Amid news of the bankruptcy of Lehman Brothers and turmoil in the financial markets, Republican presidential nominee John McCain and his Democratic rival, Barack Obama, both say Wall Street's problems reflect a failure in Washington. And both promise to overhaul the rules governing financial markets.
Campaigning Monday in Colorado, Obama called the current crop of economic problems another example of Main Street financial woes trickling up.
For years, Wall Street eagerly financed high-risk mortgages, helping to inflate the nation's housing bubble. Now the bubble has popped. Many Americans can't repay their risky home loans — and Wall Street firms are stuck with gum all over their faces.
"Today offers more evidence, Colorado, that too many folks in Washington and on Wall Street weren't minding the store," Obama said. "For eight years we've had policies that have shredded consumer protections, loosened oversight and regulation and encouraged outsized bonuses to CEOs while ignoring middle-class Americans."
Obama says he doesn't blame McCain for these problems, but he does blame the economic philosophy that he says McCain subscribes to.
"It's the same philosophy we've had for the last eight years — one that says we should give more and more to those with the most and hope that prosperity trickles down to everyone else," Obama said.
Obama's comments today echoed remarks he made in March at New York's Cooper Union, where he criticized the banking deregulation of the late 1990s. Instead of a necessary updating of banking rules, Obama said, the government had adopted a "winner-take-all, anything-goes environment that helped foster devastating dislocations in our economy."
One of the leading architects of that deregulation effort was McCain's former campaign co-chairman, Phil Gramm. As a Texas senator, Gramm helped write the law that relaxed the nation's banking rules.
Then, after leaving the Senate, Gramm became an executive and lobbyist for the Swiss banking giant UBS — at a time when banks were fighting to loosen rules against predatory lending. Obama says that reliance on an unfettered free market is dangerous.
"It's a philosophy that says even common-sense regulations are unnecessary and unwise, and one that says we should just stick our heads in the sand and ignore economic problems until they spiral into crises," Obama said.
Gramm has been one of McCain's key economic advisers, but he officially left the campaign this summer after making the impolitic comments that America was "a nation of whiners" and that the country was merely suffering from a "mental recession."
McCain himself initially seemed to downplay the severity of the economic slowdown Monday during a campaign appearance in Florida.
"Our economy, I think still, the fundamentals of our economy are strong, but these are very, very difficult times," McCain said.
McCain's observation about strong fundamentals drew immediate fire from the Obama campaign. Later in the afternoon, McCain was singing a different tune.
"I know Americans are hurting now. The fundamentals of our economy are at risk," McCain said.
It's awkward for a Republican candidate to make that kind of charge during a Republican administration. But here again, McCain is hoping that he and his running mate will be seen as reformers — despite voting with President Bush nine times out of 10.
"The McCain-Palin administration will replace the outdated patchwork quilt of regulatory oversight and bring transparency and accountability to Wall Street," McCain said. "We will bring transparency and accountability, and we will reform the regulatory bodies of government."
McCain offered no details of what that overhaul would look like. But a spokesman said this is a time to update rules, not relax them, suggesting a break with Gramm.
McCain also said in a written statement that he is glad the federal government isn't putting taxpayer money at risk to bail out Lehman Brothers.
Although McCain endorsed the government's rescue of Fannie Mae and Freddie Mac last week as necessary to prevent a financial breakdown, neither he nor the Bush administration sees Lehman's collapse as posing the same kind of systemic risk.