Commentary by Albert R. Hunt
Sept. 22 (Bloomberg) -- For the first time since 1932 a presidential election is taking place in the midst of a genuine financial crisis. The reaction of the candidates was revealing.
John McCain, railing against the ``greed and corruption'' of Wall Street, won the first round of the sound-bite war. He came out with a television commercial on the ``crisis'' early on Monday of last week, and over the next three days gave more than a dozen broadcast interviews. He and running mate Sarah Palin would reform Wall Street and regulate the nefarious fat cats that caused this fiasco.
It was a great start. It then went downhill as he stumbled over his record of championing deregulation, claimed the economy was fundamentally strong, and flip-flopped over the government takeover of American International Group Inc.
For his part, Barack Obama didn't come across as passionately outraged and wasn't as omnipresent or as specific.
More revealing, though, was to whom both candidates turned on that panic-ridden morning of Sept. 15, and how the messages evolved before and after that day.
McCain called Martin Feldstein, the well-known Republican economist and Reagan administration adviser, John Taylor of Stanford University, who served in President George W. Bush's Treasury and Carly Fiorina, once the chief executive officer of Hewlett-Packard Co.
Obama called former Federal Reserve Chairman Paul Volcker, and former Treasury Secretaries Robert Rubin and Larry Summers.
It was a mismatch.
Towering Volcker
Feldstein, for all his intellect, was ineffective in the Reagan administration; then-White House deputy chief of staffDick Darman cut him out of important action. Volcker, first at the Treasury and then as chairman of the Federal Reserve, was a towering figure in every way.
Taylor is a well-regarded academic. In four years as undersecretary of the Treasury, he left few footprints. Summers, as both deputy secretary and secretary, left a lot.
Fiorina is smart and quick; to put it charitably, Rubin will forget more about financial markets than she'll ever know.
When it comes to governance, and either Democrat Obama or Republican McCain will inherit this miserable financial mess, the best guide is who they talked to, what they said, where they've been, and how knowledgeable they are.
Obama's record and earlier speeches belie some of his more populist rhetoric. Yet they also suggest, as do his advisers, a much more activist government role than is likely under a McCain-Palin administration.
Comfortable With Subject
Obama called for the overhaul of the financial-regulatory system and tougher enforcement well before this past week's traumas.
Detached observers who watched him last week, especially in a Bloomberg Television interview, were taken by how conversant and comfortable he was on the subject, despite his thin record. Few detached observers came away with that impression watching the Arizona senator.
Much of the re-regulatory fever focuses on the Federal Reserve and any new agencies created to clean up the fiasco. Central, however, will be a more vigorous Securities and Exchange Commission, or whatever holds that investor-protection function.
McCain displayed a sudden interest in the SEC last week when he demanded that Chairman Chris Cox be fired. When his campaign was asked if the senator had ever criticized the current commission's performance before, they failed to respond.
All For Obama
Tellingly, three former SEC chairmen, a Democrat, Arthur Levitt, and two Republicans, David Ruder and Bill Donaldson, have endorsed Obama. Levitt is a board member of Bloomberg LP, the parent company of Bloomberg News.
Donaldson, who was tapped by Bush to head the SEC, says Obama called him last year about the financial-regulatory problems. He has never heard from McCain.
``Obama has been talking about the need for better financial regulation well before this crisis hit and has done some real thinking about it,'' says Donaldson, a lifelong Republican. ``McCain comes across as someone who suddenly realized changes have to be made.''
There is a case for McCain: it's if you believe in less regulation, that the government should get out of the way and let the markets work their will.
No `Real Understanding'
``I don't think anyone who wants to increase the burden of government regulation and high taxes has any real understanding of economics,'' McCain said this spring at an Inez, Kentucky, town hall meeting, where he also declared ``the fundamentals of our economy are good.''
Until recently, he repeatedly invoked Ronald Reagan's calls for less regulation. He voted for the 2002 Sarbanes-Oxley corporate-governance regulations -- then last year said he regretted that vote.
McCain isn't averse to some regulations. He has strongly championed a greater federal role in campaign finance, tobacco and boxing. In each case, he saw a clear villain -- special- interest money, a tobacco product that puts profits ahead of lives, and unscrupulous boxing promoters.
There has been little evidence that prior to last week he ever put financial firms in this category. Although he assailed excessive corporate compensation last week, McCain has opposed a tepid House-passed bill that would give corporate shareholders the right to cast a non-binding vote on compensation of top executives.
Turning to Gramm
The person he has turned to most for counsel on such matters is his ex-Senate colleague Phil Gramm. Gramm is a political Gordon Gekko, a brainy economist with a Darwinian view of markets and public policy.
It's not easy to remember what the financial world looked like 10 days ago much less 10 months ago. Decisions that will be reached after this election will be the most important since the 1930s.
Obama, as more than a few Democrats are complaining, hasn't been as quick, sharp -- or demagogic -- as they would like. McCain has been beset by deeper difficulties: an inchoate and inconsistent message that seems to reflect political exigencies more than principled convictions.
On the financial crisis, last week belonged to Obama.
(Albert R. Hunt is the executive editor for Washington at Bloomberg News. The opinions expressed are his own.)
To contact the writer of this column: Albert R. Hunt in Washington at ahunt1@bloomberg.net
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