JUDY WOODRUFF: The tremors on Wall Street have also sent shockwaves through the race for the White House, with both nominees hitting the trail today to advocate more effective government regulation of financial markets.
John McCain spoke this afternoon in Tampa.
SEN. JOHN MCCAIN (R), Arizona: Too many firms on Wall Street have been able to count on casual oversight by regulatory agencies in government. And there’s so many of these regulators that the responsibility for oversight is scattered, unfocused, and ineffective.
We don’t need a dozen federal agencies doing the job badly. We need the best federal agencies to do the job right.
Under my reforms, the American people will be protected by comprehensive regulations that will apply the rules and enforce them to the full. There will be constant access to the books and accounts of our banks and other financial institutions. By law, it will reduce the debt and risk that any bank can take on.
And above all, I promise reforms to prevent the kind of wild speculation that could put our markets at risk and has already inflicted such enormous damage across our economy.
JUDY WOODRUFF: Earlier, McCain made the morning show rounds and called for a commission, like the one created after 9/11.
SEN. JOHN MCCAIN: We’re going to fix and make sure that every American who has a deposit in a bank, that they are — that their deposit insured. We’re going to need a 9/11 Commission to find out what happened and what needs to be fixed.
JUDY WOODRUFF: In Golden, Colorado, Barack Obama said that idea showed a lack of understanding on McCain’s part.
SEN. BARACK OBAMA (D), Illinois: This morning, instead of offering up concrete plans to solve these issues, Senator McCain offered up the oldest Washington stunt in the book. You pass the buck to a commission to study the problem.
Here’s the thing: This isn’t 9/11. We know how we got into this mess. What we need now is leadership that gets us out. I’ll provide it; John McCain won’t. And that’s the choice for Americans in this election.
JUDY WOODRUFF: Instead, Obama said what’s needed are regulations that match the economic conditions of the day.
SEN. BARACK OBAMA: The American economy does not stand still, and neither should the rules that govern it. The evolution…
The evolution of industries and new financial instruments often warrants regulatory reform to foster competition and lower prices or to replace outdated oversight structures.
Old institutions cannot adequately oversee new practices. Old rules may not fit the roads where our economy is leading.
But instead of sensible reform that rewarded success and freed the creative forces of the market, too often we’ve excused an ethic of greed, corner-cutting, and inside-dealing that threatens the long-term stability of our economic system.
JUDY WOODRUFF: This is not the first time talk of financial regulation has surfaced in the campaign. In March of 2007, Obama wrote a letter to Federal Reserve Chairman Ben Bernanke and Treasury Secretary Paulson urging them to convene a summit of mortgage lenders, federal regulators, and government agencies to address the impending home foreclosure crisis.
By contrast, McCain has been more reluctant to embrace government intervention. In an interview with the Wall Street Journal in March of this year, McCain said, “I’m always for less regulation, but I am aware of the view that there is a need for government oversight.”
Just weeks later, after the collapse of Bear Stearns, McCain indicated he would back some level of government help to shore up the housing market.
SEN. JOHN MCCAIN: I’ve always been committed to the principle that it’s not the duty of government to bail out and reward those who act irresponsibly, whether they’re big banks or small borrowers.
Government assistance to the banking system should be based on solely preventing systemic risk that would endanger the entire financial system and the economy. In our effort to help deserving homeowners, no assistance should be given to speculators.
JUDY WOODRUFF: That same week, Barack Obama laid out his plans for overhauling financial regulation and argued that government oversight and free markets should not be at odds.
SEN. BARACK OBAMA: Our history should give us confidence that we don’t have to choose between an oppressive government-run economy and a chaotic, unforgiving capitalism. It tells us we can emerge from great economic upheavals stronger, not weaker.
But we can only do so if we restore confidence in our markets, only if we rebuild trust between investors and lenders, and only if we renew that common interest between Wall Street and Main Street that is the key to our long-term success.
JUDY WOODRUFF: What’s clear is that both nominees will continue to be asked about regulatory solutions, as many Americans increasingly look to the government for answers to the financial crisis.
Obama's view on the economy
JUDY WOODRUFF: We're joined now by economic advisers to both presidential campaigns. First, Robert Reich, an adviser to Senator Obama, he served as secretary of labor under President Clinton and is now professor of public policy at the University of California, Berkeley.
Secretary Reich, good to see you again. First of all, does Senator Obama think that the current crisis could have been avoided with greater government oversight and regulation?
ROBERT REICH, Former U.S. Labor Secretary: Yes, Judy. Since February 2006, in fact, Senator Obama has been pushing for strengthening regulation, strengthening capital requirements, making sure there are anti-fraud provisions with regard to lending to consumers who want mortgages.
The senator has been very, very active sponsoring legislation, trying to push the administration this direction. And absolutely, yes, we need regulation. This is a vastly under-regulated market.
And even where we have regulation, where the Securities and Exchange Commission ought to be policing against market manipulation, the senator has found and is promising to do something about it, that the SEC is understaffed, has not been given the proper resources to prevent various manipulations.
JUDY WOODRUFF: Give us an example of a kind of regulation that he thinks should be in place right now, given this crisis.
ROBERT REICH: Well, the basic issue here is transparency. A lot of people, whether they're investors or lenders or even other banks, don't believe that the numbers on a particular security really accurately reflect what's underneath that security.
So the number-one goal has got to be disclosure. And the number-two goal is to make sure that there are capital requirements sufficient with regard to investment banks and unregulated institutions right now to meet their obligations if, in fact, there is a downturn.
Right now, obviously, they don't have adequate capitalization, not adequate liquidity requirements.
So beyond, number one, disclosure and capitalization and liquidity requirements, there is also conflict of interest. And the senator has pointed to and wants to investigate the conflict of interest between, for example, credit rating agencies and the issuers who pay them to rate their issues.
Regulation is not a dirty word when it comes to protecting investors and protecting the public. And, unfortunately, John McCain has been anti- and deregulation, a proponent of deregulation for years.
JUDY WOODRUFF: Well, that's what I was going to ask you. What is the main difference, as you see it, between the approach of Senator Obama and Senator McCain?
ROBERT REICH: Well, John McCain has been congratulating himself for years on being a deregulator. With financial markets, he has not wanted to regulate. He has again and again over the years said deregulation is the best way to go. We need less, not more government oversight.
Every time there was a bill, every time there was a particular chance or an opportunity for Senator McCain to actually step up to the plate and be a true regulator of financial markets, he said no. He backed down.
He's now come around in the last few weeks to be a regulator, but by now it's too late.
McCain's views on the economy
JUDY WOODRUFF: Well, let me turn now and bring in our second guest. He is Douglas Holtz-Eakin. He is an economic adviser to Senator McCain. He's the former director of the Congressional Budget Office, and he joins us from campaign headquarters in Arlington, Virginia.
Doug Holtz-Eakin, is it accurate to say that John McCain was not in favor of regulation and now he is?
DOUG HOLTZ-EAKIN, Domestic Policy Adviser to John McCain: No, that's not accurate at all. You can go back to 2002. John McCain gave a very lengthy and detailed speech at the National Press Club addressing what was then the issues that were associated with Global Crossing, WorldCom, and Enron.
He sponsored legislation in 2003. He sponsored legislation in 2005 to address the largest problem we see today, which is the fall of Fannie Mae and Freddie Mac. He said very clearly at the time these are a threat to taxpayers. They're a threat to our financial markets.
He undertook the efforts to make those threats go away. He was blocked in those efforts. It didn't happen.
There's a lot of blame to go around, quite frankly. There are Democrats, Republicans on both sides who have let this situation get to the point where we have the toxic mess we face now on Wall Street.
And John McCain is committed not just to the specifics of legislation, but changing Washington, working with partners on either the Democratic side or the Republican side, so that we can actually address the great problems that face Americans instead of sticking to partisan battles and party affiliations.
JUDY WOODRUFF: Well, he's also on the record, I believe, going back to the mid-1990s as opposing excessive government regulations. At one point, he even favored a moratorium on regulations. Now, help us understand how that squares with what you're saying that he wanted to have done.
DOUG HOLTZ-EAKIN: It's appropriate to oppose excessive government regulation. The goal is to have markets work efficiently. They need regulations; they need a framework within which to operate. That framework is badly out of whack and needs to be changed.
When there's too much regulation, John McCain recognizes it, balances it, and favors loosening it. That's not the situation we find ourselves in.
He voted to get rid of the Enron exception to the bill that passed in 2000. He's been trying to push Fannie Mae and Freddie Mac and now broader financial regulation.
Americans should be able to get out of bed and know that they have safety and soundness with their financial institutions, they have protections against market abuse, that corporate governance doesn't allow CEOs to walk away from failed institutions with millions of dollars, and that the system is sound and stable. And that should be the objective.
JUDY WOODRUFF: And what exactly does he believe should be done right now?
DOUG HOLTZ-EAKIN: Well, as you know, he has today proposed that we assemble a 9/11 Commission as a first step. Let's get some experts to step back from the heat of the moment and really study comprehensively what needs to be done.
We've got this patchwork quilt of regulators. Let's see what it should look like.
And then let's get real legislation through the Congress. And I think that's the thing where his approach will stand out.
He is the only candidate in this race who has reached across party lines at moments that were tough, cast votes against his narrow political interest to solve big problems. This is a very big problem. He and Governor Palin are coming to Washington to solve exactly these kinds of issues.
Opposing views on regulation
JUDY WOODRUFF: Robert Reich, let me bring you back in to the conversation. Now you've heard Doug Holtz-Eakin say that John McCain was for regulation, but in an appropriate manner, not an excessive amount of regulation.
ROBERT REICH: Well, Judy, everybody is in favor of appropriate regulation. Now, when John McCain was head of the Senate Commerce Committee over the past few years, it was just deregulation, deregulation, and deregulation.
As Douglas Holtz-Eakin just said, John McCain wants to refer to a commission. Well, that's Washington shorthand for doing nothing, I'm afraid. We've had commissions after commissions after commissions looking at this problem.
Look, basically, John McCain's whole record is in favor of a lot of these big companies and a lot of these big investment banks. By contrast, Barack Obama's economic approach is bottom-up.
Don't give big tax breaks to the big corporations. Don't give even more tax breaks on top of those that the rich have already got from the Bush administration. Don't simply push further the Bush administration's agenda for the economy, because it doesn't work.
Barack Obama says, instead of top-down economics, let's have bottom-up economics, protecting investors, protecting the little guy, protecting jobs, protecting Main Street, helping people with tax breaks that go to them, helping people with education and health care that goes to them.
You couldn't have two more dramatically contrasting economic philosophies.
JUDY WOODRUFF: Doug Holtz-Eakin, specifically, the point about the 9/11 Commission, the argument from the Obama campaign that that's not needed.
DOUG HOLTZ-EAKIN: Well, this is, you know, sadly predictable. I think if you look back, you'll see Barack Obama has said many very favorable things about the 9/11 Commission, but it's politically expedient to attack John McCain now. That's what they've done for the past two days.
We're in a crisis. It's time to take serious measures and to talk about them.
John McCain has talked about the issues today. He's talking about cleaning up the mess on Wall Street.
But past that, we have to make sure that Wall Street doesn't just threaten Main Street. We have to make sure that Main Street is taken care of in other ways.
Take care of the small businesses that have this year created 300,000 jobs in America in a very bad economy. Let's not hit them with an excessive health care mandate. Let's not cut off their access to international markets with playing games with trade.
Let's not have an energy policy that doesn't allow them to grow. And let's not have tax policies that raise taxes on them and end up with people out of work.
We need a solid foundation for America's future. That foundation is a job for middle-class Americans. That foundation is the one John McCain is building for them.
But he's not going to let that foundation be threatened by a Wall Street that's been out of control for years. It's controls on Wall Street and a foundation for Americans; that's the package.
JUDY WOODRUFF: Robert Reich, I want you to respond, and then I have another question about regulation.
ROBERT REICH: Well, look, you have only to look at these two men and what they have stood for and what they are standing for in this campaign.
I mean, the rhetoric sounds great. John McCain is describing himself as a kind of born-again populist representing the working people of this country. But look at his tax policies.
His tax policies that he's advancing are tax policies that, by every neutral observer, everybody who has looked at this, Judy, are helping the rich, more corporate tax cuts, not for ordinary people, by contrast to what Barack Obama is doing.
Small businesses -- we just heard the representative of the McCain campaign saying that Barack Obama wants to raise taxes on small business. That's an example of a complete misinformation campaign.
In fact, Barack Obama is zeroing out capital gains for small businesses because he understands that small businesses are so critical to this economy.
Spokesmen weigh in on regulation
JUDY WOODRUFF: I do want to bring this back to regulation, because that's what's before us today, with what's been happening in the financial markets.
But, Doug Holtz-Eakin, last March, Senator McCain gave a speech in which he called for less government regulation. He said, quote, "Our financial market approach should include encouraging increased capital in financial institutions by removing regulatory accounting and tax impediments to raising capital."
Again, how does that square with what you and he are saying today?
DOUG HOLTZ-EAKIN: Well, that is one piece of the approach. You certainly want to have a regulatory structure that interacts efficiently with your tax policies, with accounting policies. That's one of the reasons why we have such a mess right now.
We have the left hand doing one thing and the right hand doing another. And that statement was in the context of trying to make sure we had efficient capital raising.
The fundamental problems that we see right now are problems where, number one -- and I would agree with Secretary Reich on this -- you know, we have a lack of transparency. People don't know what their counterparties are worth.
And past that, there's not enough capital in this system. America has sadly been addicted to debt. Spending is out of control at the federal level. Individuals have been borrowing for homes they can't afford. And we've had a corporate culture that has taken a quick killing approach to it and lent money to people who couldn't afford it.
That's got to change. And the regulatory approach is one that will change that. And John McCain stands for that.
You know, it's nice for them to talk about what does Senator Obama stand for, but, quite frankly, he's switched so much on this campaign on public financing, on town halls, whether he'd filibuster FISA, he's had 15 different tax plans.
The American people don't know where Barack Obama stands. John McCain has a record of doing the things he's saying.
JUDY WOODRUFF: Robert Reich, I'm going to give you a chance to respond.
ROBERT REICH: Judy, I can't find any sunshine, any difference between George Bush's economic policies and John McCain's economic policies. And whether it's regulation, or staffing the regulatory agencies, or it's tax policy, or it's even in the health care policy, I mean, simply an extension by McCain of the Bush policies. They have failed.
You know, John McCain was a leader of the Senate. The Senate was Republican for most of the Bush administration. John McCain, if he wanted to really do something about these regulatory shortfalls, he could have done it. He was head of the Senate Commerce Committee. He could have done it. He did not.
And what we're seeing is just a smokescreen right now. I mean, Barack Obama has been dedicated -- and you see, again, February of 2006, he started down this road of pushing, pushing, and pushing for more regulation of financial markets to protect average people, average people who want to get a mortgage, average people who have a deposit, average people who simply want to get ahead and find themselves stymied because big institutions, big corporations, big finance don't let them.
JUDY WOODRUFF: But let me ask both of you, finally -- and I'll turn to you, Doug Holtz-Eakin, first -- and that is, you had a situation with the housing crisis, where people were being, in many instances, urged, encouraged, pushed into mortgages to buy houses when they could not afford it.
Is this something that increased government regulation is always going to be able to stop to protect consumers from themselves and from the market?
DOUG HOLTZ-EAKIN: Senator McCain certainly believes that we should have a Department of Justice task force looking into the mortgage origination industry. I mean, it's not that there were individual instances of this. There's a widespread pattern of this. It should be understood, and those market abuses need to be ended through proper oversight. He's called for that going back to last March.
This is a situation where Americans need to have the government on their side. And the fundamental tenet of this race is, who has a track record of going to Washington, and looking past their own political self-interest to put the country first, have a government that works on behalf of the American people?
That's what John McCain and Sarah Palin are dedicated to doing.
JUDY WOODRUFF: And, Secretary Reich, same question for Senator Obama. Is it realistic to expect by regulation to always prevent or, rather, protect consumers from what the markets are doing?
ROBERT REICH: Judy, you can't always protect every consumer, but regulations are necessary. If you don't have them, you're going to have predatory lending. You're going to have all sorts of institutions, financial institutions that take advantage of people.
And, again, I want to stress February 2006, when the Republicans were in control of the Senate, Senator Obama sponsored legislation to remove and reduce and end consumer credit fraud with regard to mortgage lending. And where was John McCain?
JUDY WOODRUFF: We're going to leave it there. Former Secretary Robert Reich and Douglas Holtz-Eakin of the McCain camp, we appreciate it, both of you. Thanks.
ROBERT REICH: Thanks very much.