By Edward Epstein and Alan K. Ota, CQ Staff

Conservative Republicans on Capitol Hill started feeling a range of sour emotions, from left out to downright betrayed, as federal officials from their own party started pumping cash — presumably taxpayer-provided cash — into the nation’s failing financial industry. And their mood has only turned darker now that they’ve learned they will be pressured to vote to allocate billions of dollars more to the rescue effort, in hopes of allowing the Bush administration to stave off a potentially global economic calamity.

They were not happy with the Federal Reserve’s $85 billion rescue of American International Group Inc. (AIG), the insurance giant, which came almost two weeks after the Treasury Department took over mortgage giants Fannie Mae and Freddie Mac. Now many of these conservatives are openly questioning the latest plan for a government buyout of hundreds of billions of dollars in illiquid mortgage securities. Congress plans to give rush consideration to the plan this week.

What’s especially galling and confusing to these Republicans is that these interventions have been undertaken by the supposedly free-market administration of President Bush, one of their own. Moreover, they say the administration has shut them out of the process while it works on a strategy for stabilizing credit markets with large sums of taxpayer dollars.

This year’s financial bailouts, including the decision in March to prop up Bear Stearns Cos., were led by two Bush appointees, Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke. The actions would seem to run counter to the Republican Party’s cherished belief in a rough-and-tumble free-enterprise system that rewards success and punishes bad, possibly ruinous, decisions. With an election just six weeks away, congressional Republicans don’t want to talk publicly about post-election deliberations, but privately they say that, win or lose on Nov. 4, the party has to have an internal debate about where it stands on government bailouts and the regulation of markets.

“The action proposed today by the Treasury Department will take away the free market and institute socialism in America,” Republican Sen. Jim Bunning of Kentucky said Sept. 19 as the administration worked on its mortgage industry bailout. “The American taxpayer has been misled throughout this economic crisis. The government on all fronts has failed the American people miserably.”

“House conservatives are here to say enough is enough. It’s time to bail out American taxpayers from bailout mania,” said Rep. Jeb Hensarling of Texas, head of the Republican Study Committee (RSC), a group of more than 100 conservative House lawmakers. “The short-term relief from these bailouts is not worth the long-term pain,” he warned before the giant mortgage-industry bailout was proposed.

The RSC sent Paulson and Bernanke a letter urging them not to undertake any more bailouts.

And Rep. Tom Feeney of Florida, another RSC member, said the bailouts have turned capitalism on its head. “We have privatized risk-taking and socialized on the backs of hard-working, rule-obeying taxpayers all the risk,” he said.

One of the top party leaders in the House, Republican Conference Chairman Adam H. Putnam of Florida, charged that the administration has been following an “ad hoc strategy” that it hasn’t explained to the public or even to lawmakers. “In the last several weeks there have been ample opportunities for them to share with Congress their strategy and their thinking,” he said.

Even House Minority Leader John A. Boehner of Ohio said he was troubled by the administration’s actions. “The situation at AIG raises concerns,” Boehner said. “It’s a very serious, sobering moment.” He also blasted the administration for keeping him and his caucus in the dark. GOP leaders canceled a meeting called for Sept. 18 to discuss the bailouts because the White House refused to send an administration official to talk to members. “I understand there are sensitive talks going on. But members have a responsibility to their constituents and taxpayers to have a better understanding,” Boehner said.

Pivotal Phone Call

Boehner changed his tone, though, after the administration held a 45-minute conference call with Republican members on Sept. 19 to start laying out plans for the mortgage bailout. Several RSC members expressed misgivings during the call over the huge cost of the bailout, House GOP aides said. But Boehner told them the issue was so pressing that ideological concerns would have to take a back seat.

Afterward, Boehner issued a statement that could be read as a warning to his fellow Republicans as well as to Democrats not to muddy the waters. “Congress and the administration must keep this plan as simple and straightforward as possible,” he said. “Loading it up to score political points or fit a partisan agenda will only delay the economic stability that families, seniors and small businesses deserve.”