Tanking Economy? How About Tanking McCain Campaign?

By SARAH N. LYNCH, Correspondent

Remember when the Twin Towers crumbled and President Bush sat there in a grade school classroom, engrossed in a copy of “My Pet Goat”? It didn’t instill much confidence that he could lead in a time of chaos.

Well, these past few weeks have been the equivalent of a financial 9/11, only this time, the companies on Wall Street did it to themselves. But this time around, the American people got the benefit of previewing how our presidential nominees might respond to such a gargantuan crisis.

So far, it appears McCain is batting zero for zero. And if Obama plays his hand right, he may just have a shot of drowning out the Palin-mania that has swept over conservatives across the country and win this election.

McCain has admitted before that economics are not his strong suit, which is problematic enough. He demonstrated that about two weeks ago when he called for the firing of Securities and Exchange Commission chairman Chris Cox, when in fact a president does not even have the power to fire an SEC chairman. He also made a huge gaffe by claiming the “fundamentals of the economy are strong” at a time when Wall Street’s largest banks were falling to their knees. He made matters worse later when he said he was referring to the American people, demonstrating that he doesn’t really know the definition of “fundamentals.”

If that seemed like a bad move, it only got worse when he pulled a John Kerry and “flip-flopped” his positions, both on the bailout of AIG and the dramatic change in his policy position, to suddenly call for more regulation of the financial industry.

But perhaps his biggest public relations nightmare may come from the people he has chosen to advise him on economic policy – one of the biggest bull’s-eyes on McCain’s back that Obama can shoot at if he wants to win this debate.

Most notably of course is Phil Gramm, a former senator and fellow “de-regulator.” He’s the one who made the big mistake of calling Americans a “nation of whiners” caught up in a mere “mental recession.”

Phil Gramm is the man behind much of the deregulation of the banking and over-the-counter derivatives industries. In particular comes to mind the Commodity Futures Modernization Act of 2000, a piece of legislation tucked into an appropriations bill that essentially carved much of the multitrillion dollar “swaps” industry outside the reach of any federal regulator.

That bill is perhaps most infamous for creating the “Enron loophole” that helped the company escape regulation. But it’s now becoming equally infamous for exempting many other types of derivatives including credit default swaps. Credit default swaps are essentially bond insurance that one company will issue for a premium to another company as protection in case a borrower can’t cough up the funds. These financial instruments are traded in secret, off regulated exchanges and outside the reach of the Securities and Exchange Commission or the Commodity Futures Trading Commission. Unlike regulated exchanges, they don’t have the backing of a centralized clearing house to protect companies from default.

Credit default swaps were behind the collapse of AIG, which issued these insurance-like instruments to protect against toxic mortgage-backed securities, but couldn’t pay up when many of those debts went bad. And now, the very man who de-regulated them could become the next treasury secretary if McCain has his way.

Yes, things didn’t seem like they could get worse for the McCain campaign on the economy in recent weeks as company after company continued to collapse. The possibilities for attack by the Obama campaign seemed endless.

And then, it did.

Catastrophes on Wall Street got worse, and Treasury Secretary Hank Paulson told Congressional leaders he needed them to give him the power to spend up to $700 billion to buy the illiquid assets that were poisoning Wall Street. He didn’t want the plan to have a shred of oversight, and both Democrats and Republicans cried foul.

In a very theatrical move, the former de-regulator announced he planned to suspend his campaign and flee to Washington where he hoped to help push through the passage of Henry Paulson’s unprecedented $700 billion bailout plan. He even threatened to boycott the debate for good measure.

But Murphy’s Law decided to follow him along for the ride.

He arrived right when a deal had been announced and sat in a meeting with President Bush where he offered few words. And then, after previously expressing cautious support for the plan, his own party turned sour and staged a coup.

Democrats pointed fingers at McCain, claiming he was to blame for the failure. He pushed back, telling reporters he was working the phones to get the plan back on track. (But he still showed up to the debate, and did not return to Capitol Hill).

After a long and tedious weekend, progress appeared to be made. Republican House leaders seemed more likely to support the plan. McCain’s chief Republican strategist Steve Schmidt even gave McCain credit on Meet the Press for saving the bailout by claiming he was critical to helping win more votes on the Republican side of the aisle.

Perhaps McCain was starting to turn things around. Maybe his connections to Phil Gramm would not seem so bad now. Perhaps suspending the campaign had done some good.

Then, the unthinkable happened. The bailout failed.

Its stunning defeat has made McCain appear the fool.

And the only person who could be more foolish than McCain right now is Obama, if he doesn’t take advantage of this opportunity to kill his opponent when he’s at his lowest point in this campaign.

Sarah N. Lynch can be reached at sarahnlynch@gmail.com.

It’s The Economy, Stupid

By EUGENE MULERO, Correspondent

What a difference $85 billion makes. American International Group, the insurance giant, just got a bailout from the U.S., less than 24 hours after Wall Street was, literally, collapsing. This economic breakdown, or meltdown, may have saved Obama, who has been pumping his populist shtick since last year. Maverick McCain, on the other hand, has said he didn’t understand the economy and his economic adviser, former Sen. Phil Gramm, is the genius who helped get us in this economic mess. Thanks, Phil.

Just a few days ago I was about to write a blog entry for Taking Back Politics explaining why Obama wasn’t going to defeat Maverick in November.

My reason was simple: Obama is black (contrary to what Mr. Matt Kennard thinks).

I’ve been all over this magnificent country, and I’ve met some hardcore racist individuals. In Tennessee, a hillbilly motorist with a sticker of the Confederate flag on his truck tried to run me off the road. In Arkansas, I heard two truck drivers mumble the “n” word when they saw African-American teens at a Travel America stop. And in Arizona – McCain’s home state – I met a girl in the town of Anthem, who wanted to quit high school because a lot of white kids called her ‘nigger’. After researching the problem, I discovered that almost every black kid in Arizona felt the same way.

So, if these white folks are calling black teens ‘niggers,’ why would they vote for Obama? That was my thinking.

But now that AIG took in some serious cash, the campaign has become about-the-economy-stupid.

During a conference call on Monday, Sebastian Mallaby, a senior fellow for international economics with the Council on Foreign Relations, told reporters he thinks voters will blame the Bush Administration for this financial crisis. On Tuesday, Steven Preston, Housing and Urban Development Secretary, called Mallaby’s assertion “totally absurd.”

Yet, Mallaby has a point because when stockholders lose massive amounts of cash (millions, that is) in the stock markets, or homeowners suffer because the housing market collapses, you can expect voters to seek out the candidate who a) was not responsible for their economic problems and b) appears to have the best recipe to help taxpayers.

Obama fits those criteria.

Eugene Mulero may be reached at Eugene.Mulero@gmail.com.