernanke both realized how hard it would be to get Congress to put up so much money to bail out banks.
Paulson was walking from the Treasury to the White House next door when he took Pelosi’s call on his cell phone. She asked that he and Bernanke come up to Capitol Hill the next morning to brief the Democratic leadership.
“Madame Speaker,” Pelosi recalled Paulson replying, “it cannot wait until tomorrow morning. We have to come today.” Paulson explained “just how bad things were” and said he would be asking Congress for emergency powers. “We need legislation passed quickly. We need to send a strong signal to the market now.”
Paulson asked Pelosi to assemble a bipartisan group of senior members from both House and Senate to hear from him and Bernanke. Soon after this call ended, Bernanke and Paulson sat down in the Oval Office to explain the grim facts to President Bush: The administration would have to ask for an emergency appropriation of half a trillion dollars to save the financial system and prevent another Great Depression. The dazed president approved this plan.
Pelosi conveyed Paulson’s impatient message to her colleagues. They were taken aback. Paulson wanted an urgent meeting with House and Senate leaders, but waited for Pelosi to call him before saying so? “He hadn’t called us!” recalled Steny Hoyer, the number two Democrat in the House of Representatives. Pelosi told Hoyer the meeting was set for 7 p.m. Her staff invited the relevant members; Pelosi herself called Harry Reid, who invited the key senators.
Thanks to a sense of grandeur that animated the many creators of the Capitol of the United States, members of the House of Representatives and the Senate work in extraordinary physical spaces. Some are ridiculously ornate, some feel like transplanted Greek temples, some are quite beautiful. All convey a sense of importance—the sort of rooms that history is made in. Members often volunteer the thought that the Capitol’s splendor influences the attitudes of those who work in it.
Speaker Pelosi’s conference room on the second floor of what is called the Capitol’s west central front was a good example. It measures about fifteen feet by forty under vaulted ceilings decorated with classical designs and scenes from antiquity that look Roman. Ornate gilded moldings separate the ceiling from the walls that Pelosi’s decorator had painted in a soothing coffee-with-cream tone. A beige carpet with a repeating diamond motif covered the marble floor. The room was dominated by a handsome mahogany table at least twenty-five feet long, big enough to accommodate twenty-two armchairs. Another thirty of the same chairs lined the walls—seats for staff when large meetings were convened. Above the table a giant crystal chandelier hung from the vaulted ceiling. Three windows looked west over the magnificent Mall; the view included the Washington Monument and Lincoln Memorial in the distance. There was just one piece of art on the walls, an oil portrait of Abraham Lincoln as a young Illinois congressman, painted early last century—another reminder of the history made in this building.
The meeting in the conference room on this evening was unusual in many ways, but it provided a clear view of the congressional leadership reacting spontaneously to unexpected bad news. Pelosi took her usual seat in the middle of the long table, with her back to the windows. Harry Reid sat on her right. The table was decorated with three bouquets of fresh flowers and two bowls of nuts and chocolates—Ghirardelli chocolates from Pelosi’s hometown, San Francisco. The guests sat facing Pelosi and Reid: Bernanke, Paulson, several of his aides, and Chris Cox, a former Republican congressman from California who was the hapless chairman of the Securities and Exchange Commission, theoretically the regulator of many of the financial institutions now dead, dying, or endangered.
The others present were the two Republican leaders, Senator Mitch McConnell of Kentucky and Representative John Boehner of Ohio, who sat on Pelosi’s left; Dodd and Frank and the senior Republican members of their committees, Senator Richard Shelby of Alabama and Representative Spencer Bachus, also of Alabama; and other members of the leadership of both houses: Democratic senators Dick Durbin of Illinois, Chuck Schumer of New York, and Patty Murray of Washington; Republican representative Roy Blunt of Missouri; and Democratic representatives Rahm Emanuel of Illinois and James Clyburn of South Carolina. Pelosi had ordered that only a handful of staff be allowed into the room, and six or eight were present.
Of this group, only half a dozen had a reasonably good understanding of the financial markets: Dodd and Frank, Shelby and Bachus, Schumer—often called “the senator from Wall Street”—and Emanuel, a former investment banker. As Paulson had discovered in his two years in Washington, the gulf that divided Capitol Hill from Wall Street was wide and deep. Too many members of Congress neither understood finance, nor wanted to learn about it. A prominent Republican in the House had confided to Paulson that “one third of our guys are real knuckle-draggers”—cavemen, primitives. After two years on the job, Paulson knew this to be true.
Pelosi quickly turned the meeting over to Paulson, who anticipated a hostile reception when he asked members of Congress to approve hundreds of billions for the banks. They already suspected he was just trying to bail out his old friends on Wall Street, he had told Bernanke at the White House that afternoon, after their meeting with Bush. “They’ll kill me up there [on Capitol Hill]. I’ll be hung out to dry.”
Bernanke, an economics professor at Princeton before becoming a Federal Reserve Board governor in 2002, volunteered to speak first to exploit his considerable credibility. He had no Wall Street experience; he was an academic, an egghead, whose specialty was the Great Depression. He had the sort of rigorous, specialized expertise that can intimidate members of the House and Senate.
Paulson understood the mission. His chief of staff, Jim Wilkinson, a veteran of the Bush White House staff, had laid it out for him as he left the Treasury for Capitol Hill: “This is only going to work if you scare the shit out of them.” Paulson knew that Bernanke could do this best. So when Pelosi turned her meeting over to Paulson, he reported briefly on their session with President Bush that afternoon and on the president’s decision to propose new legislation, then asked Bernanke to describe the state of the financial system.
Bernanke handled himself like a professor leading a seminar, but a seminar with an unusual subject: the possible end of the world as we know it. He assumed no prior knowledge on the part of his class. He explained: They were facing a grave financial crisis. There had been a loss of confidence, and the markets were not working. There was a credit freeze. The commercial paper markets had ceased to operate. The stock market had dropped by more than a thousand points. The efforts he and Paulson had made to restore normalcy had proven inadequate, so they were now asking Congress to support an unprecedented appropriation of hundreds of billions of dollars to shore up the banks and head off total collapse. Bernanke said that he had been studying the Great Depression for his entire adult life. “If we don’t act in a very huge way, you can expect another Great Depression, and this is going to be worse,” he said sternly. “It is a matter of days before there is a meltdown in the global financial system.” And he warned, “Our tools are not sufficient” to deal with this crisis.
“This is a save-your-country moment,” said Cox of the SEC, implying that hundreds of billions of dollars was a tolerable expense under such extreme circumstances. It’s time to come together and act, Cox said. He knew his former colleagues, knew that wrapping the cause in the flag could help.
Senator Reid noted that the stock market was up sharply that day, suggesting that maybe they didn’t have to be so afraid. Bernanke dismissed this news—the market was up based on rumors that this meeting was going to take place, and that new government action would follow. If the expected actions didn’t materialize, Bernanke said, the market would plummet.
“I kind of scared them,” Bernanke said later. “I kind of scared myself.”
When Bernanke had finished his brief, terrifying lecture, Paulson spoke. In all his years at Goldman Sachs (thirty-two of them until he became treasury secretary in 2006), “I’ve never seen anything like this,” Paulson said. They were living through a once-in-a-century event. To salvage the situation, “we have to buy residential and commercial mortgages and mortgage-backed securities [from the banks that held them]. We need hundreds of billions of dollars to start off.” Congress, Paulson said, had to pass legislation at once—the next week—to allow Treasury to begin buying these toxic assets. Without action they faced a financial calamity. The country could collapse.
“An exceptionally informative, candid, evenhanded description of the congressional process.” —Choice
“Mr Kaiser depicts the gruesome business of legislating in the wickedly honest fashion only a journalistic veteran, liberated from the restraints imposed on daily reporters, could get away with…[he] names names and spares no one.”
—The Wall Street Journal
“Like [Robert] Caro, Kaiser has a gift for writing a legislative page-turner…This should be a book on every informed voter’s reading list.”
—New York Journal of Books
“If you want to know how Washington really works, read this book. It’s the ultimate inside story of a major piece of legislation that will affect the way the country does business for decades to come. Robert G. Kaiser, who knows the terrain like few others, was given unique access to the key players as they pasted this complicated package together. Kaiser shows us the personalities, the politics, and the process.”
-Cokie Roberts, political commentator, NPR and ABC News
“It’s wonderful to read a story about how Congress can actually get something done. This is an exclusive behind-the-scenes tale of how an important bill became law. It’s a book we really need now.”
-Walter Isaacson, author of Steve Jobs
“Kaiser writes with the clarity of a world-class journalist, the depth of a scholar, and the evocative style of a novelist. His latest book about Barney Frank, Chris Dodd, and financial reform is a master class in understanding the modern Congress.”
-David Maraniss, author of Barack Obama: The Story
“Robert Kaiser knows so much about how Congress works, and writes so well about it, it makes me—as a former legislator—both uneasy and grateful. He spots our limitations but leaves every reader with a much better understanding of ‘America’s least understood important institution.’”
—Lee H. Hamilton, former member of the House of Representatives
“Robert G. Kaiser’s Act of Congress is the most detailed, fascinating and sophisticated case study of congressional law making to appear in years. It shows how thoroughly polarized partisanship has reshaped the entire process, but also how exceptionally skillful politicking can nonetheless still occasionally produce landmark legislation. It will be ideal for courses on Congress (I’m adding it to my own syllabus) and the policy making process, but it will also enlighten anyone who wants a better understanding of how present-day national institutions work—or fail to do so. It's a great read.”
—Dr. Gary C. Jacobson, professor of political science at the University of California, San Diego
“Act of Congress captures the story of the historic assertion of federal power known as Dodd-Frank in all its complexity, with its lasting implications for the balance of power between Washington and Wall Street. Robert Kaiser’s triumph is to make this complex subject an intimately human tale. Thanks to reporting and insight, the story of Dodd-Frank is revealed not simply as a collision of public and private interests on Wall Street, but as a kind of case study in the anthropology of modern Washington. A great story by a journalist singularly well-equipped to tell it.”
—John Harris, editor in chief of Politico
“We have been waiting for this. Robert G. Kaiser, one of our most skilled and thoughtful journalists, has written the inside story of one of the most important legislative measures of the last decade. Kaiser weaves a compelling story of institutions, parties, personalities, and strategy. This book is essential reading for students of Congress and national policy making, for everyone interested in the policy response to the Great Recession, and for citizens who care about the dysfunction of American national government.”
—Steven S. Smith, professor of political science at Washington University
“Act of Congress is easily the best book on Congress I have read in decades. It is a stupendous achievement—richly informative, a pleasure to read, wise in its assessments of why Dodd-Frank was able to succeed and how this case is more exception than rule in these difficult governing times. Congressional scholars have much to learn from the book (I certainly did) and generations of students will find it their favorite and most rewarding assigned reading in classes. A classic.”
—Thomas E. Mann, Senior Fellow, Governance Studies, The Brookings Institution
“Richly detailed…Remember that old saw about making sausages and making laws—that you don’t want to know too much about either one? Kaiser disproves it with this lucid…book.”
“Bob Kaiser has written a captivating and insightful account of the Dodd-Frank reform of financial services regulation. He convincingly explains both the successes of key actors and why, in the current Congress, such successes are increasingly rare.”
—Congressman David E. Price
“Today’s Congress is not yesterday’s Congress. The rules may seem the same, but new players, bigger campaigns, more partisanship and less civility means more time raising money, fewer hours in session, minimal socialization across the aisle and more delegation to committee staffs. Act of Congress is the first book to describe in detail what it takes to legislate in the ‘new’ Congress. Robert Kaiser was present at the creation of the Dodd-Frank Act. His reputation as a straight-shooting reporter earned him open access to the staffs of Congressman Barney Frank and Senator Chris Dodd, and extensive interviews with the key players in both parties. The result is an enlightening, sobering, tour de force. Any teacher who hasn’t read this book should have his syllabus examined.”
—Samuel L. Popkin, author of The Candidate
“Robert Kaiser’s Act of Congress is a great read. He makes a complex issue and an arcane process understandable and interesting. Readers get a real sense for the interplay of politics and policy and of personality and structure that goes into passing major legislation. Not just for Congress junkies, Kaiser’s book is a fascinating ‘How Done It.’”
—Barbara Sinclair, professor emerita of American politics at UCLA
“Intricate [and] incisive…Kaiser…finds the drama in arcane parliamentary procedure and paints extraordinary fly-on-the-wall scenes of legislative sausage making…His absorbing true-life political saga exposes the good, the bad, and the ugly in Congress.”
"Act of Congress is a tour de force, an unparalleled account of the difficulty of legislating in an intensely polarized political era. Robert Kaiser brings decades of experience to the task, deftly showing how lawmakers balanced policy goals and political risk to build bicameral majorities for landmark Wall Street reform. I look forward to assigning this masterful work to my students in the years to come."
—Sarah Binder, professor of political science at George Washington University
“Congress is the most powerful, and least well understood, branch of the American government. Luckily, Robert Kaiser is here to explain it to us. Required reading for anyone who is affected by Washington, which is, as Kaiser demonstrates in this book, all of us.”
—Ezra Klein, columnist, The Washington Post
“The great value of Robert G. Kaiser’s Act of Congress is its refusal to accept the Washington cliché that the Dodd-Frank legislation represents a moment when Congress worked the way it is supposed to . . . It uses the passage of the most far-reaching piece of financial reform legislation since the New Deal to show not how Congress works, but how it doesn’t, even when a result is attained.”
—Michael Tomasky, The New York Review of Books
“Riveting . . . Kaiser offers an insightful primer on how laws are made, from conception to passage, as well as the characters and culture of the U.S. Congress, observed from an astonishing perspective most citizens never see.”
“Certain to become a classic, this rich and beautifully crafted book tells the story of a rare moment of congressional success. Who would have thought such a thing possible?”
—Lawrence Lessig, professor at Harvard Law School
“One of the best books on the [legislative] process in a long time.”
“A crackling page-turner…Kaiser…delivers a clear understanding of the issues as well as the exhausting, exhilarating and often appalling political process. His extensive original reporting and deep research lend both richness and authority to the lively text.”
—The Plain Dealer
“Informative, incisive and timely, Act of Congress provides essential lessons in civics about how business is done in Washington, D.C.”
—The Boston Globe
“For those interested in the legislative process…[Act of Congress] is essential reading.”
“Instructive [and] colorful…a classic study of how Congress works. You don’t have to be a wonk to want to read on.”
—National Catholic Register
“An exceptionally informative, candid, evenhanded description of the congressional process.”
From the Hardcover edition.