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Wall Street Crisis Forces Candidates to Shift Their Focus

By Jonathan Weisman and Shailagh Murray
Washington Post Staff Writers
Tuesday, March 18, 2008

The contenders for the Democratic presidential nomination raced to inject themselves into the debate over the credit and housing crisis yesterday, slamming the Bush administration's failure to do more to avoid a crisis as the economy once again surged to the forefront of the campaign.

Sens. Hillary Rodham Clinton (N.Y.) and Barack Obama (Ill.) had expected to focus on Iraq this week, marking the fifth anniversary of the U.S. invasion with a renewed debate over which candidate foresaw the war's consequences and who could end it more effectively. But Clinton's policy address on Iraq at George Washington University yesterday was immediately followed by a news conference dominated by economic questions.

"I am reminded every day as I meet with families and listen to their stories that the effective functioning of our financial markets isn't just about Wall Street. It's about Main Street," Clinton said before reeling off examples of voters ranging from construction workers to college students she had met who were struggling to make ends meet.

Obama, campaigning in Monaca, Pa., was also peppered with questions about the Federal Reserve Board's intervention this weekend in the collapse of the Wall Street investment firm Bear Stearns and a second emergency interest rate cut.

"I think there is no doubt we are teetering on a potential crisis on Wall Street that could have ramifications all over the country. We have a credit market that is locked up," he said. "Until people have a sense that there is a floor, until they have a sense that the existing debt that's out there has all been accounted for, we're going to continue to have some very, very severe problems."

For Obama, Clinton and the presumptive Republican nominee, Sen. John McCain (Ariz.), the gyrations of the credit crisis have helped to reshape the playing field for the campaign season. In January, Obama and Clinton were prepared for a detailed debate on their respective universal health-care proposals, noted Jason Furman, a Brookings Institution economist and former economic adviser to Sen. John F. Kerry's 2004 campaign. Instead, they argued about economic stimulus proposals. McCain's surprise visit to Iraq this weekend, meanwhile, was virtually lost amid coverage of J.P. Morgan Chase's fire-sale purchase of Bear Stearns under Fed supervision.

"This is clearly the biggest substantive issue of the campaign right now," Furman said.

"The red phone is ringing at 3 a.m.," Sen. Charles E. Schumer (D-N.Y.) quipped yesterday, referring to Clinton's controversial television advertisement that questioned Obama's readiness to deal with a foreign policy crisis.

Both campaigns began the week attempting to bolster their candidates' economic credentials -- at times pushing the boundaries of fact. Both candidates have now endorsed legislation unveiled last week by Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.) and House Financial Services Committee Chairman Barney Frank (D-Mass.) that would allow the Federal Housing Administration to guarantee new mortgages for lenders willing to help homeowners facing foreclosure.

Clinton tossed in that she had spoken yesterday morning to Fed Chairman Ben S. Bernanke and Timothy Geithner, president of the Federal Reserve Bank of New York, about the Fed's actions.

"Those 3 a.m. calls can be about economic crises as well as national security ones, because it's all intertwined today," she said.

The housing crisis has been the subject of a simmering dispute between Clinton and Obama for weeks. Obama has criticized Clinton's proposal to freeze foreclosures for 90 days and subprime mortgage rates for five years, saying her plan would send interest rates for new and refinanced mortgages skyrocketing.

But to the surprise of many Democratic campaign strategists, neither candidate has consistently sustained a focus on the economy -- despite a barrage of polling data showing it has vaulted over the Iraq war in the past four months as the most pressing concern of voters. Last Thursday, both Obama and Clinton were on Capitol Hill when Dodd and Frank unveiled their legislation that would expand the government's intervention in the crumbling housing market. Neither of them showed up at the news conference, nor have they come forward with new proposals since the contagion in the mortgage market spread to Wall Street.

"Our campaign for over a year has been very worried about how severe the housing crisis would be and its impact on the general economy," said Gene Sperling, a Clinton economic adviser. But he added: "It's been more of a continuing series of discussions and decisions about when to put forward proposals."

Clinton stuck with her Iraq speech yesterday morning, castigating what she described as the "Bush-McCain Iraq philosophy" of "keeping troops in Iraq for up to 100 years if necessary." She also continued her criticism of Obama as a rhetorical foe of the Iraq invasion who was reluctant to go beyond speeches until it became politically expedient to do so.

Obama fired back, saying, "The truth is, the judgment of Hillary Clinton and John McCain gave President Bush a blank check for war." He, too, will shift his focus from the economy today with an address on race in Philadelphia, where he will explore his relationship with the Rev. Jeremiah Wright, a controversial Chicago pastor.

Murray is traveling with the Obama campaign.

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