It's easy to see how a 21-year member of the U.S. Senate like John McCain, or even a Senate rookie, could regard Wall Street as a mysterious and distant planet. Indeed, on the evidence of the past few days, Senators McCain and Obama would appear to know more about Mars than they do about financial markets.
On Monday as these markets and the broader world tried to absorb the news about Lehman, Merrill Lynch and AIG, our two Presidential candidates spent the day trading punches over the meaning of the "fundamentals." After Senator McCain suggested that the "fundamentals of the economy are strong," Senator Obama mocked Mr. McCain's view of "the fundamentals."
We'll leave it to the debates to elicit just what each Senator regards as the "economic fundamentals" in a $13 trillion economy, but for our money the notable thing about the exchange was how fast John McCain let his opponent's sarcasm push him off message, such as it is.
One whiff from Barack Obama about "the mountain in Sedona where he lives," and by day's end Senator McCain was ranting about "corruption" and how he was going to "reform the way that Wall Street does business." Yesterday Senator McCain's inner populist had cooled enough to admit the existence of "honest people on Wall Street," but it still sounded as if this week's version of the McCain Presidency would be more about restructuring private financial markets he doesn't understand than fixing the Washington he knows.
Flip-flopping between assertions that the economy is fundamentally strong and populist promises to rip apart its financial plumbing creates confusion about what exactly Mr. McCain really thinks. His opponent, meanwhile, stayed on message, explaining Monday's events with the sort of dogged persistence reflected in the headline across the front page of yesterday's New York Times: "Wall St. in Worst Loss Since '01 Despite Reassurances by Bush."
Likening Monday's events to "the Great Depression," Senator Obama explained them by restating his campaign's core economic idea -- that what he calls the McCain-Bush "economic philosophy" is behind all these problems. His solution, laid out in detail in the Denver acceptance speech, is higher taxes on what he said Monday were "those with the most" and a return to the paternalist economic policies of the 1960s. In short, we become France, but with a higher corporate tax rate.
The problem with Senator McCain's blustery Wall Street broadsides is that they don't offer an explanation for what is happening.
How is it supposed to reassure people to hear Mr. McCain intone, as he did yesterday, the words "derivatives" and "credit default swaps" as if it's the first time he'd ever heard of them?Agree with it or not, Senator Obama is identifying a problem and a path toward solution. Mr. McCain needs his own narrative for how we arrived at this point. If he wants to run as the populist protector of the middle class, he has ample targets.
He could start with the perils of "easy money." The Federal Reserve's low interest-rate policies -- virtually free money -- created excesses in credit expansion that led to what all now call a credit bubble. That bubble has been bursting, from Main Street to Wall Street.
As well, it eroded the value of the "greenback," as Rudy Giuliani noted in his barn-burner convention speech. Every American knows something's gone wrong when the dollar's value drops way below currencies in Europe or Canada. True to his campaign theme, Senator McCain might ask since when has dollar "weakness" become an American virtue? Barack Obama won't do it, so Senator McCain has a chance to step forward and defend the purchasing power of middle-class budgets against inflation in the prices they pay every trip to the supermarket or gas station.
We'd also bet that most voters have a better understanding of the excesses that forced Washington to take over Fannie Mae and Freddie Mac than what happened to Lehman and AIG. Greed is a big subject, and Senator McCain should train his message on the variety he understands best, in Washington.
Finally, Senator McCain should bring his worthy tax-cut plan out of hiding, and if anything refine it for immediate impact with an across-the-board income tax reduction. He then should ask, since when, as Senator Obama's proposals suggest, have we been able to tax our way out of economic trouble? If the U.S. economy is teetering on the edge of a recession or downturn, how has it become bad economics to propose a broad-based tax cut to revive the economy?
Wall Street right now is passing through a searing dose of market discipline and correction for its mistakes. After Monday's 504-point plummet in the Dow Jones index, it gained back 141 points yesterday. Barack Obama thinks he can win by explaining all this in terms of the Bush "philosophy." Mr. McCain is going to need a better reply than agreeing with his opponent about "greed" and Wall Street.
http://online.wsj.com/article/SB122160943366545595.html
