Wall Street’s breakdown and bailout are likely to improve Barack Obama’s odds of reaching the White House – a point not lost on John McCain, whose stumbles this week seemed to lend credence to the view that economics aren’t his strong suit.
He said the fundamentals of the economy were “strong,” then he said the economy was “in crisis.”
He called for a 9/11 Commission-style investigation into the financial crisis, then never brought it up again.
He said he opposed the $85 billion bailout of insurance giant AIG, then he said he supported it.
He said SEC Chairman Chris Cox had “betrayed the public’s trust” and should be fired, then called him a “good man” who only had to resign to be held accountable as the head of the commission.
And McCain’s campaign blasted Obama for not taking a firm stance on the AIG rescue, but McCain himself has declined to take a definitive position on the Bush administration’s $500 billion to $1 trillion plan to buy up the bad debt of other financial institutions.
McCain aides, recognizing the political difficulties of the moment, are trying to turn the debate over an economic crisis into a fight over Obama’s character and leadership. In a blistering speech in Green Bay, Wisc., Friday, McCain tried to put the blame for the financial meltdown on Obama and resurrect a larger debate over taxes and the candidates’ competing economic plans.
Obama, by contrast, has sought to play the steady, if cautious, statesman — studiously avoiding a position on the AIG bailout, aligning himself with economic advisers such as former Clinton Treasury Secretary and economic soother Robert Rubin, and talking about the need to put politics aside and address the problem at hand in a fashion his advisers hoped seemed presidential.
“Today,” Obama said in Coral Gables, Fla., “I fully support the efforts of Secretary Paulson and Federal Reserve Chairman Bernanke to work in a bipartisan spirit with Congress to find a solution of this sort.”
Obama remained above the political fray Friday – at least until McCain attacked, at which point Obama returned fire by mocking his rival for being “panicked.”
The candidates’ differing reactions to the unfolding economic story illustrate the way the campaigns see their standing. As Americans turn their focus to their wallets and retirement accounts, the Obama camp knows that lipstick, pigs and even Sarah Palin herself have disappeared from the spotlight. The McCain camp, by contrast, feels an urgent need to broaden the contours of the battle beyond economics and a referendum on the status quo.
“This is not about the economy, this is about a crisis,” Sen. Lindsey Graham (R-SC), one of McCain’s closest friends, said Friday. “And John McCain has shown a willingness to get his hands dirty to take on corruption. Barack Obama hasn't found any corruption to fight, even in Chicago."
Observers say McCain has his work cut out for him – and that an already tough year for the GOP likely just got tougher.
“The critical event was McCain’s unfortunate comment that the economy is sound,” says Charlie Cook of the nonpartisan Cook Political Report. “He’s been really slow to pick up on what’s been going on. He stumbled knee-deep into a pile, and it’s going to be hard for him to get out. . . . This has been the biggest faux pas committed by either of them all year.”
“The problem that Sen. McCain has got at this moment is that this is a big government intervention in the financial markets, and guess what? : At the moment, it’s working,” says former Nebraska Sen. Bob Kerrey, an Obama supporter. “His fundamental argument all along has been to keep the government out of it. But if the government hadn’t intervened, this thng could easily have spiraled out of control.”
That’s the bad news for McCain. The bad news for Obama: The economic crisis could help propel him to the presidency, but if the federal government spends $1 trillion or even $500 billion bailing out financial companies, it won’t have much left over for the plans he hopes to pursue come January.
Obama’s ambitious domestic agenda, larded with $65 billion-a-year health care reform and $15 billion green jobs program, will almost certainly be cut back in the face of a deficit swollen by hundreds of billions in bailouts. And he will face increased scrutiny over the next 47 days over whether he can accomplish his agenda – along with a major middle-class tax cut – in the current environment.
“President Obama’s going to have to stand before a Democratic Congress and say, ‘Some of the things that you and I as Democrats want to get done, we’re not going to be able to,’” Kerrey said.
Michael Ettlinger, an economist with the left-leaning Center for American Progress, says the downturn is a double-edged sword. It creates a “greater demand for Obama’s program,” but it also means that Obama’s proposals would “have to be delayed or rolled out over a longer period of time.”
According to a New York Times/CBS poll released this week, 62 percent of voters who think the economy is getting worse back Obama, while only 29 percent support McCain. By contrast, 63 percent of voters who think the economy is staying the same back McCain, and 29 percent support Obama.
With the market on a roller-coaster, major financial institutions failing, and the federal government having to step in to prevent a fiscal disaster of Depression-era proportions, such inverted numbers as seen in the Times poll could prove fatal to McCain’s hopes.
With his speech Friday morning in Green Bay, however, aides believe McCain has found the right posture and frame of attack.
First, they want voters to know McCain recognizes the problem and is committed to ensuring it doesn’t happen again – thus, the proposal from McCain today to create a Mortgage and Financial Institutions Trust within the Treasury Department to intervene should future companies teeter and threaten shareholders and other investors.
Second, they want to shift the focus of the economic debate on to Obama and away from either McCain’s stumbles or Bush’s record.
“We’re identifying the housing system as the fundamental flaw that led to this, Fannie and Freddie as the bad actors, and pointing out that Obama has all these ties to these guys,” said Matt McDonald, a senior McCain adviser.
Indeed, McCain all but laid the problem of Fannie and Freddie at the feet of Obama in his Green Bay speech, noting the Democrat’s fundraising from the two companies and his ties to two former Fannie CEOs to accuse him of “gaming the system.”
“We've heard a lot of words from Sen. Obama over the course of this campaign,” McCain said. “But maybe just this once he could spare us the lectures, and admit to his own poor judgment in contributing to these problems. The crisis on Wall Street started in the Washington culture of lobbying and influence peddling, and he was square in the middle of it.”
McCain has his own ties to Fannie and Freddie, namely a handful of top aides who once lobbied for or worked at firms that lobbied for the mortgage entities.
But the imperative to muddy Obama as part of the problem trumps any concerns about backlash. Anything to make the crisis a Beltway problem instead of just a Bush problem.
And after pinning blame on Obama, McCain’s camp wants to move the debate off the current crisis and force a conversation about larger issues relating to the economy -- and also the two candidates.
“We have to draw attention to the choice,” said McDonld.
Ultimately, the McCain campaign would like to broaden the campaign even further: Get away from the pure issue dynamic – which overwhelmingly favors the Democrats – and make voters think instead about character and judgment.
“McCain is somebody who you trust to take care of business and Obama is not that guy,” McDonald said, summarizing the case to be made.
Graham, similarly, predicted the crisis would accrue to the benefit of the more experienced candidate: "Americans are going to look for a steady hand now on the domestic side and in their commander-in-chief.”
McCain put it even more bluntly at a rally Thursday night in Green Bay, directly raising the issue of trust.
“A vote for Sen. Obama will leave this country at risk during one of the most severe challenges to America’s economy since the Great Depression, and that’s straight talk, my friends.”
Ben Smith contributed to this report.