Financial crisis shakes up presidential campaign

The chaos and confusion of the credit crisis have further scrambled the wild presidential race of 2008.

Democrat Barack Obama appears to have gained an electoral edge from his actions over recent days. But “gain,” in this context, is a relative term. Given the volatility of the situation, Senator Obama’s narrow lead among voters on economic issues could disappear with the next plunge of the Dow Jones Average.

For the moment, both Obama and GOP nominee Sen. John McCain are stuck pressing for passage of an unpopular bailout bill only weeks before election day. Voters appear dismayed by losses in retirement funds and predictions of dire economic problems, but they may remain unsure whether Washington’s current course is the right one.

“The complexity of the situation for the average person is just daunting,” says Michael McTeague, a former history professor and acting interim associate dean at Ohio University-Eastern in St. Clairsville.

The collapse of big eastern financial institutions does worry voters around Ohio University-Eastern’s campus, located only 15 miles west of Wheeling W. Va., adds Mr. McTeague. But their biggest concerns remain local.

“We’re looking at whether our little community bank is going to keep working,” he says.

Since the credit crisis escalated two weeks ago with the collapse of Lehman Brothers, Obama has opened a narrow lead in general polls. A Gallup daily tracking survey released Sept. 29 had Obama in the lead, 49 to 43 percent.

Within the poll numbers, Obama appears to have been helped by a number of factors. For one, voters generally tend to say they believe Democrats are better at handling the economy than Republicans, and that appears to have happened here. A new Hotline poll shows that over the last week the percentage of respondents who feel McCain is better prepared than Obama to handle the economy fell five percentage points, from 43 to 38 percent.

McCain’s personal performance, from his attempt to cancel the initial presidential debate to his silence in presidential meetings on the bailout, did not gain him new votes, at least in the short term. A USA Today/Gallup poll taken before the bailout failed to pass the House on Monday showed that 53 percent of respondents judged his actions unfavorably.

But neither did voters see the junior Democratic senator from Illinois riding to their rescue. Forty-three percent of respondents viewed Obama’s performance unfavorably, as well.

On Washington’s response to the crisis, there is a lot of blame to go around, and voters are not inclined to cut their leaders any slack, notes Stephen Hess, senior fellow in governance studies at the Brookings Institution.

A lame duck president with low approval ratings was unable to rally backbenchers of his own party. Divided government complicated matters, with Democratic House Speaker Nancy Pelosi making a pre-vote speech many saw as unnecessarily partisan. A hard-fought presidential election of great significance spilled over into bailout politics, while a national problem of great significance grew worse by the day.

“This was a strange confluence of awfulness,” says Mr. Hess.

Some commentators have gone so far as to bemoan a collapse of American national leadership. Whether that has actually occurred remains to be seen, says Hess, who was a White House staff member in the Nixon and Eisenhower administrations.

Since Franklin Roosevelt, public leadership in the US has “overwhelmingly” become a product of the performance of the chief executive, says Hess. By that, he means both the substance of US public leadership, and the public’s perception of its effectiveness.

In that sense, barring an unforeseen turn for the better, the credit crisis and lingering economic problems may become a make-or-break issue for either McCain or Obama, starting with their first day in the Oval Office.

“They will be handed a problem, and some initial goodwill,” says Hess. “What they do with it is up to them.”
At time of writing, the Senate had not taken its planned Oct. 1 vote on a new bailout plan version.

The Senate’s legislation adds an increase in Federal Deposit Insurance Corp. caps on insured bank accounts from $100,000 to $250,000. It also adds some tax cuts intended to appeal to House Republicans, if the bill passes the Senate and then reaches the House.

Campaigning in Missouri on Oct. 1, McCain said that the new bill isn’t perfect but that it is improved over its old version, and its rejection risked making the credit crisis worse.

“If we fail to act, the gears of our economy will grind to a halt,” said McCain.

McCain, Obama, and Democratic vice presidential nominee Sen. Joe Biden planned to return to Washington and vote for the bailout package.

It would be “catastrophic” if a Washington deal allowing the government to buy distressed financial institution assets is not reached soon, said Obama. “I believe we are unlikely to succeed if we start from scratch or reopen negotiations about the core elements of the agreement,” he said in a statement about the Senate version of the legislation.

Material from the Associated Press was used in this report.