By Jonathan Weisman
Washington Post Staff Writer
Sunday, September 21, 2008; A06
On Tuesday night, as the federal government was seizing control of insurance giant AIG, Sen. Barack Obama was speeding toward a Hollywood fundraiser. The Democratic presidential nominee had 20 minutes before he arrived, he told his economic policy coordinator, and he wanted to spend it receiving input from his new economic brain trust.
Former Treasury secretary Robert E. Rubin found an urgent conference call request waiting for him as his plane arrived in New York from Europe at 9:45 that night. Former Federal Reserve chairman Paul A. Volcker was on a Manhattan street, talking on his cellphone and hustling to find a land line. Former Treasury secretary Lawrence H. Summers joined in, as did former Clinton White House economist Laura Tyson. Barbra Streisand would go on as scheduled at the Obama event in Los Angeles, but in Manhattan, other events had seized the attention of the Democrat's campaign.
Two days later, up the coast of California, Stanford University economist John B. Taylor, a senior official in President Bush's first-term Treasury Department whose "Taylor Rule" on monetary policy helps govern worldwide central banking, flew to Green Bay, Wis., where John McCain was campaigning. A peripheral figure in an economic policy shop dominated by business leaders and budget experts, Taylor added needed heft to a McCain campaign rocked by the economic crisis. He has remained close by since.
The upheavals this month have scrambled the campaigns of Obama and McCain, forcing both to bring in reinforcements, recast their economic messages and submit to a crash course on the arcana of corporate finance: credit default swaps, naked short-selling and collateralized debt obligations.
Both men have treaded carefully in discussing the crisis and potential remedies. During a Friday appearance in Florida, Obama said he supported giving the Treasury Department and the Federal Reserve the broad authority they need to shore up the system and called for broad bipartisan cooperation on the issue. And despite the massive price tag of the bailout package, he renewed his call for Congress to enact an economic stimulus package that would benefit average Americans rather than Wall Street.
McCain has not specifically endorsed the bailout plan, saying in a statement Saturday that he looked forward "to reviewing the full Administration proposal" and choosing to focus on his proposal for a new entity within the Treasury Department that would identify and rescue ailing financial institutions before they failed. He also called for the ouster of Securities and Exchange Commission Chairman Christopher Cox and attacked Obama for his ties to Washington insiders such as former Fannie Mae head James A. Johnson, saying the Illinois senator "actually profited from this system of abuse and scandal" that led to the current crises.
Both the Obama and McCain campaigns have deep ties to Fannie Mae and Freddie Mac, the troubled mortgage giants that were seized by the government this month, and both have senior advisers who were intimately involved with the deregulation of the banking and investment industries in the 1990s.
But Obama appears to have one clear advantage in the conversation: His campaign has been able to bulk up quickly, bringing in an array of major players from the Clinton administration who helped guide the nation through market upheavals, including the crises in Russia, Argentina and Southeast Asia and the collapse of the massive hedge fund Long-Term Capital Management. In the past few weeks, an eclectic and largely low-profile team of economic advisers at the Obama campaign headquarters has been practically taken over by the Clinton A-team.
"He's surrounding himself with people who have been through crises and know the lay of the land," said Jared Bernstein, an economist with the liberal Economic Policy Institute who was invited to a meeting of Obama financial advisers in July but was not part of the crisis meeting in Florida on Friday.
McCain has beefed up his eclectic economic team, as well, if somewhat less dramatically. Campaign officials have let it be known that they are taking counsel from Peter J. Wallison, an American Enterprise Institute economist who had been sounding the alarm about Fannie Mae and Freddie Mac for years. But Wallison said yesterday that he considers himself "a very outside adviser," offering ideas to McCain's domestic policy chief, Douglas Holtz-Eakin, when asked, but never to McCain directly.
Instead, the McCain campaign has focused on its broader economic message, with hard-hitting speeches portraying Obama as weak-kneed in the face of crisis and advertisements tying the Democrat to some of the episode's rogues. The policy shop remains dominated by a diverse set of voices more versed in government finance and business than in the ways of Wall Street.
Holtz-Eakin, a former director of the Congressional Budget Office whose academic background is in public finance, remains McCain's main economic spokesman. Carly Fiorina, the former chief executive of Hewlett-Packard, and Meg Whitman, who once headed eBay, are the public faces of his economic team. Phil Gramm, a former Senate banking committee chairman who works for the Swiss banking giant UBS, is McCain's main connection to Wall Street. But the campaign has sought to distance the candidate from the Texan since he referred to the United States as "a nation of whiners" in an interview.
Holtz-Eakin said the McCain campaign does not discuss internal deliberations and would not talk about the emergency meetings convened during the recent Wall Street convulsions.
The Obama campaign showed no such reticence.
"He's terrific on this stuff," Rubin gushed Friday on the return trip from Florida, where he had joined Obama for his emergency economic session. "He starts every meeting the same way, 'Let's try to figure out what's right substantively, then figure out how to handle it.' He asks good questions, really understands these things, the nuance, the distinctions."
As a lawyer and constitutional law teacher, Obama does not possess a background in economics, but his time at Harvard Law School and his connections in the Senate helped him assemble the high-powered team he is leaning on. Rubin's chief of staff at Treasury, Michael Froman, worked on the Harvard Law Review with Obama and introduced the newly elected senator to the former Treasury chief in New York, where both men work for Citigroup. Pete Rouse, who was chief of staff to then-Senate Majority Leader Thomas A. Daschle and is now the head of Obama's Senate office, connected Obama with Gary Gensler, who led the Clinton administration's efforts to increase regulation of Fannie Mae and Freddie Mac and helped broker the 1998 bailout of Long-Term Capital.
During the extended primary fight with Sen. Hillary Rodham Clinton, most of those Wall Street heavy hitters had either sided with Clinton or remained on the sidelines. Obama's economic shop was dominated by a young University of Chicago academic, Austan Goolsbee, who had little experience in politics.
That changed quickly after Clinton conceded. Days later, Gensler was invited to team up with Obama's national finance chairman, Penny Pritzker, in reaching out to business leaders. With the collapse of Fannie Mae and Freddie Mac, he was quickly pulled into policymaking on government-sponsored enterprises. Gene B. Sperling, former chairman of the Clinton National Economic Council, also came on board.
Jason Furman, who had extensive ties to the Clinton economic establishment, was brought on to coordinate policy. Something of a professional political economist, Furman worked in the Clinton White House and the policy shop of Vice President Al Gore's 2000 campaign and headed Sen. John F. Kerry's economic policy team four years later.
On Tuesday, with Republicans slamming him for holding a pair of glitzy Hollywood fundraisers during the crisis, Obama had Furman pull together the team of top economists and advisers. Volcker was publicly calling for the creation of a federal entity to buy up and eventually sell off distressed mortgages and other assets that were pushing banks to the brink of collapse. The Bush administration was heading in the same direction, Volcker said, and it was time for Obama to get ahead of the issue.
But in the rapidly unfolding crisis, Obama's team could not move fast enough. His economists gathered Thursday to put together a plan along the lines Volcker preferred, only to learn that Treasury Secretary Henry M. Paulson Jr. would be announcing the outlines of the administration's plan the next morning. With his plans incomplete, Obama's staff cautioned him not to appear as though he was quibbling about details. Markets were rebounding on the expectation that Washington would act, and no one wanted Obama to look like an impediment.
Some Obama advisers conceded yesterday that they have concerns about how gingerly Obama has approached the crisis, even in the face of relentless attacks from McCain.
"Winning the hearts of serious economic policy guys is not necessarily the path to electoral votes," one adviser fretted, "but I'm not sure. When things are serious enough, people want their leaders to be serious."