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For the New Contagion, the Same Old Prescriptions

By Steven Pearlstein
Washington Post Staff Writer
Wednesday, October 8, 2008

Against a backdrop of an unfolding meltdown in global financial markets and the near-certainty of a U.S. recession, the two candidates for president used the occasion of a much-anticipated town hall meeting last night to repeat all the talking points they were making long before the recent bank failures, the free fall of stock prices and the federal government's expensive rescue efforts.

A televised national debate is hardly the ideal place to lay out a 10-point program for containing the credit crisis or for rebuilding and redesigning the world's financial infrastructure. But neither did either candidate see it as an opportunity to lay out the broad principles he would follow in managing the current crisis or to sketch the outlines of a new form of capitalism that might replace the current model, which many Americans are coming to conclude provides too little in the way of fairness and economic security.

Asked by an Internet questioner what sacrifices they were prepared to ask Americans to make to get us out of the economic mess, both Barack Obama and John McCain sidestepped the question, with McCain resorting to his familiar promises to cut back on pork-barrel spending and Obama pitching a easy-to-swallow plea for everyone to turn down the thermostat.

Rather than talking about sacrifices, the candidates got into their most spirited exchanges while trying to outdo each other in proving that he would be the most aggressive and committed in cutting taxes for most households.

Although both candidates relished the opportunity to point an accusing finger at greed and fraud on Wall Street, neither took up the invitation of moderator Tom Brokaw to assign any responsibility to households and consumers who take on too much debt and live beyond their means.

Indeed, so anxious were both candidates to avoid delivering bad news to the voters one month before the election that neither chose to answer a simple question about whether they expect the economy to get worse before it gets better.

"I'm confident about the American economy," declared Obama, before treating the Nashville audience to a reprise of his call for better regulation and reducing the grip that lobbyists have on Washington policymaking.

"It depends on what we do," said McCain, who then immediately launched into his now-familiar riff on how American workers are the most innovative and productive in the world, if given the chance to show their stuff.

During financial crises, candidates, like presidents, have to walk a difficult line in talking about how bad things are or may get. Doing so could risk adding to the sense of panic, causing even more banks to stop lending, more employers to cut back on hiring and more investors to sell their holdings. Careful phrasing, a measured tone and a good dose of confidence are necessary in avoiding a dangerous, self-fulfilling dynamic.

On the other hand, failing to show sufficient urgency about the problem and familiarity with its scope and details can undermine the confidence that people have in the leaders at the helm. It's one thing to tell people they have nothing to fear but fear itself -- but that works best once you've also declared a bank holiday, announced a program to recapitalize the banking system, and promised to provide sufficient cash to state and local governments to help them maintain vital services.

The only departure from the standard script last night came from McCain, who said he'd direct the Treasury Department to buy up troubled mortgages and refinance them with new loans reflecting the diminished value of houses and the ability of homeowners to make their monthly payments. A McCain campaign spokesman said the program, which could cost up to $300 billion, should be financed with the $700 billion economic bailout plan passed by Congress last week.

McCain's plan appeared to be an expansion of a proposal he made earlier in the year, based on similar legislation crafted by House and Senate Democrats. Despite the initial opposition of the White House, that legislation was passed by Congress and signed by the president.

McCain acknowledged that such an open-ended program would be expensive, but he argued that no economic recovery could begin until home prices are stabilized, and that was the quickest way to do it.

"We all know, my friends, until we stabilize home values in America, we're never going to start turning around and creating jobs and fixing our economy," McCain said. "And we've got to give some trust and confidence back to America."

Obama's campaign labeled the mortgage idea "old news," noting that a similar program is already part of the economic rescue package and that Obama supports it.

In trying to explain how the country got into its financial predicament, McCain embraced what is becoming a familiar Republican story line, blaming it all on mortgage giants Fannie Mae and Freddie Mac, which he accused of creating the subprime mortgage mess and fighting off his attempts, and those of other Republicans, to rein them in.

But any history of the period is likely to show that it was the private mortgage industry and Wall Street that together created the subprime market, and that Fannie and Freddie were rather late to join in the party.

In the end, neither candidate seemed prepared to tear up the carefully crafted programs that they used to win the nominations and instead address the radically changed economic and budget realities that will face the new president.

Judging from the questions, voters are looking for just such a demonstration of candor and leadership -- and the ability to explain as well as inspire. For that, it would seem, they will have to wait until after the election.

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