The crisis on Wall Street will leave the next president facing tough choices about how best to regulate the financial system, and although neither Sen. Barack Obama nor Sen. John McCain has yet offered a detailed plan, their records and the principles they have set out so far suggest they could come at the issue in very different ways.
He has few footprints on economic issues in more than a quarter century in Congress. He has cited the need for additional oversight when it comes to specific situations, like the mortgage problems behind the current shocks, but he has consistently characterized himself as fundamentally a deregulator. He often takes his lead on financial issues from two advocates of free market approaches, former Sen. Phil Gramm and Alan Greenspan, the former Fed chairman. His closest adviser on Wall Street matters is John Thain, chief executive of Merrill Lynch. Unlike Gramm, Thain has a reputation as a pragmatic, nonideological Republican. That both men are McCain's touchstones is typical of his eclectic mix of advisers, making it hard to generalize about how he would act as president.
"I'm always for less regulation," he told the Wall Street Journal in March, "but I am aware of the view that there is a need for government oversight" in situations like the subprime lending crisis.
He set out his general approach to financial regulation in March, calling for regulating investment banks, mortgage brokers and hedge funds much as commercial banks are. And he would streamline the overlapping regulatory agencies and create a commission to monitor threats to the financial system and report to the White House and Congress. He does not have much of a track record on financial regulation. As a first-term senator, he hasn't been around for the major debates of recent years, and his eight years in the Illinois Senate afforded little opportunity to weigh in on the issues.
In March 2007, however, he warned of the coming housing crisis, and a year later in a speech in Manhattan he outlined six principles for overhauling financial regulation.
Obama and McCain have been major beneficiaries of financial contributions from Wall Street, according to the Center for Responsive Politics. The nonpartisan watchdog group calculates that Obama has received nearly $10-million and McCain close to $7-million from employees of securities and investment firms.
Both endorsed the Treasury Department's recent action to take control of mortgage loan giants Freddie Mac and Fannie Mae in an effort to prevent their collapse from dragging other banks down with them.
New York Times, Cox News Service