Bouncing from crisis to crisis, Treasury Secretary Henry Paulson and the Federal Reserve have taken defensible if painful steps to try to hold together the world's shaken financial system. Yet the picture remains unsettled, and the hundreds of billions of dollars in exposure assumed by taxpayers is alarming to Americans worried about their jobs and mortgages. Fixing this regulatory mess, paying for it and reviving the economy will fall to John McCain or Barack Obama, who have the full attention of voters anxious to hear their proposals.
The Bush administration and central bankers have made prudent choices even if they have not been entirely successful. Arranging the sale earlier this year of investment bank Bear Stearns was seen as a preemptive strike to prevent any further dominos from falling. Taking over Fannie Mae and Freddie Mac, which underwrite about half the nation's mortgages, could not be avoided. Bailing out Lehman Brothers would have sent the wrong message about the lengths the government would go to guarantee risky investment practices — but it turned out not to be a hard line. The emergency loan to the insurance giant American International Group was intended to spare financial markets from spinning further into free fall. Yet the initial response was discouraging, as the Dow plunged 449 points Wednesday. Some four months until a new president takes office, the best the Bush administration can do is manage the crisis day-to-day. The long-term vision must come from the next president, and both candidates have yet to offer clear, cohesive plans.
McCain and Obama aired new television ads Wednesday, but both seem more eager to score political points by vilifying the greed on Wall Street than to sell voters on a compelling vision. In March, Obama called for tighter regulation of financial markets, greater authority for the central bank and additional aid to homeowners to stem the rash of foreclosures, which could shore up the value of mortgage-backed securities. The Democrat took a step further this week, pointing to the collapse of major investment banks — and the resulting loss of billions of dollars to investors, retirees and financial institutions — as proof the federal government needs to have a guiding hand in the market.
McCain has morphed his long support for deregulation into a more populist stance. He was widely criticized for declaring Monday in Jacksonville that the "fundamentals of the economy are strong," and for resisting as late as Tuesday a bailout of AIG, which he accepted Wednesday as a practical move. He now calls for more regulation, but he has not been specific about how he would stabilize the markets or the role he sees for government regulators.
The crisis on Wall Street is a crisis on Main Street. Voters, who are feeling the pain and the insecurity, need to hear the candidates address several questions: What risks are the candidates willing to put upon taxpayers? How will the government pay for the bailout, and what spending choices might have to be made as a result? How would the candidates get private capital back to the markets, and how would they discourage an entire industry for junk mortgage-related securities from shaking the economy again?
The country is focused on the economic crisis and desperate for answers. The candidates should seize the opportunity to explain to voters why their vision is the best way forward.