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Bank crisis overshadows defense in first debate

Image: Senator John McCain and Senator Barack Obama stand at their podiums during the first U.S. presidential debate in Oxford, Mississippi
Sens. John McCain and Barack Obama face each other at the first presidential debate Friday in Oxford, Miss.Chip Somodevilla / Reuters
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Wall Street hijacked the first presidential debate Friday night between Democratic Sen. and Republican Sen. , who clashed over tax cuts, congressional spending and President Bush's proposed $700 billion bank bailout in a forum that was supposed to be about foreign policy.

The candidates skirmished over the war in Iraq, with McCain sticking to his support for Bush’s troop “surge” last year and Obama repeating that he opposed the U.S. invasion all along. But the collapse of major financial institutions this month put foreign affairs — the stated topic of the first debate — firmly in the background as the men faced off at the University of Mississippi in Oxford.

Obama sought to tie McCain to the bank crisis, calling it “a final verdict on eight years of failed economic policies promoted by George Bush, supported by Senator McCain.”

“It hasn’t worked,” Obama said, calling the bank meltdown “the worst financial crisis since the Great Depression.”

McCain agreed that the crisis was of historic proportions, but he said he felt “pretty good” about things because “we are seeing for the first time in a long time Republicans and Democrats together sitting down trying to work out a solution to this fiscal crisis that we’re in,” referring to congressional discussions in Washington that right up until Friday morning had threatened the debate.

McCain said he would probably end up voting for the rescue package, but he said “we’ve got a lot of work to do.”

“This isn’t the beginning of the end of this crisis,” he said. “This is the end of the beginning.”

Sharp differences over tax cutsBoth candidates also criticized the traditional congressional practice of “earmarking” federal funds for local projects in unrelated legislation and promised to reform the system.

McCain promised to veto every earmark that crossed his desk if he was elected and said he would identify the lawmakers responsible for them, vowing to “make them famous.”

Obama said earmarks were a problem, but he said McCain’s proposal to cut taxes by $300 billion — most of which he claimed would go to the wealthy — would more than wipe out any revenue savings from eliminating them.

Obama said, “Now, $18 billion is important, but $300 billion is more important.”

But McCain said tax cuts were critical to economic recovery. “I want people to have tax cuts. I want every family to have a $5,000 refundable tax credit so they can go out and purchase their own health care,” he said. “I know that the worst thing we can do is to raise taxes on anybody.”

McCain surprised the moderator, Jim Lehrer of PBS, by calling for a spending freeze on all government programs except defense, veterans programs and legally mandated entitlements, a proposal that Obama said was too broad.

Opinion surveys show that McCain’s position is more appealing to voters than Obama’s. The latest NBC/Wall Street Journal poll showed that respondents preferred “a president who will go in and clean up Washington and take on the waste and fraud in the system” over “a president who will end the Bush administration policies, and have active government oversight” by a margin of 67 percent to 29 percent.

Foreign policy takes back seatThe change of focus meant national security and foreign policy — a topic on which polls show voters favor McCain — did not come into play for more than a half-hour into the debate.

McCain stuck to his guns on a position that has been highly controversial, his support for Bush’s policies in the war in Iraq.

McCain said the war “was very badly mishandled” initially, but he said the troop surge was working.

“The current strategy has succeeded, and we are winning in Iraq,” he said, singling out the U.S. commander in Iraq, Gen. David Petraeus, as a “brilliant” leader.

“There was a lot at stake there,” McCain said, saying failure would have meant increasing influence by Iran in Iraq’s affairs, more sectarian violence and a wider war “which the United States of America might have had to come back to.”

McCain question’s Obama’s ‘judgment’ Obama, who opposed the U.S. invasion of Iraq when it began, echoed McCain’s praise of Petraeus but said it was beside the point.

“The fundamental question is whether we should have gone into Iraq in the first place,” he said, characterizing the surge as no more than “a tactic to fix the problems of the war.”

“John, you like to pretend the war started in 2007,” Obama said. “If the question is who is the best equpped as the next president to make good decisions about how we use our military ... then I think we can take a look at our judgment.”

But McCain countered that whether the war was a good idea was no longer relevant, saying, “The next president of the United States will not have to address the issue of whether or not we should have gone into Iraq.”

“The issue is when we leave and how we leave,” he said, calling Obama’s “stubbornness” on refusing to back the surge showed that he did not have “the experience and the judgment ”to be president.

“We need more flexibility in a president of the United States than that,” McCain said.

McCain reverses courseMcCain had said he would suspend his campaign and skip the forum in Oxford unless a deal to rescue Wall Street was in place. With polls showing overwhelming public support for going ahead with the debate, he reversed that position Friday morning.

Interest in the debate was so high that it was projected to pull in far more than the 40 million Americans who saw McCain’s and Obama’s convention acceptance speeches.

McCain’s decision to participate was a relief to organizers at the National Commission on Debates, the University of Mississippi — which spent about $5 million to accommodate the event — and the 3,000 journalists who descended on Oxford to cover it.

Carrie Dann, Andrea Mitchell and Chuck Todd of NBC News in Oxford, Miss., contributed to this report.