For candidates, economy swiftly comes back to the fore

Barack Obama, in Grand Junction, Colo., seized on a comment by John McCain that ''the fundamentals of our economy are strong.'' Obama chided, ''What economy are you talking about?'' (Chris Carlson/ Associated Press)

WASHINGTON - The unfolding crisis on Wall Street yesterday abruptly refocused the presidential campaign on economic issues, with Barack Obama casting John McCain as part of a regime whose anti-regulation philosophy led to the raft of bankruptcies, takeovers, and market turmoil that created "the most serious financial crisis since the Great Depression."

McCain sought to distance himself from the Bush administration, portraying himself as a populist reformer willing to impose tougher rules on Wall Street after the bankruptcy of Lehman Brothers and the hastily arranged buyout of Merrill Lynch.

The Arizona senator tried to walk a fine line, simultaneously launching a television ad saying "our economy is in crisis" while standing by his optimistic assessment about the health of the overall economy. "The fundamentals of our economy are strong," McCain said in Jacksonville, Fla. "But these are very, very difficult times." He explained that "the top of our economy is broken. We have seen self-interest, greed, irresponsibility, and corruption undermine the hard work of the American people."

McCain's assertion provided an opening for Obama, who for weeks has criticized his rival for being "out of touch" with struggling families and for being too close to President Bush. "We just woke up to news of financial disaster, and this morning he said that the fundamentals of the economy are still strong?" Obama said in Grand Junction, Colo. "Senator McCain, what economy are you talking about?"

Obama's running mate, Joe Biden, chimed in. "I could walk from here to Lansing, and I wouldn't run into a single person who thought our economy was doing well, unless I ran into John McCain," he said in the Detroit suburb of St. Claire Shores.

Polls have consistently indicated the economy is the biggest issue for voters and that voters give Obama an edge on economic issues over McCain, but that gap has shrunk. There was a palpable sense yesterday that, after weeks of attack ads about Obama's "celebrity" status, McCain's unfamiliarity with the Internet, and the origins of the phrase "lipstick on a pig," the presidential campaign had taken a decisive turn toward which candidate is best prepared to deal with the economy.

Political analyst Stuart Rothenberg, editor of the nonpartisan Rothenberg Political Report, said that the events "have the potential to impact the race dramatically" because of the perception that voters' financial futures are at stake. But he said it is unclear which candidate will gain the most. "You can argue that it is Bush's mess and it reminds people how much they want change, and Obama scores better on the empathy factor," he said yesterday. "But it is a crisis, and when you have a crisis you want someone who is more experienced, even though McCain's experience is not on the economy."

Neither candidate offered specific new proposals yesterday.

Obama's campaign pointed out that even before the latest troubles on Wall Street, he called in March for tighter regulation of mortgage lenders, banks, and other financial institutions. In that New York City speech, he blamed both Republican and Democratic administrations for allowing financial manipulation that helped lead to the mortgage crisis. Obama referred, in part, to a 1999 law that loosened Depression-era restrictions on banks and investment firms, allowing the creation of the huge Wall Street firms now in such trouble. The measure was sponsored by one of McCain's former top economic advisers, then-senator Phil Gramm of Texas, a Republican, and signed by President Clinton, a Democrat.

McCain voted for the bill in the Senate but did not vote on the final House-Senate version, according to the Associated Press. Biden voted against a Senate version, but supported the broader final bill, the AP said.

Yesterday, Obama's campaign asserted McCain would be too influenced by lobbyists to impose needed regulations, and Obama said McCain "subscribes" to the ideology that led to the crisis.

"It's the same philosophy we've had for the last eight years, one that says we should give more and more to those with the most and hope that prosperity trickles down to everyone else," said Obama, who did not join the Senate until 2005. "It's a philosophy that says even common-sense regulations are unnecessary, unwise. One that says we should just stick our heads in the sand and ignore economic problems until they spiral into crisis."

McCain's history is generally against more government intervention in the markets. In an interview earlier this year, McCain economic adviser Douglas Holtz-Eakin said that McCain's preference is to let markets work on their own, but said that McCain was not opposed to regulation when necessary.

Yesterday, McCain declared that taxpayers should not fund any bailouts of teetering Wall Street firms, pledged to protect individuals' retirement accounts and pensions, and vowed to "put an end to running Wall Street like a casino."

"The McCain- Palin administration will replace an outdated, patchwork quilt of regulatory oversight and bring transparency and accountability to Wall Street," he said. "We will have transparency and accountability and we will reform the regulatory bodies of government."

His running mate, Sarah Palin, tried to reinforce his message, promising to protect the deposits of ordinary Americans and end "golden parachutes" for executives and warning that "our regulatory system . . . needs a complete overhaul."

As the presidential candidates talk about more rules for the financial sector, however, both have been beneficiaries of its largesse - the financial services industry is the third-largest contributor to McCain's campaign and the fourth-largest for Obama. Obama has received $9.9 million, including $370,000 from executives and others at Lehman Brothers, according to the nonpartisan Center for Responsive Politics. McCain has taken $6.9 million, including $300,000 from Merrill Lynch, his biggest single source of campaign cash.

In the early 1990s, McCain's political career was in jeopardy when he was accused of interfering with banking regulators during the savings and loan crisis on behalf of a major thrift in Arizona run by a McCain campaign contributor, Charles Keating. McCain and his family took several trips to the Bahamas with Keating, and McCain's wife invested in a Keating shopping center.

The Senate Ethics Committee concluded that McCain used "poor judgment" in the matter. McCain said he had learned his lesson and said he would try to stop the undue influence of major political contributors.

Michael Kranish can be reached at kranish@globe.com.