The $700 Billion Bailout: A Public-Choice Interpretation

Abstract

On September 29, 2008, the House of Representatives voted to reject HR 3997 (known as the original $700 Billion Bailout Bill). On October 3, the House reversed course and voted to approve the Emergency Economic Stabilization Act of 2008 (EESA). This paper applies a political voting model to these two House votes - the rejection of the bill on September 29 and its passage on October 3. Both economic conditions and PAC contributions matter in explaining the two votes, but their effect is attenuated by legislator's power. PAC contributions from the American Bankers Association appear to matter for explaining the legislators who switched. The role of ideology in explaining either the September 29 or October 3 vote is limited.

Keywords: Bailout Bill, voting model, power rankings, Emergency Economic Stabilization Act, big banks, PAC, event study

JEL Classification: D72, E44, G14