John McCain and Barack Obama moved aggressively Thursday to seize the mantle of reform amid Wall Street’s maelstrom, with McCain saying he would fire the head of the Securities and Exchange Commission and create an agency to overhaul weakened financial firms, and Obama proposing to inject more money into the battered financial system.
The heightened efforts to offer solutions to the chaos in the financial markets showed both presidential candidates struggling to appear decisive and take advantage of the crisis, but without sounding alarmist.
Promising a “proactive” response, McCain sought to depict himself as a stern trust-buster in the mold of his political hero, Theodore Roosevelt.
The Republican’s new stance as angry populist carries risk but also a potential bounty of political capital.
“Mismanagement and greed became the operating standard while regulators were asleep at the switch,” he said.
Obama, who had been aggressive earlier in the week in depicting McCain as “out of touch” for saying that the economy’s fundamentals were “sound” while the markets reeled, took a more measured route.
In Espanola, N.M., the Democrat called for legislation that would bolster “liquidity to enable our financial markets to function.”
But while he continued his assault on McCain for a “reverse course” toward economic populism, Obama did not detail how his own plan would work.
McCain started the day off pugnacious, saying in Cedar Rapids, Iowa, that if he were president, he would fire SEC Chairman Christopher Cox, a former GOP congressman from Newport Beach.
Cox, an appointee of President Bush, dismissed McCain’s comment, saying that “it is precisely the wrong moment for a change in leadership that inevitably would disrupt the work of the SEC at just the wrong time.”
Obama mocked McCain’s call to fire Cox by suggesting that voters “fire the whole trickle-down, on-your-own, look-the-other-way crowd in Washington.”
The president appoints the SEC chairman but cannot fire him.
Anticipating ridicule from the Obama camp, McCain campaign spokesman Brian Rogers said the president “always reserves the right to request the resignation of an appointee and to maintain the customary expectation that it will be delivered.”
White House spokeswoman Dana Perino later said that Bush still supported Cox.
The chasm between the two GOP leaders over Cox’s future bolstered McCain’s continuing effort to distance himself from Bush.
But McCain did not oppose Cox -- nor did Obama -- when the Senate confirmed him by voice vote in July 2005.
McCain also promised that, as president, he would create an agency similar to the Resolution Trust Corp., which cleaned up the savings-and-loan debacle of the 1980s.
Echoing a proposal under discussion by senior federal finance officials and congressional leaders, McCain said his new agency would “identify institutions that are weak and take remedies to strengthen them before they become insolvent.”
The Arizona senator’s top economic advisor, Douglas Holtz-Eakin, said the proposed agency would manage financial institutions on the verge of insolvency, providing “appropriate liquidity.”
Formed as a “Treasury- supported enterprise,” the advisor said, the agency would ease the flow of credit and enhance investor confidence by ensuring that the troubled firms’ assets and liabilities were assessed correctly at market value.
McCain’s push for an RTC reprise for Wall Street surprised many economists who have expressed worry in recent days about the long-term effects of government bailouts. The Federal Reserve and Treasury have moved to salvage investment bank Bear Sterns, mortgage titans Fannie Mae and Freddie Mac, and now the insurance giant AIG.
“It has long been Republican economic orthodoxy to warn against government bailouts, and for McCain to embrace the idea is really pretty stunning,” said Robert Litan, vice president for research and policy at the Kauffman Foundation and a regulatory specialist during the Carter administration.
Litan said a troubling difference between the RTC and McCain’s proposal was that the faltering institutions aided in the late 1980s and early 1990s were all backed by government guarantees.
“This time, the firms that are being helped had no federal guarantees before they failed,” he said. “The question is: Who gets to drive their truck up to the waste dump and get rid of their toxic loans? Who chooses?”
It is also unclear how much support there will be for McCain’s proposal among already-jittery fiscal hawks on Capitol Hill.
Rep. Scott Garrett (R-N.J.), a member of the House Financial Services and Budget committees, said many members were waiting to hear more details, particularly the cost of setting up his “mortgage and financial institutions trust.”
“I would not say I’m in the class of saying that this is the mechanism that we should be drawing up plans for right now,” Garrett said.
McCain also runs the risk of dredging up bad memories of his involvement in the savings-and-loan debacle. William K. Black, one of the federal regulators who accused McCain of interfering with officials during the scandal, expressed surprise that McCain was “returning to a sore subject. You’d think he’d be sensitive to these things, considering his terrible track record.”
Even with the economic terrain hazardous, McCain wasted no time floating his proposal, moving quickly to embrace the idea the day after it was endorsed by three prominent economic leaders, including a prominent senior advisor to Obama.
On Wednesday, former Federal Reserve Chairman Paul A. Volcker, who has informally advised Obama, joined former Treasury Secretary Nicholas F. Brady and Comptroller Eugene A. Ludwig in a Wall Street Journal article favoring an RTC-like agency.
An Obama aide acknowledged Thursday that Volcker had discussed the RTC proposal with Obama. The aide would not say whether Obama viewed the idea favorably, but McCain’s fleet-footed move to seize the proposal as his own had clearly outflanked the Democrat.
Obama scheduled a meeting today with Volcker and other advisors, including former Treasury Secretaries Paul H. O’Neill, Robert E. Rubin and Lawrence H. Summers.
The Illinois senator planned to discuss his new legislation with his advisors before spelling it out to the public, said spokeswoman Jen Psaki.
Obama has not taken a position on AIG’s rescue, unlike McCain, who has backed it. But on Thursday, he called on the Treasury and Federal Reserve to “use their emergency authorities to maintain the flow of credit, to support the availability of mortgages and to ensure that our financial system is well capitalized.”
Obama also kept up his scornful attacks on McCain for tacking back and forth and for “a week of rants.”
McCain returned the criticism: “When I pushed legislation to reform Fannie Mae and Freddie Mac, Sen. Obama was silent.”
Times staff writers Michael Finnegan in Espanola, N.M., and Maeve Reston in Los Angeles contributed to this report. Braun reported from Washington and Levey from Cedar Rapids, Iowa.