Never has a financial crisis of this magnitude hit so close to a presidential election.
So, as people ponder the latest poll numbers — and the numbers in their 401(k) accounts — the question is whether this will change the contest between Sen. Barack Obama and Sen. John McCain.
Many are wondering how the wizardry of Wall Street financial engineering created such a mess. Even those who don't understand the mechanics of a “credit default swap” could still see frightening turmoil in the stock and bond markets Monday.
Democratic presidential candidates have successfully run against Wall Street in the past. In 1948, fighting for his job, President Harry Truman railed against “bloodsuckers who have offices on Wall Street.”
Taking his oath in 1933, Franklin Roosevelt criticized “the unscrupulous money changers” who “have fled from their high seats in the temple of our civilization.”
Time for Truman-FDR rhetoric?
Does the financial meltdown of Lehman Brothers make it more or less likely that Obama will follow his Democratic predecessors, sounding a similar, anti-Wall Street horn?
Or can Obama safely do without the populist rhetoric because voters have already concluded that the financial meltdown was a result of a too business-friendly Republican administration?
One important slice of the electorate will be those who have prospered handsomely in the past eight years, but who are undecided on the best person to manage an array of national security and economic threats.
In the 2004 election, nearly one-fifth of the electorate made $100,000 or more. Bush won 58 percent of such voters, and a second term.
To win on Nov. 4, Obama may need to expand the Democratic share of such upper-income voters — or greatly expand the number of lower-income voters, or do some of both. Raw populism might alienate those in the upper brackets.
In one sense, both candidates' campaign funds have benefited from the Wall Street’s prosperity — which has produced many people earning more than $250,000.
Campaign funds from Lehman employees
Obama’s campaign treasury has collected nearly $400,000 in campaign contributions from employees of Lehman Brothers, while McCain campaign has $145,000, according to the Center for Responsive Politics, a non-partisan research group.
Democratic activist and author David Sirota said the opportunity was there to make this campaign a more populist one.
“The Wall Street crisis presents a political opportunity for either of the candidates to seize the mantle of populist reform — but it’s not clear either of them will, for similar reasons,” said Sirota.
“McCain could position himself as a Teddy Roosevelt Republican by talking tough about regulation, but he won't because it would offend the money wing of his own party. Obama could cite the crisis as a perfect example of what Democrats will crack down on if he wins the presidency, but he may hesitate because he has raised a huge amount of cash from Wall Street.”
He added, “The reticence by both candidates on these issues shows precisely why Wall Street is bipartisan in its political donations. Corporate interests don't just buy legislative favors, they buy silence from politicians at times when an economic meltdown should prompt full-throated criticism and reform.”
It is one oddity of the 2008 campaign that there has been no latter-day Ross Perot, no anti-Washington outsider who has exploited the current economic distress.
John Edwards tried to play that role in the Democratic primaries, but it failed to catch fire.
The only Perot-like figure was Rep. Ron Paul and he proved to have only minimal appeal in the Republican primaries and was not willing to run as an independent.
In the wake of the Lehman Brothers bankruptcy, Obama was first of out the gate with a statement early Monday morning, using the Lehman Brothers crisis as a chance to attack policies that “loosened oversight and regulation, and encouraged outsized bonuses to CEOs.”
McCain vows to 'clean up Wall Street'
McCain followed at a campaign event in Florida, saying of the Wall Street turmoil, “People are frightened by these events. Our economy — I think still — the fundamentals of our economy are strong, but these are very, very difficult times. And I promise you we will never put America in this position again. We will clean up Wall Street.”
The phrase "clean up" implied chicanery or worse, but McCain did not address the possibility that what took down Lehman was innovative financial engineering (asset-backed securities) gone amok, not dishonesty.
Obama and McCain have not addressed in detail the risks of such engineering.
“It’s tough to get a policy debate into the last two months of a presidential campaign — and this is a particularly technical and difficult area,” said Sebastian Mallaby, director of the Maurice R. Greenberg Center for Geoeconomics at the Council on Foreign Relations.
Obama supporter Paul Volcker, the former chairman of the Federal Reserve, had argued that “financial engineering has failed the test of the market” and that its risks outweigh its benefits.
“It’s fair to assume people in the policy circles around both candidates are debating that. I just don’t think it has surfaced in a crystallized way in the stump speeches of the candidates,” said Mallaby.
The root of the problem was not deregulation, argued Mallaby.
Fannie Mae and Freddie Mac “were highly regulated but they still needed a bail out; regulated banks such as Citigroup lost huge amounts of money, meanwhile rather lightly regulated hedge funds have had some trouble, but relatively less trouble than the more regulated parts of the financial system.”
Television wars
In the television ad war, McCain was precisely on target Monday, while Obama released an off-topic TV spot focused on himself and what the ad called “dishonest smears” aimed at him by the McCain team.
McCain’s new ad focused squarely on economic distress.
“Our economy in crisis. Only proven reformers John McCain and Sarah Palin can fix it,” the ad argued. It promised, “Tougher rules on Wall Street to protect your life savings; no special interest giveaways, lower taxes to create new jobs; offshore drilling to reduce gas prices.”
Obama, too, was talking about lower taxes for most of the population and higher taxes only for those above $250,000.
Campaigning in New Hampshire on Friday, Obama gave what he called “a firm pledge," pledging under his plan, "...no family making less than $250,000 will see their taxes increase — not your income taxes, not your payroll taxes, not your capital gains taxes, not any of your taxes.”
But despite Obama’s promise to increase taxes on them, some affluent Republicans are already with him.
“I’d think the failing economy favors Obama,” said Bill Gross, head of the investment firm Pimco, in an interview with the Financial Times. “Despite being a Republican, I also think it’s time for a rebalancing of interests between the wealthy and the less wealthy.”
Gross lives in California — a state which is certain to go for Obama. But upper-income voters like him in less certain states such as Colorado, Michigan, and Virginia will be a decisive group.