Michelle Obama, wife of Democratic
presidential candidate Barack Obama,
speaks to supporters at the University
of Virginia Wednesday. (Chuck Kennedy/MCT)
By David Lightman and William Douglas
McClatchy Newspapers (MCT)
GRAND RAPIDS, Mich. — John McCain blamed Wall Street's "casino culture" and Barack Obama blamed Republicans — including McCain — on Wednesday for the financial turmoil that led to the government's takeover of the nation's largest insurer.
"The government was forced to commit $85 billion," McCain, the Republican presidential nominee, said in a statement about the Federal Reserve's loan Tuesday night to American International Group. "These actions stem from failed regulation, reckless management and a casino culture on Wall Street that has crippled one of the most important companies in America."
Obama, the Democratic presidential nominee, pounced, calling McCain's views "an eleventh-hour conversion to the language of reform" after decades of support for Republican policies deferring to markets and cutting government regulation of them.
The Fed's takeover of AIG "is the final verdict on the failed economic philosophy of the last eight years," Obama charged in a statement. "This crisis serves as a stark reminder of the failures of crony capitalism and an economic philosophy that sees any regulation at all as unwise and unnecessary. ... Despite his eleventh-hour conversion to the language of reform, Senator McCain has subscribed to this philosophy for 26 years in Washington."
McCain supported 1999 legislation that tore down Depression-era legal walls separating commercial banks, investment banks and insurers from one another. However, President Clinton, a Democrat, signed it into law.
Throughout his congressional career, the Arizona senator usually has backed cutting federal regulation of industries in the name of promoting free markets and ending government interference, which is Republican ideology. However, he's sided with Democrats in voting for HMO regulation, background checks for sales at gun shows and tougher fuel-economy standards for autos.
In the closest modern parallel to recent government intervention in Wall Street's crisis, McCain voted in support of the 1989 bill to clean up the debt-ridden savings and loan industry, which passed the Senate 91-8.
McCain was one of the "Keating Five" senators, whom the Senate Ethics Committee investigated for their relationships with Charles Keating, the chairman of the failed Lincoln Savings and Loan Association. Keating gave McCain's campaigns about $112,000 in contributions, and they were friends; McCain and his family took lavish trips with Keating.
Keating served five years in jail after being convicted of corruption charges in connection with his management of Lincoln. The committee cleared McCain — who met with federal regulators to discuss Keating — of acting improperly but said he'd exercised poor judgment.
The Federal Reserve Board said Tuesday night that it would give AIG a two-year, $85 billion loan and take a nearly 80 percent stake in the firm, which has lost billions because of mortgage-bond defaults that it insured. The action followed the Fed's and Treasury's recent takeover of mortgage giants Fannie Mae and Freddie Mac and engineering of the sale of investment bank Bear Stearns.
McCain and Obama stressed that the Fed should aim most to protect taxpayers, not financiers.
"The focus of any (government) action should be to protect the millions of Americans who hold insurance policies, retirement plans and other accounts with AIG," McCain said. "We must not bail out the management and speculators who created this mess."
Obama said, "The Fed must ensure that the plan protects the families that count on insurance. ... It must not bail out the shareholders or management of AIG."
Neither candidate offered specifics of how he'd overhaul the regulatory system. They just kept firing away, though when Obama issued his original statement, he misstated AIG's name.
"The fact that we have reached a point where the Federal Reserve felt it had to take this unprecedented step with the American Insurance Group is the final verdict on the failed economic philosophy of the last eight years," the Illinois senator said.
"How can Barack Obama claim to know economic fundamentals when he doesn't even know what AIG is?" asked Alex Conant, a Republican National Committee spokesman. "This is the sort of economic naivete that Americans cannot afford in a commander in chief."
Obama's campaign quickly issued an "update" with the correct name, and repeated its blast at McCain and the Republican Party.
Too often, Obama told an audience in Elko, Nev., McCain has promoted "a philosophy that lets Washington lobbyists shred consumer protections and distort our economy so it works for the special interests instead of working people."
(Lightman reported from Washington.)
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