An election ‘game changer’ from Wall Street?

In the wake of the Lehman Brothers bankruptcy, Obama was first of out the gate with a statement early Monday morning, using the Lehman Brothers crisis as a chance to attack policies that “loosened oversight and regulation, and encouraged outsized bonuses to CEOs.”

McCain vows to 'clean up Wall Street'
McCain followed at a campaign event in Florida, saying of the Wall Street turmoil, “People are frightened by these events. Our economy — I think still — the fundamentals of our economy are strong, but these are very, very difficult times. And I promise you we will never put America in this position again. We will clean up Wall Street.”

The phrase "clean up" implied chicanery or worse, but McCain did not address the possibility that what took down Lehman was innovative financial engineering (asset-backed securities) gone amok, not dishonesty.

Obama and McCain have not addressed in detail the risks of such engineering.

“It’s tough to get a policy debate into the last two months of a presidential campaign — and this is a particularly technical and difficult area,” said Sebastian Mallaby, director of the Maurice R. Greenberg Center for Geoeconomics at the Council on Foreign Relations.

Obama supporter Paul Volcker, the former chairman of the Federal Reserve, had argued that “financial engineering has failed the test of the market” and that its risks outweigh its benefits.

“It’s fair to assume people in the policy circles around both candidates are debating that. I just don’t think it has surfaced in a crystallized way in the stump speeches of the candidates,” said Mallaby.

The root of the problem was not deregulation, argued Mallaby.

Fannie Mae and Freddie Mac “were highly regulated but they still needed a bail out; regulated banks such as Citigroup lost huge amounts of money, meanwhile rather lightly regulated hedge funds have had some trouble, but relatively less trouble than the more regulated parts of the financial system.”

Television wars
In the television ad war, McCain was precisely on target Monday, while Obama released an off-topic TV spot focused on himself and what the ad called “dishonest smears” aimed at him by the McCain team.

Video McCain vows to 'clean up Wall Street' Sept. 15: Campaigning in Florida, Sen. John McCain says his administration would bring regulatory reform and transparency to financial markets. MSNBC

McCain’s new ad focused squarely on economic distress.

“Our economy in crisis. Only proven reformers John McCain and Sarah Palin can fix it,” the ad argued. It promised, “Tougher rules on Wall Street to protect your life savings; no special interest giveaways, lower taxes to create new jobs; offshore drilling to reduce gas prices.”

Obama, too, was talking about lower taxes for most of the population and higher taxes only for those above $250,000.

Campaigning in New Hampshire on Friday, Obama gave what he called “a firm pledge," pledging under his plan, "...no family making less than $250,000 will see their taxes increase — not your income taxes, not your payroll taxes, not your capital gains taxes, not any of your taxes.”

But despite Obama’s promise to increase taxes on them, some affluent Republicans are already with him.

“I’d think the failing economy favors Obama,” said Bill Gross, head of the investment firm Pimco, in an interview with the Financial Times.  “Despite being a Republican, I also think it’s time for a rebalancing of interests between the wealthy and the less wealthy.”

Gross lives in California — a state which is certain to go for Obama. But upper-income voters like him in less certain states such as Colorado, Michigan, and Virginia will be a decisive group.

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