Monday, September 29, 2008

Obama and McCain Both Flunk Test of Leadership in Nation's Economic Crisis

In Their First Face-to-Face Debate, Both Candidates Repeatedly Ducked Question on Whether They Supported or Opposed Bush Administration's $700 Billion Wall Street Bailout Plan; House to Vote Monday on Compromise Plan That's an Alternative to White House Proposal That Sparked a Massive Taxpayer Revolt

Presidential debate moderator poses a question to Democratic ...

Presidential debate moderator Jim Lehrer of PBS (center) opens Friday night's presidential debate at the University of Mississippi in Oxford with a question to Democratic presidential candidate Barack Obama (left) and Republican presidential candidate John McCain on where they stood on President Bush's proposed $700 billion Wall Street bailout. Neither candidate would directly answer the question, despite Lehrer's repeated attempts to get them to do so. The Bush proposal triggered a massive taxpayer rebellion -- and prompted Congress to adopt an alternative to the president's plan early Sunday after marathon negotiations. (Pool Photo by Chip Somodevilla via AP)

(Posted 5:00 a.m. EDT Monday, September 29, 2008)


In the end, neither candidate scored a victory. In fact, both candidates badly flunked an opportunity to show real leadership in a real crisis.

Democrat Barack Obama and Republican John McCain clashed for more than 90 minutes Friday night in the first presidential debate at the University of Mississippi in Oxford, with each candidate displaying both their greatest strengths and their greatest weaknesses.

Obama put McCain on the defensive on the economy, while McCain put Obama on the defensive on foreign policy.

But neither candidate would answer the 700-billion-dollar question burning uppermost in the minds of most Americans: Where do they stand on President Bush's massive, taxpayer-financed bailout of Wall Street?

Debate moderator Jim Lehrer, host of PBS's "NewsHour," tried several times at the opening of the debate to get Obama and McCain to say whether they favored or opposed the president's bailout plan. But each time, both men refused to directly answer the question.


Meanwhile, lawmakers on on Capitol Hill -- under fierce pressure from angry taxpayers just weeks before the November 4 election -- reached agreement in the wee hours of Sunday morning on an alternative to Bush's proposal to buy bad debt from ailing banks in a bid to stem the worsening credit crisis that threatens to bring the U.S. economy crashing down on itself and take much of the global economy down with it.

The House is scheduled to vote on the alternative plan -- which was quickly endorsed by the White House -- on Monday, with the Senate scheduled to vote on Wednesday. With passage likely, the measure is on track to reach Bush's desk for his signature by Wednesday afternoon.

The alternative plan -- reached after marathon negotiations that stretched far into the night on Saturday -- will still cost taxpayers $700 billion, but the money would be disbursed in stages: $250 billion to be issued when the legislation is enacted and another $100 billion if the president -- either Bush or his successor -- decided it was needed.

The remaining $350 billion would be subject to congressional review, according to a statement issued by House Speaker Pelosi's office early on Sunday morning.

Under the alternative plan, institutions selling assets under the plan would issue stock warrants giving "taxpayers an ownership stake and profit-making opportunities with participating companies," Pelosi's statement said. The plan also would let the government buy troubled assets from pension plans, local governments and small banks.

However, the compromise plan still faces fierce opposition by a group of about 40 conservative House Republicans who remain adamantly opposed on ideological grounds to any taxpayer money going to bail out Wall Street. House Republicans said Sunday afternoon they were still reviewing the plan.

While resistant House Republican leaders have agreed to it, many rank-and-file members still were balking and and are likely to vote against the plan on Monday. "We are not ready to say that a deal is done," said Representative Eric Cantor (R-Virginia).

But in a key concession to House Republicans, Democrats agreed to allow the government to insure some bad home loans rather than buy them outright -- a move designed to limit the amount of taxpayer money used in the rescue.


In response to an overwhelming demand by taxpayers for strict limits on executive pay, no CEOs at participating companies could get multi-million-dollar severance pay -- known as golden parachutes -- while CEO pay that encourages excessive risk-taking would be strictly limited.

An oversight board of top officials, including Federal Reserve Chairman Ben Bernanke, would supervise the program, while its management also would be under close scrutiny by Congress' investigative arm and an independent inspector general.

The program also calls for "meaningful judicial review of the Treasury secretary's actions," the statement said.

Finally, the government could use its power as the owner of mortgages and mortgage-backed securities to help more struggling homeowners modify the terms of their home loans.

There was no immediate comment early Sunday morning from either Obama or McCain, although both candidates were kept informed on the progress of the negotiations. But later, on the Sunday TV talk shows, both candidates cautiously endorsed the compromise -- although the McCain campaign shamelessly claimed credit for it.

Top McCain strategist Steve Schmidt claimed that McCain was partly responsible for the tentative agreement -- in spite of the fact that the GOP nominee said almost nothing during a contentious meeting with Bush and congressional leaders at the White House on Thursday.

Schmidt, appearing on NBC’s "Meet the Press" with chief Obama strategist David Axelrod, was quickly ridiculed by Axelrod for telling "a little bit of fiction."

Obama, asked on CBS’s "Face the Nation" if McCain deserved credit for bringing lawmakers together, replied "No," according to the Associated Press.

McCain himself contradicted his own strategist, saying on ABC’s "This Week" that congressional negotiators deserve "great credit" for the bipartisan deal. "It wasn’t because of me," McCain said. "They did it themselves."

Both candidates warned that regardless of what precipitated the crisis, failing to act to solve it was no longer an option.


Both Obama and McCain refused to say during Friday night's debate how they would be forced to adjust their fiscal priorities as president once the revised bailout -- which will cost taxpayers $250 billion more than next year's entire defense budget -- is finalized by Congress and signed into law by Bush.

Would McCain postpone his promised tax cuts? He wouldn't answer that question. Would Obama curtail his pledge to increase funding for domestic programs? He wouldn't say, either.

When Lehrer pressed McCain on how he would deal with the economic crisis if he were president now, the Arizona senator turned the subject toward his insistence on curbing government spending, particularly some $18 billion on what he called "pork-barrel" projects.

"The first thing we have to do is get spending under control in Washington. It’s completely out of control," he said, before lacing into Obama for requesting $932 million in earmarks for his home state of Illinois. "That kind of thing is not the way to rein in runaway spending in Washington, D.C.," he said "That’s one of the fundamental differences that Senator Obama and I have."

Obama shot back by attacking McCain’s call for more tax cuts for the wealthy. "Let’s be clear: earmarks account for $18 billion in last year’s budget. Senator McCain is proposing — and this is a fundamental difference between us — $300 billion in tax cuts to some of the wealthiest corporations and individuals in the country, $300 billion. Now, $18 billion is important; $300 billion is really important."

Yet Obama also refused to say whether he favored or opposed the Bush administration's $700 billion bailout plan for Wall Street, saying only that he was "optimistic" that Congress will reach an agreement on a compromise plan in the coming days.


For McCain, the mounting taxpayer outrage over the bailout's $700 billion price tag gave him a golden opportunity to once and for all prove his reputation as a "maverick" by openly breaking from Bush -- and at the same time shoring up his conservative credentials by joining the House Republicans in their fierce opposition to the plan.

McCain had that opportunity to do so during the summit meeting between the administration and congressional leaders at the White House on Wednesday. But instead, he remained silent.

For Obama, the backlash against the bailout gave him a golden opportunity to clearly demonstrate that he was on the side of the middle class by coming out foursquare against the Bush administration's idea of the government relieving Wall Street firms of billions of dollars in bad debts with anywhere from $700 billion to $1 trillion of the taxpayers' money -- without any safeguards for taxpayers, help for struggling homeowners or any congressional or judicial oversight.

(That lack of any oversight, in this blogger's opinion, would be an unconstitutional breach of the separation of powers between the executive, legislative and judicial branches of government, as Article I of the Constitution gives Congress exclusive authority to control the federal purse and Article III gives the judiciary the power to settle disputes between the other two branches).

Obama, who also attended the White House summit, could have raised his objections to the bailout on precisely those grounds. But he, too, remained silent.


But that didn't stop Obama and McCain from tearing into each other over the economy. "We also have to recognize that this is a final verdict on eight years of failed economic policies promoted by George Bush -- supported by Senator McCain -- the theory that basically says that we can shred regulations and consumer protections and give more and more to the most and somehow prosperity will trickle down," Obama said.

But rather than address the bailout question, McCain tore into Obama over budget earmarks, spending much of the first 20 minutes of the debate going after Obama for supporting the long-standing practice of congressional funding for special projects sought by members for their home states.

"The United States Senate will take up a continuing resolution tomorrow or the next day — sometime next week — with 2,000 [earmarks] — 2,000 — look at them, my friends," McCain said. "Look at ’em. You’ll be appalled. And Senator Obama is a recent convert [against earmarks], after requesting $932 million worth of pork-barrel spending projects."


While the two major presidential nominees clashed repeatedly on the Iraq War and on foreign policy -- which was what the debate was originally scheduled to focus on -- the economy was clearly on the minds of most Americans, as the crisis gripping Wall Street and the proposed bailout dominated the headlines for more than a week.

The refusal by either candidate to directly address the bailout was -- to say the least -- a disappointment.

But Obama and McCain are inevitably going to have to take a firm stand on the bailout -- one way or the other -- for Bush's bailout plan has triggered a massive nationwide outpouring of taxpayer outrage of a magnitude never before seen in modern American history.

Every member of Congress has been besieged with literally hundreds of thousands of e-mails, letters, faxes and telephone calls from their constituents outraged by the thought of 700 billion of their hard-earned tax dollars going to bail out the very Wall Street firms whose unbridled greed led to the financial crisis that the country finds itself in.

That outrage -- coming just five weeks before the November 4 election -- prompted a group of conservative House Republicans to balk at approving the bailout in a contentious meeting at the White House.

It's an outrage that has crossed ideological and party lines. Suddenly, liberals, moderates and conservatives; Democrats, Republicans and independents alike have something in common: Deep anger over the idea of hundreds of billions of dollars of taxpayer money ending up in the coffers of Wall Street.

Loud, boisterous protests erupted in cities and towns all across the nation -- mainly by liberal-leaning college students and blue-collar workers -- against the bailout. At the same time, however, the switchboards of conservative talk radio shows have been lit up with angry telephone calls by listeners infuriated by the Bush administration's bailout plan.

And online message boards across the political spectrum have been flooded with so many anti-bailout missives that numerous boards crashed from the sheer volume of messages.


That the Bush administration's Wall Street bailout plan has triggered such overwhelming public outrage, albeit for different reasons, by Republicans and Democrats, liberals and conservatives alike is revealing of just how deeply isolated Bush is from the American people -- including his own Republican Party -- in the final months of his presidency.

Not since Richard Nixon -- who resigned from the presidency in disgrace in 1974 because of the Watergate scandal -- has America had a president who has fallen into such a deep "black hole" of disrepute.

That Capitol Hill Republicans told the president in no uncertain terms Thursday that his Wall Street bailout plan was anathema to deeply-held conservative Republican principles -- Even Senator Jim Bunning (R-Kentucky) publicly branded it "socialism" -- marked a rebellion by members of a sitting Republican president's own party much more fierce than that against Bush's ill-fated immigration reform plan.

At least one House Republican reportedly told Bush to his face, "Look, Mr. President, you don't have to face the voters again; we [membrs of Congress] do!" according to sources -- a pointed reminder to Bush of the immense pressure that members of Congress are being subjected to by their constituents to defeat the bailout, under threat of being voted out of office on November 4 if they don't.


Bush has exerted strong pressure on Congress -- including a nationally televised address on Wednesday night -- for swift passage of the $700 billion measure. But the president's strategy backfired, triggering instead the most massive taxpayer revolt in memory, far exceeding that which gripped California 30 years ago and led to voter passage of the state's tax-cutting Proposition 13.

What really caught the White House off-guard was an open rebellion against the Wall Street bailout plan on conservative talk radio, with talk-show hosts and callers alike denouncing the plan as an egregious betrayal of conservative free-market principles that are the bedrock of the Republican Party.

Rush Limbaugh, host of the nation's most popular conservative radio talk show, ripped into the bailout plan, noting that even liberal Democrats -- whom he regularly blasts with relish -- are uncomfortable with it.

"If this [plan] was so good, they [Democrats] should pass it. They should brag about it. They should take credit for it. But [even] the Democrats understand that this bill is dirty," said Limbaugh.

The Wall Street bailout plan puts conservatives "in a bind," according to Alan Abramowitz, a professor of political science at Emory University in Atlanta. That it was proposed by a conservative Republican president -- who, by his own admission, would prefer the free market to sort itself out -- make the bailout even more distasteful.

"Either they [Republicans] swallow it -- violating free-market principles they hold dear -- or they oppose it and risk seeing confidence in the free-market system evaporate," Abramowitz told the Associated Press. "This is an ideological problem. If you are conservative and you believe in small government and the free market, [then] if you fail, that's your problem. That's the way the market is supposed to work."


Truth be told, the Republicans planted the seeds for our current financial crisis in 1999, when the then-GOP-controlled Congress -- with the blessing of Democratic President Bill Clinton -- repealed the Glass-Steagall Act of 1933, a Drpression-era law that prohibited banks from owning other financial institutions, such as brokerage houses, insurance companies and mortgage lenders -- and vice-versa.

The practical effect of Glass-Steagall was to throw up a strict wall of separation between commercial Main Street banks -- which deal directly with the public -- and the Wall Street securities firms and investment banks, which are a world onto themselves.

It was the previous unchecked intermingling of Wall Street and Main Street into each other's business that contributed to the stock market crash of 1929 that plunged the world into the Great Depression.

The repeal of Glass-Steagall, which, in hindsight, Clinton should have vetoed -- combined with the total lack of regulatory enforcement by both the Clinton and Bush administrations -- paved the way for the financial firms, gripped by uncontrolled greed, to engage in the highly risky investment schemes, including sub-prime mortgages, that lie at the heart of the ongoing crisis.


In a showing of how deeply unpopular Bush's bailout plan was, a new Associated Press poll released Saturday found that only 30 percent of Americans supported it. Forty-five percent were opposed, while the remaining 25 percent were undecided. The survey, conducted Thursday by Knowledge Networks for the AP, had a margin of error or plus or minus 3.8 percentage points.

A similar Gallup poll released Friday showed that while a solid majority of Americans want Congress to do something to resolve the financial crisis, only 22 percent supported the Bush plan, while 56 percent favored an alternative. Eleven percent opposed any action while the remaining 11 percent were undecided. The Gallup poll was conducted on Wednesday and had a margin of error of plus or minus three percentage points.


There is little doubt that the alternative bailout plan reached by Congress is a vast improvement over the Bush administration's proposal. But in the opinion of this blogger, it doesn't go far enough. It still leaves in place the previous Republican-controlled Congress' repeal of the Glass-Steagall Act.

That Depression-era law was passed precisely to prevent the very practices that have led to the current crisis.

Keeping Wall Street and Main Street separate from each other is absolutely vital to preventing a repeat of this crisis. The bailout plan, therefore, will work in the long run only if it includes the full restoration of the Glass-Steagall Act.

Otherwise, Congress will only be sowing the seeds for yet another economic crisis in the future.

(Additional reporting for this article provided by Reuters and The New York Times.)

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Volume III, Number 59
Copyright 2008, Skeeter Sanders. All rights reserved.