McCain, Obama clash over economy in a testy debate

John McCain and Barack Obama tussled over taxes, diplomacy and personal judgment in an often testy debate Tuesday night that featured none of the raw character attacks that have lately dominated the presidential campaign.

After another day of plunging fortunes on Wall Street, the two candidates picked up where their last encounter left off. Obama blamed the nation’s economic woes on the Bush administration -- aided and abetted, he suggested, by the Republican senator from Arizona.

“While it’s true that nobody’s completely innocent here, we have had over the last eight years the biggest increases in deficit spending and national debt in our history,” Obama said. “And Sen. McCain voted for four out of five of those George Bush budgets.”

McCain again sought to distance himself from the unpopular incumbent -- at one point he dismissed a “Bush-Cheney energy bill” he opposed -- and portrayed himself as a pragmatic problem-solver with a history of bucking Washington for the greater good.

“I have a clear record of bipartisanship,” McCain said. “. . . Sen. Obama has never taken on his leaders of his party on a single issue.”

Addressing the economic crisis, McCain offered one of his most significant proposals of the campaign, saying he would order the Treasury secretary to immediately “buy up the bad home loan mortgages in America and renegotiate . . . at the diminished value of those homes, and let people be able to make those . . . payments and stay in their homes.”

McCain’s $300-billion plan, a turnabout from an earlier position, would require a radical shift in the government’s approach. It raised several questions the McCain campaign could not immediately answer, including what its potential impact would be on efforts to remedy the global credit crisis.

With less than four weeks until the election, the 90-minute session before a national television audience presented McCain one of his last best chances to turn around a contest that seems to be moving decidedly in Obama’s direction. There was no obvious momentum-shifting moment, but unlike their first debate on Sept. 26, the two made little effort to hide their seemingly mutual contempt.

At one point, McCain referred to Obama as “that one,” without uttering his name. At other times, the candidates were snappish and sarcastic, none more so than when they discussed U.S. policy toward Pakistan. “Remarkable,” McCain said, when he accused Obama of reckless swagger for saying he would cross Pakistan’s borders to capture Osama bin Laden if there was “actionable intelligence” the country failed to pursue. “I’m not going to telegraph my punches, which is what Sen. Obama did,” McCain said.

The Illinois senator fired back that although McCain sought to portray him as “green behind the ears,” his Republican rival was the one “who sang ‘bomb, bomb, bomb Iran’ [and] called for the annihilation of North Korea. That, I don’t think, is an example of speaking softly.”

The debate, the second of three scheduled, was fashioned like a town hall meeting, a format in which McCain often thrives. The moderator, NBC’s Tom Brokaw, passed along questions submitted via the Internet and called on some of the 80 undecided voters seated on risers at Nashville’s Belmont University.

There were supposed to be ground rules -- proscribing how much the candidates could walk around on stage, and forbidding direct engagement. But McCain and Obama ignored them from the start, roaming at will, running over time limits and demanding opportunities to rebut their opponent. Frequently, one could be seen grinning, mirthlessly, while the other attacked.

The contest has taken a sharply negative turn in recent days, as polls showed Obama pulling ahead of McCain in several key states. The McCain campaign cited Obama’s association with the Rev. Jeremiah A. Wright Jr., his controversial ex-pastor, and William Ayers, a Chicago professor who in the 1960s co-founded the radical Weather Underground. Obama’s camp, in turn, invoked McCain’s involvement in the 1980s Keating Five savings and loan scandal.

None of those subjects came up Tuesday night. Instead, the candidates rooted many of their criticisms in the economic debacle threatening to bring down the world’s financial system. McCain suggested much of the blame rested on Obama’s shoulders.

With encouragement from the Democrat “and his cronies,” McCain said, mortgage giants Fannie Mae and Freddie Mac lent money to homeowners who could not afford to repay it. “There were some of us that stood up against this,” McCain said. “There were others who took a hike.”

Obama accused McCain of vastly overstating both the role the federal institutions played in the crisis, and his own foresight in warning of the dangers. “In fact,” he noted, it is McCain’s campaign manager, Rick Davis, who partly owns a lobbying firm that earned a rich retainer from Fannie Mae.

The two men also resumed their argument over taxes. McCain repeatedly accused Obama of favoring a broad-based tax increase that he said would worsen economic growth and penalize small businesses. He quoted Obama as once saying he would forgo raising taxes if economic times were bad. “I’ve got some news, Sen. Obama,” McCain said, facing his rival. “The news is bad. So let’s not raise anybody’s taxes.”

“The Straight Talk Express lost a wheel on that one,” Obama responded. He said repeatedly that his own plan would raise taxes only on those making more than $250,000 a year and that it would result in a lower tax bill for 95% of working Americans.

The candidates also differed when asked by Brokaw to list their priorities. McCain said he would tackle healthcare, energy and entitlement reform all at once. “We’re not rifle shots here,” McCain said. “We are Americans. We can, with the participation of all Americans, work together and solve these problems together.”

Obama said the next president would have to set priorities and defer some projects, “just like a family has to prioritize.” First up would be a new plan for energy independence, he said. Revamping healthcare would be his second undertaking, followed by education.

The candidates jousted over their healthcare plans. Obama wants to build on the existing system, providing subsidies for those who cannot afford coverage. He said McCain would, for the first time, tax workers for the coverage they receive from their employers and strip states of their power to bar insurers from denying coverage for preexisting conditions or prenatal care.

McCain, who favors a $5,000 tax credit to let Americans shop for healthcare, said Obama’s plan would fine those who don’t get adequate coverage. “The point is that we have got to give people choice in America and not mandate things on them,” McCain said.

Each accused the other of distorting his position.

The candidates were asked to lay out their doctrines for handling humanitarian crises in which U.S. security is not at issue. Obama said the U.S. has a moral responsibility to intervene in such cases.

“When genocide is happening, when ethnic cleansing is happening somewhere in the world, and we stand idly by, that diminishes us,” Obama said. He added that the U.S. needed to enlist its allies for help in such cases given the level of “cruelty around the world. . . . We’re not going to be everywhere all the time,” he said.

McCain used the question to draw an implicit contrast with Obama about who would be the better commander in chief. A president needs to understand what “the limits of our capability are,” he said. One question he said a president must ask is whether committing U.S. troops will “beneficially affect the situation.”

“That requires a cool hand at the tiller,” McCain added, one of several times he challenged Obama’s judgment.

The final question asked what the candidates didn’t know and how would they learn it. Both offered what amounted to a closing argument and personal soliloquy.

Obama repeated the narrative of his unlikely rise from a single-parent home. “I know that I wouldn’t be standing here if it weren’t for the fact that this country gave me opportunity,” he said. “I came from very modest means. I had a single mom, and my grandparents raised me.”

Getting the last word, McCain said the world is so volatile that even basic questions of political geography are a mystery. He then made a veiled reference to his years as a prisoner of war in North Vietnam.

“I know what it’s like in dark times,” McCain said. “I know what it’s like to have to fight to keep one’s hope going through difficult times.”

The final debate is set for Oct. 15 at Hofstra University in Long Island, N.Y.

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mark.barabak@latimes.com

michael.finnegan@ latimes.com

Barabak reported from San Francisco and Finnegan from Nashville. Times staff writer Peter Nicholas contributed to this report.