Image: McCain and Obama
Scott Olson  /  Getty Images
Sen. John McCain speaks during a debate with Sen. Barack Obama at Belmont University in Nashville, Tennessee on Tuesday.
By M. Alex Johnson Reporter
updated 10/8/2008 10:47:07 AM ET 2008-10-08T14:47:07

In a bold effort to reverse his sagging fortunes after a month of dire economic news, Republican Sen. John McCain said Tuesday night that if he is elected president, he will order the Treasury to buy up Americans’ bad mortgages and renegotiate new loans that reflect their homes’ diminished value.

The economic crisis has “become so severe that we’re going to have to do something about home values,” McCain said at the second presidential debate at Belmont University at Nashville, Tenn. “Is it expensive? Yes,” he said.

Aides to McCain told reporters during the debate that the program, which echoes proposals put forth by Democrats in Congress, would cost roughly $300 billion.

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To steer the program, McCain offered up the names of super-investor Warren Buffett and Meg Whitman, the entrepreneurial former chief executive of online auction site eBay, as good candidates for treasury secretary to guide the United States to safety.

Democratic Sen. Barack Obama, agreeing that Buffett would be a good choice, outlined a follow-up to the economic bailout of Wall Street that would target small businesses and individual investors, calling for tax cuts for the middle class and aid to state and local governments to boost road-building and other infrastructure projects to create new jobs.

Both candidates said that they understood Americans’ “frustration” and “cynicism” with the federal government. But Obama blamed President Bush for turning budget surpluses he inherited into trillions of dollars of deficits, while McCain said Obama was at fault for not voting for budget cuts and tax breaks.

Exchanges between the candidates have grown ever more acerbic with just four weeks to go until Election Day. During Tuesday night’s debate, one of McCain’s last chances before a nationwide TV audience to halt Obama’s momentum, stuck to that tone with a sharp assault on Obama’s ties to “cronies” at the mortgage giants Fannie Mae and Freddie Mac.

McCain did not note reports that his campaign manager’s firm received tens of thousands of dollars a month from Freddie Mac, but Obama stepped in to remind voters.

Afterward, both sides claimed victory.

In a statement, the McCain campaign said McCain “was the only man who demonstrated he had the independence and strength to take on everything that’s broken in Washington and on Wall Street.”

But Linda Douglass, a spokeswoman for Obama, said in an interview with MSNBC that Obama “was the one with the calm, cool, depth and sophistication to really deal with this crisis.”

Economy dominates discussion
Independent and undecided voters said the debate would give them the chance to hear from the candidates in an unscripted setting. And if the latest NBC News/Wall Street Journal poll is any indication, what they wanted to hear them talk about was the economy, which 3 in 5 voters ranked as their top concern.

McCain said there was no alternative but to accept the need to cut spending on benefit programs.

“We are not going to be able to provide the same benefits for retirees that we provide today,” McCain said, calling for a freeze on federal spending except for defense, veterans programs and “other vital programs,” which he did not specify.

Obama said spending cuts needed to be selective. " I think it's important for the president to set a tone that says all of us are going to contribute, all of us are going to make sacrifices, and it means that, yes, we may have to cut some spending, although I disagree with Senator McCain about an across-the-board freeze.”

McCain repeatedly accused Obama of advocating tax cuts but voting for tax increases.

“When he ran for the United States Senate from Illinois, he said he would have a middle-income tax cut,” McCain said. “You know, he came to the Senate and never once proposed legislation to do that?”

McCain said he had been a “consistent reformer” eager to “take on the special interests.” By contrast, he said trying to figure out Obama’s positions on taxes was “like trying to nail Jell-O to the wall.”

Divisions over energy
Energy policy illuminated some of the sharpest differences between the candidates.

McCain called for an urgent ramp-up in U.S. drilling for oil, saying it was “vital so we can bridge the gap” until the United States can become energy-independent.

“We’ve got to drill offshore, my friends, and we’ve got to do it now,” he said.

While also calling for some increase in U.S. drilling, Obama warned that “we can’t simply drill our way out of the problem” because doing so would aggravate global warming. He called on Washington to work with private industry to create new clean technologies “that can be exported to China” and other heavily polluting industrial nations.

He called on the public to work harder to make their own homes more energy-efficient, and he said he would promote government incentives for Americans to weatherize their homes and buy energy-efficient U.S.-made automobiles.

Little new ground was broken on foreign policy, a focus of the first debate last month. McCain suggested that Obama was inexperienced, while Obama accused McCain of falsely saying he was not focused on fighting terrorism.

For a change, however, it was Obama who punched back hard after McCain said he would emulate President Theodore Roosevelt’s policy of walking softly while carrying a big stick.

“This is the guy who sang ‘bomb, bomb, bomb Iran’ and talked about annihilating North Korea,” Obama said. “That’s not talking softly.”

McCain goes on the offensive
Aides to both men signaled ahead of time that McCain would try to hit Obama hard, noting his slide in opinion surveys. Three weeks after the Wall Street crisis began, the latest NBC News/Wall Street Journal poll showed Obama leading by six points, 49 percent to 43 percent, which equals his biggest margin of the campaign.

Among independents, whom both campaigns see as the key to election, Obama has reversed a large McCain lead in just two weeks, going from 13 points down to four points ahead.

McCain took several shots at his opponent, at one point referring to Obama as “that one” when he criticized his opponent for voting for a Bush-backed energy bill that McCain opposed.

But while defending McCain’s recent tactics, some Republicans said he also needed to engage voters on the issues. Scott Reed, who managed Republican Bob Dole’s 1996 presidential campaign, said of the economic crisis: “McCain is suffering because Americans typically punish the party in power.”

McCain’s best bet, Reed said, was to show voters “who has the best solutions.”

Voters said they were eager to hear that.

Gary Reeb of Belmont County, Ohio, said he would be listening closely for answers on “our gas prices, energy prices, the upcoming winter ... how our fuel prices are going to be.”

Meanwhile, Kim White, owner of a beauty salon in Franklin, Tenn., said she hoped Obama and McCain would “focus on small business owners, health insurance, affordable health insurance.”

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