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Wall Street Upheaveal Puts McCain, Obama to the Test

September 19, 2008 at 6:35 PM EST
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Wall Street's woes put the economy at the top of the campaign agendas of John McCain and Barack Obama this week as the two sought to shape their views on government regulation and other issues. Analysts Mark Shields and David Brooks examine reactions to the crisis.
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JIM LEHRER: And that brings us to the analysis of Shields and Brooks, syndicated columnist Mark Shields, New York Times columnist David Brooks.

David, you wrote in your column today that the candidates’ reaction to the financial crisis has been, quote, “moronic,” end quote. Would you flesh that out a little bit?

DAVID BROOKS, Columnist, New York Times: Yes, I guess I’d amend it to say “nauseatingly stupid,” at least for the first four days. I think today was an improvement.

Listen, you’ve got this incredibly complicated situation. You have subprime mortgages. You’ve got these foreign investment flows. You’ve got accounting these mark-to-market standards. You’ve got a whole range of highly sophisticated derivatives that have all fed into this crisis, an incredibly complicated crisis.

So for the first four days, the two candidates essentially treat us as kindergarteners. Barack Obama doesn’t seem to know what’s causing the crisis, but he knows George Bush must be to blame.

John McCain gives no evidence of appreciating the complexity of the crisis, but he knows there are some really bad people on Wall Street who are selfish, and who must be punished, and, by the way, there’s this guy, Chris Cox, he’s bad, too.

So the descriptions of the crises were insultingly stupid and insultingly partisan. When you’ve got a situation like this, a week like this, when the whole world is tremendously nervous about where the whole economy is going, it seems to me it’s time to elevate the tone and get a little grown-up. And for the first four days, there was none of that.

Now, today, I think they did do that.

JIM LEHRER: Both of them?

Assessing the candidates' reaction

Mark Shields
Syndicated columnist
A crisis reveals where people come from and how they think... We have no reason to expect that a policy answer of this complexity, of this cosmic reach is going to be developed by a campaign. Campaigns don't do that.

DAVID BROOKS: I think both of them -- Obama got there with Bob Rubin, and Laura Tyson, and Larry Summers, and Gene Sperling, serious people, and issued a statement which wasn't daring by any means. [inaudible...] but it was sober and responsible. It was fine.

McCain gave the speech in South Bend, a pretty substantive speech about what he would do in the foreign -- in the -- to direct the crisis, not directly on this, but generally.

And so today they stepped it up a notch. And I think they achieved mediocrity for the whole week. But in the beginning, the partisan tone, the standard, you know, "lipstick on a pig" tone prevailed, and it was insane.

JIM LEHRER: Insane, moronic?

MARK SHIELDS, Syndicated Columnist: No, I don't think so. I think David's level of expectation, his own standards are quite high.

This was an unprecedented crisis. I think they were too partisan. I don't think they were -- I think it was revealing. A crisis reveals where people come from and how they think.

And in that sense, I think that we have no reason to expect that a policy answer of this complexity, of this cosmic reach is going to be developed by a campaign. Campaigns don't do that.

JIM LEHRER: Why not?

MARK SHIELDS: Because it isn't what campaigns do. Look what it took. It took the entire Treasury Department, the Federal Reserve Board, all of their experts, the Congress, the administration, and they had four bites at it and came up with this today.

So, I mean, the idea that on the run a political campaign that is out trying to win votes is going to compete with that in terms of depth and dimension, but, that aside, I think the important question really about this week is the reaction.

And, you know, Jeffrey Frankel of Harvard put it, I thought, perfectly well. He said, "Just as there are no foxholes -- there are no atheists in a foxhole, there are no libertarians in a financial crisis."

I mean, all of the good folks who've told us "hands off, laissez-faire, no government," I don't know where they are. They've suddenly become Marcel Marceau . They've gone mute on us. You know, everybody wants Sam in there, and you can feel the irresistible wave for regulation.

JIM LEHRER: You feel that, too, David? Is that coming, whether anybody likes it or not?

DAVID BROOKS: Well, I think in the short term it is. I mean, I sort of am sympathetic to this bailout or whatever we want to call it, because I think we're going to have a tough time regulating such a complicated series of markets.

JIM LEHRER: You're talking about the one that Paulson is working on now?

DAVID BROOKS: Right, the RTC...

JIM LEHRER: This weekend, everybody, yes?

DAVID BROOKS: ... nouveau RTC. But we do have to make sure that, when people fail in the system, that we can contain the failure so it doesn't have these cascading effects.

And I hope, when Congress looks into this, they'll ask, "How are we going to price the assets that are going to be sold off to the government? Are people just going to be dumping their rotten stuff on us as taxpayers?"

So I hope there's some scrutiny. But I think there is a general sense that the government in these extraordinary circumstances has to act, which is not the same as saying we've got to regulate -- highly regulate the financial markets and really take away their innovation.

But I would just say one political thing. I think Palin and McCain have been remarkably slow to embrace what's happening. I'm sort of struck by that.

Palin gave a comment yesterday saying she was against bailouts, and McCain was sort of not talking too much about it. But he's tiptoeing very slowly. I'm really struck by that.

MARK SHIELDS: He will. He will. I mean, McCain -- McCain, you know, has had several...

JIM LEHRER: Well, he said it again today, though, about the Fed, the Federal Reserve...

MARK SHIELDS: I know he did.

JIM LEHRER: ... have to get out of the bailout business.

MARK SHIELDS: You know, he was against the AIG bailout. Then he was for it. I mean, you know, he's had a stop-and-start week. And I think that it's not been a -- you could say it's not been a great week for Obama on the issue. It's been a really disastrous week for John McCain on the issue.

A response to the crisis

David Brooks
New York Times
I actually think Bush has had an outstanding three years. You start with the surge. The last few years of his administration have been pretty good... He should get a little credit at the end of the day.

MARK SHIELDS: But I think, Jim, what we're looking at here is that the sense of regulation -- I get a kick out of, you know, we can't have too much regulation.

Who bought out -- who bailed out the failing giant, Merrill Lynch? And it turned out to be the Bank of America, which is a highly regulated industry. I mean, the banks are highly regulated. These have been less regulated and the deregulated parts of our financial community that are in trouble.

DAVID BROOKS: That's not -- the least-regulated parts of our financial community are the hedge funds, which are not doing so bad. The highly regulated investment banks are doing bad. And the most regulated are Fannie and Freddie, who are doing terribly. So it's a...

MARK SHIELDS: How about the Bank of America?

DAVID BROOKS: It's a complicated situation, and I would say two -- I would separate two things.

One, the difficulty, the desirability of regulating so we don't have messes like this, believe me, it's desirable. But the difficulty of doing that in incredibly complicated instruments that the CEOs of the companies don't even understand, let alone lowly paid regulators in D.C., it would be nice, but it's difficult.

But that's one question. The separate question is, what do we do now in a crisis situation?

JIM LEHRER: How do you feel about that? Forget the regulation part, just the saving part, which is what...

MARK SHIELDS: I think there's -- look, I don't pretend to be an economist. I didn't -- I was in John McCain's class.

But I will say this, that I think there's no question there's a consensus that the crisis and that there has to be a response. I mean, the irony is...

JIM LEHRER: So if they don't create this, they're going to have to do something to keep the -- keep the markets alive?

MARK SHIELDS: They're going to create this. They're going to create this, and I'll tell you why, I mean, because you've got a Republican Treasury secretary, a Republican chairman of the Federal Reserve, a Democratic speaker of the House, a Democratic senator, Republican administration. They've come up with it.

I mean, McCain will support it because he's been triangulated. The Republican administration has said, "I've come up with this," said the president, with the Democratic Congress.

I mean, Paulson -- the administration has been blessed with two people, apparently, Hank Paulson and Bob Gates. I mean, those are the two stars of this administration, and this crisis has come on his plate and on his watch.

JIM LEHRER: Do you agree Paulson deserves some great credit for this?

DAVID BROOKS: I think so. I actually think Bush has had an outstanding three years. You start with the surge. The last few years of his administration have been pretty good, in part -- I mean, there's Paulson, Gates, and other people.

But in part, you know, it's his administration. He should get a little credit at the end of the day.

Changing the election's 'climate'

Mark Shields
Syndicated columnist
I think this guarantees that the economy is going to be the issue, and that is not where you wanted the election, if you're the Republicans.

DAVID BROOKS: Just one political point. I think this is really going to change the climate of the election, and that's because people are much more nervous about where things are going.

And to me that works in two different way. One, it obviously increases the desire for change. But in times of economic turmoil, there's a flee to safety. And so, to me, the key for the candidates is to say, "Change with safety." And if I were Barack Obama, I'd have Bob Rubin on my side every second of the day.

JIM LEHRER: Do you think it's going to change the campaign dramatically?

MARK SHIELDS: I think it's -- first of all, six weeks before an election, you're going to have members of Congress casting a tough vote. It's going to be a tough vote to cast.

JIM LEHRER: To vote for this?

MARK SHIELDS: Sure, it is, because it's a trillion dollars, Jim.

JIM LEHRER: But isn't everybody going to vote for that?

MARK SHIELDS: It's a trillion dollars. It means that the next administration will be able to do precious little. I mean, we have committed now at this point already half a trillion dollars in the bailout of Bear and Merrill and...

JIM LEHRER: Now AIG.

MARK SHIELDS: ... AIG, rather, and Fannie Mae and Freddie Mac. You know, this is unfunded liabilities of the federal government. This is our indebtedness. So, you know, the grand plans anybody has, I think, are very much on hold.

So I do think it's going to mean this, that -- one of John McCain's longest and strongest supporters said to me at the Republican convention in St. Paul, "Any day that the economy is not on the front page and George Bush is not center is a good day for John McCain."

I think this guarantees that the economy is going to be the issue, and that is not where you wanted the election, if you're the Republicans.

JIM LEHRER: Do you agree with that, that this favors -- or, let's say, disfavors McCain and the Republicans?

DAVID BROOKS: Right. If Obama can show that he's got statesmen around him, I do think it generally favors him. I'm not sure it will cost $1 trillion, because we don't know how much they'll resell these assets. But it certainly will cost a lot, hamper the next president, and it's extremely likely now we'll have a long recession because of this.

JIM LEHRER: Why? Why?

DAVID BROOKS: Because the banks have to work through all this debt, and they won't be lending. They won't be aggressively lending. And I just think it'll -- there's a much greater chance that we're going to have a downturn, not, you know, a steep downturn, but according to the economists I've spoken to, a longer period of recession which will affect the administration significantly, the next one.

JIM LEHRER: Either administration?

DAVID BROOKS: Right, exactly.

MARK SHIELDS: And a concern about inflation, as well. I think, to Obama's credit, he has -- one of the qualities that comes through -- I mean, an advantage to him for the first time to have only been in Washington for four years, because the consensus answer on both sides is this has been festering for a long time, 1999 legislation, it's been deregulation of Reagan, it's been 25 years building.

So the fact that Obama has only been here for four years all of a sudden becomes an advantage.

DAVID BROOKS: I think it cuts both ways. People want silverbacks. They want somebody who's been around in a time like this. They want a guy like Paulson, who was chairman of Goldman Sachs. I think they want a guy like Rubin.

If I were both of the candidates, I would surround with experienced, old hands who seem kind of safe.

President Bush's role

JIM LEHRER: I'm curious about your point that this is a good time for George W. Bush, the biggest financial crisis in a long, long time.

DAVID BROOKS: Well, I personally don't think George Bush or any politician is primarily responsible for this.

JIM LEHRER: Responsible, OK.

DAVID BROOKS: I would say he's had the surge -- and I think, in the last month, the response by the federal government has been pretty good.

MARK SHIELDS: Nobody has been Paul Revere on this. I mean, McCain hasn't; Bush hasn't; Obama hasn't, I mean, as far as this crisis is concerned, I mean, that said, "Hey, this is coming."

We have had some people on the show. The fellow from NYU and others have been sounding that alarm.

David is in a distinct minority, because, as the polls have changed, as John McCain went up, and he went down, as Obama went up and down and then back up again, George Bush has stayed at 30 percent.

I mean, the consensus on the candidates, the direction of the country, everything else changed slightly. It's been a constant 30 percent favorable. So, you know, maybe David is seeing something...

DAVID BROOKS: I'm taking a lofty view of history, the David McCulloughs of the 22nd century...

MARK SHIELDS: I mean, this is the guy that was using the word "moronic" three paragraphs ago, now taking the long view of history. I mean...

JIM LEHRER: We will leave that word aside...

MARK SHIELDS: ... he's flexible.

JIM LEHRER: ... and say good night to you both. Thank you.