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Duel on the Economy

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  • | 6:00 p.m. September 18, 2008
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Duel on the Economy

McCain calls Wall Street reckless while Obama attacks McCain.

POLITICS by Kim Chipman and Hans Nichols / Bloomberg News Service

Republican presidential nominee John McCain lashed out at "reckless'' investments by Wall Street as his Democratic rival, Barack Obama, tied the crisis in U.S. financial markets to policies McCain supports.

McCain struck a strongly populist tone, blaming greed and corruption for putting American workers and the economy at risk.

"Too many people on Wall Street have been recklessly wagering instead of making the sound investments we expected of them,'' McCain told a crowd today in Tampa, Florida. "If I am president, we are not going to tolerate that anymore.''

In Golden, Colorado, Obama said McCain's "newfound support for regulation'' belied a record of backing deregulation and support for the economic philosophy of President George W. Bush's administration.

"Make no mistake: My opponent is running for four more years of policies that will throw the economy further out of balance,'' Obama said.

Market turmoil is taking center stage in the campaign as American International Group Inc., the biggest U.S. insurer by assets, is seeking capital to stay afloat and U.S. banks stumble. Lehman Brothers Holdings Inc. filed for Chapter 11 bankruptcy protection and Bank of America Corp., the biggest U.S. consumer bank, agreed to take over Merrill Lynch & Co.

Campaign Themes

Both candidates are using the financial woes to play up their campaign themes. McCain stresses his "maverick'' tag and says that he will take on the establishment; Obama says he is the agent of change and paints McCain, who has spent 26 years in Washington, as part of the status quo.

While McCain focused his attention on Wall Street traders and corporate officers, Obama but the blame on lax regulation and spent much of his speech tying McCain to the crisis. A day after McCain promised to "clean up Wall Street'' and "replace the outdated, patchwork quilt of regulatory oversight,'' Obama referred to a March Wall Street Journal interview in which McCain said, "I'm always for less regulation.''

The Illinois senator again criticized McCain for saying yesterday that "the fundamentals of our economy are strong'' as Lehman Brothers failed and stocks plummeted. Obama also noted that he started calling for stiffer rules more than a year ago.

'The Difference'

"If you want to understand the difference between how Senator McCain and I would govern as president, you can start by taking a look at how we've responded to this crisis,'' Obama, 47, said. "Because Senator McCain's approach was the same as the Bush administration's -- support ideological policies that made the crisis more likely, do nothing as the crisis hits and then scramble as the whole thing collapses.''

McCain hit back at a rally in Vienna, Ohio, pointing out that Obama ranked second among members of Congress in donations from employees of Fannie Mae and Freddie Mac, the mortgage companies placed into federal conservatorship on Sept. 7. He also reminded the audience that Obama originally put former Fannie Mae Chairman James Johnson in charge of his vice presidential candidate search.

"That's not change, that's what's broken in Washington,'' said McCain, an Arizona senator, said at the afternoon rally.

'Clear Responsibility'

This morning in Florida, McCain, 72, said that the government has "a clear responsibility'' to make sure consumers are protected and that rules are enforced.

"Too many firms on Wall Street have been able to count on casual oversight by regulatory agencies and government,'' he said. The multiple regulators of financial markets and institutions "haven't been doing their jobs.''

Earlier today, McCain called for creation of a commission to study the crisis in U.S. financial markets like the one that investigated the Sept. 11 attacks.

"We need to set up a 9/11 Commission in order to get to the bottom of this and get it fixed and act to clean up this corruption,'' McCain said on CBS's "Early Show.''

Investors and government officials are worried that the market turmoil will further crimp credit-market liquidity and slow an already sluggish economy.

Today, the focus turned to AIG amid news that the Federal Reserve is considering extending a loan package to the insurer to help it face a cash shortage. The stance by federal regulators is a reversal from their position last night, a person familiar with the negotiations said.

No Bailout

In interviews with television stations this morning, McCain said the government shouldn't rescue AIG. Obama has also voiced concerns about bailouts, telling Bloomberg Television yesterday that companies shouldn't expect taxpayers to "foot the bill.''

"The idea that taxpayers can continue to be on the hook for failures at firm after firm after firm I think is a real problem,'' Obama said in the Bloomberg interview.

Obama said any new regulatory system must be significantly more transparent. Just as after the stock market crash of 1929 banks had to maintain certain capital requirements in exchange for government support, some of today's non-traditional banks must have the same kind of accountability, he said.

Obama reacted cautiously when asked about a suggestion from House Financial Services Committee Chairman Barney Frank that the government consider creating an agency to buy distressed debt and mortgages as the Resolution Trust Corp. did during the savings and loan crisis almost two decades ago. The candidate said it is too soon to settle on a specific prescription.


"It's a little premature for us to move forward on that, and frankly something like that probably could not get through Congress until we have a new Congress and new president,'' he said.

Obama also called for closer scrutiny of credit-ratings companies. The government should "examine'' whether shortcomings in the debt rating industry made some investments look less risky than they were, he said.

A U.S. Securities and Exchange Commission investigation into credit-rating companies -- including Standard & Poor's, the largest ratings agency, and Moody's Corp., the second biggest -- found in July that the firms improperly managed conflicts of interest and violated internal procedures in granting top rankings to mortgage bonds.

Standard & Poor's spokesman Ed Sweeney declined to comment; a Moody's spokesman didn't respond to a request for comment.


Separately, the National Organization for Women endorsed Obama for president. The group previously had backed his rival for the Democratic nomination, New York Senator Hillary Clinton.

Obama will be in California tonight, attending two fundraisers in Beverly Hills. Singer Barbra Streisand will perform at a $2,500-a-head event; Obama will also attend a reception and dinner for guests who contributed $28,500 each.

McCain attended a fundraiser in Miami last night, raking in $5.1 million for the Republican Party. The party's donations increased after McCain chose Alaska Governor Sarah Palin as his running mate on Aug. 29.

The crowd in Vienna, Ohio, was overflowing today as both Palin and McCain spoke. "It's going to take a man of action and a proven reformer to clean up Wall Street and that man is Senator John McCain,'' Palin said.

Palin, 44, will be sitting for her second media interview tomorrow, this one with the Fox News Channel.

The interview, originally scheduled for today, was moved back when Palin canceled a planned trip to Cincinnati because of storm damage resulting from Hurricane Ike.


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