In candidates, two approaches to Wall Street

By Jackie Calmes

updated 11:30 p.m. ET Sept. 15, 2008

WASHINGTON - The crisis on Wall Street will leave the next president facing tough choices about how best to regulate the financial system, and although neither Senator Barack Obama nor Senator John McCain has yet offered a detailed plan, their records and the principles they have set out so far suggest they could come at the issue in very different ways.

On the campaign trail on Monday, Mr. McCain, the Republican presidential nominee, struck a populist tone. Speaking in Florida, he said that the economy’s underlying fundamentals remained strong but were being threatened “because of the greed by some based in Wall Street and we have got to fix it.”

But his record on the issue, and the views of those he has always cited as his most influential advisers, suggest that he has never departed in any major way from his party’s embrace of deregulation and relying more on market forces than on the government to exert discipline.

While Mr. McCain has cited the need for additional oversight when it comes to specific situations, like the mortgage problems behind the current shocks on Wall Street, he has consistently characterized himself as fundamentally a deregulator and he has no history prior to the presidential campaign of advocating steps to tighten standards on investment firms.

He has often taken his lead on financial issues from two outspoken advocates of free market approaches, former Senator Phil Gramm and Alan Greenspan, the former Federal Reserve chairman. Individuals associated with Merrill Lynch, which sold itself to Bank of America in the market upheaval of the past weekend, have given his presidential campaign nearly $300,000, making them Mr. McCain’s largest contributor, collectively.

Mr. Obama sought Monday to attribute the financial upheaval to lax regulation during the Bush years, and in turn to link Mr. McCain to that approach.

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“I certainly don’t fault Senator McCain for these problems, but I do fault the economic philosophy he subscribes to,” Mr. Obama told several hundred people who gathered for an outdoor rally in Grand Junction, Colo.

Mr. Obama set out his general approach to financial regulation in March, calling for regulating investment banks, mortgage brokers and hedge funds much as commercial banks are. And he would streamline the overlapping regulatory agencies and create a commission to monitor threats to the financial system and report to the White House and Congress.

On Wall Street’s Republican-friendly turf, Mr. Obama has outraised Mr. McCain. He has received $9.9 million from individuals associated with the securities and investment industry, $3 million more than Mr. McCain, according to the Center for Responsive Politics, a watchdog group. His advisers include Wall Street heavyweights, including Robert E. Rubin, the former treasury secretary who is now a senior adviser at Citigroup, another firm being buffeted by the financial crisis.

If many voters are fuzzy on the events that over the weekend forced Lehman Brothers Holdings Inc. into bankruptcy and Merrill Lynch & Company to be swallowed by the Bank of America Corporation, the continuing chaos among the most venerable names in American finance — coming on top of the recent government seizure of mortgage giants Fannie Mae and Freddie Mac and the demise of the Bear Stearns Companies — has stoked their anxiety for the economy, the foremost issue on voters’ minds.

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So it was that first Mr. Obama and then Mr. McCain rushed out their statements on Monday morning before most Americans had reached their workplaces.

To the extent that travails on Wall Street and Main Street have both corporations and homeowners looking to Washington for a hand, that helps Mr. Obama and his fellow Democrats who see government as a force for good and business regulation as essential. Yet Mr. McCain has sold himself to many voters as an agent for change, despite his party’s unpopularity after years of dominating in Washington, and despite his own antiregulation stances of past years.

Mr. McCain was quick on Monday to issue a statement calling for “major reform” to “replace the outdated and ineffective patchwork quilt of regulatory oversight in Washington and bring transparency and accountability to Wall Street.” Later his campaign unveiled a television advertisement called “Crisis,” that began: “Our economy in crisis. Only proven reformers John McCain and Sarah Palin can fix it. Tougher rules on Wall Street to protect your life savings.”

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Mr. McCain’s reaction suggests how the pendulum has swung to cast government regulation in a more favorable political light as the economy has suffered additional blows and how he is scrambling to adjust. While he has few footprints on economic issues in more than a quarter century in Congress, Mr. McCain has always been in his party’s mainstream on the issue.

In early 1995, after Republicans had taken control of Congress, Mr. McCain promoted a moratorium on federal regulations of all kinds. He was quoted as saying that excessive regulations were “destroying the American family, the American dream” and voters “want these regulations stopped.” The moratorium measure was unsuccessful.

“I’m always for less regulation,” he told The Wall Street Journal last March, “but I am aware of the view that there is a need for government oversight” in situations like the subprime lending crisis, the problem that has cascaded through Wall Street this year. He concluded, “but I am fundamentally a deregulator.”

Later that month, he gave a speech on the housing crisis in which he called for less regulation, saying, “Our financial market approach should include encouraging increased capital in financial institutions by removing regulatory, accounting and tax impediments to raising capital.”

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