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The Financial Crisis and the Triumph of Spin

The opinions expressed by columnists are their own and do not necessarily represent the views of

The two candidates for president stood even in the polls when the financial tsunami hit around mid-September. Since then, the Democrat has pulled ahead.

Perhaps there was nothing John McCain could have done that would have changed things. It may be that voters are primed to blame the party in the White House for any bad news (to say "the party in power" when the Democrats control Congress is to say too much).

Or was it this? Democrats are so much better at placing blame. From the first moment that Treasury Secretary Hank Paulson warned of a freezing in credit markets, the Democrats, led by Barack Obama, were ready with an explanation that was partisan, simple, and wrong. It was trickle-down economics. It was resistance to regulation. It was, in short, Republicanism that had brought on the crisis. Nancy Pelosi, in a statement on the House floor before the first rescue bill was voted upon, condemned what she called the "Bush recklessness … the anything goes economic policy. No regulation. No supervision. No discipline."

But if the Bush administration's laissez-faire economics is responsible for the banking mess, why are France and Britain, both of whom heavily regulate their economies, in the same boat?

The drumbeat goes on. On Oct. 22, Henry Waxman, chairman of the House Oversight and Government Reform Committee, continued the harangue: "The list of mistakes is long and the cost to taxpayers is staggering. Our regulators became enablers rather than enforcers. Their trust in the wisdom of the markets was infinite. The mantra became that government regulation is wrong. The market is infallible."

It's a plausible claim because Republicans do tend to have more faith in markets than Democrats. The Republicans had an answer. But to find it you needed to search the pages of the Wall Street Journal, or read conservative columnists, or listen to talk radio. It didn't come from McCain or Palin. They wasted crucial days decrying greed on Wall Street. And while you and I know that Wall Street is peopled by Obama-backing Democrats, most Americans think Wall Street is the home of Republicans in frock coats and bowler hats.

What they should have done is to point out that Democrats love to give things away. Voters know that this is true. The thing the Democrats were intent on giving away this time was mortgages to those who could not afford them. When the Bush administration (with the strong backing of John McCain) attempted to tighten regulation of Fannie Mae and Freddie Mac -- the Democrats' sandboxes -- Barney Frank, Chris Dodd, and Barack Obama refused.

The McCain/Palin team should have driven home the idea that there is no free lunch, that when government attempts to create wealth by fiat -- by simply declaring that "mortgages for everyone" is the new rule and let's not look too closely at how we pay for this -- reality will catch up with you in the end.

Having firmly placed blame on the Democrats for Fannie Mae and Freddie Mac -- the kernel of this disaster -- McCain could have polished his maverick credentials by criticizing the Bush administration and some Republicans for the excessive spending they, too, indulged. The great sin this crisis has unveiled is that of excessive debt --government debt, to be sure, but also excessive personal debt. It would have been risky, but McCain would have looked statesmanlike if he had told voters that all of us must henceforth change our ways: from government relying on borrowing from foreigners to individuals running up charges on credit cards. He could have said that capitalism is the greatest engine of wealth creation the world has ever seen. But like democratic government, it requires discipline to succeed. By distorting the natural brakes on lending, Democrats disrupted the self-correcting mechanisms of an otherwise very successful system. Democrats, not Republicans, sought to privatize the rewards (think Franklin Raines, Jim Johnson, Chris Dodd, Jamie Gorelick, and all of the Democrats who got fat campaign contributions from Fannie and Freddie) and socialize the risks of home mortgages.

Then McCain should have pointed out that Barack Obama has relied on style (aloof and cool) not substance in his response to the financial crisis. He may impress voters by his demeanor, but his promised actions (higher taxes, trade protectionism, more unionization of the workforce, and much more government spending) are the very policies that can transform an economic downturn into a depression.

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