Sunday, February 7, 2010

Losing the White House - The Turning Point

It is not often in politics that one can pin point an exact turning point in a campaign. It's not like an unsuccessful on side kick in football. Henry Paulson has published memoirs that paint John McCain in a bad light and help explain more clearly what happened in the fall of 2008 at the dawn of the first stimulus. I will admit upfront that Paulson has several axes to grind and his memoir is in all likelihood extremely self serving. However, there can be no doubt about the outcome of those events.

To set the stage, McCain had gotten a great bounce after nominating Sarah Palin as Vice President and at one point was leading Obama in the polls. He started to sink again, and the first debate on September 27 didn't seem to help. After the convention, the markets started to collapse and Paulson and Bush seemed panicked by the financial situation. There was some debate about bailing out AIG, and McCain initially spoke out against that, but didn't really follow through. AIG had been bailed out September 16. This seemed to stop his freefall in the polls. As the financial crisis seemed to deepen, McCain suspended his campaign and returned to Washington. He also suggested that the second debate be postponed. Further, McCain called for a meeting regarding the crisis, while Boehner was saying that he might not have the votes in the House to carry the TARP package for the President, and the Democrats were not going to pass it alone.

From the WSJ excerpt:

Then he sprang the trap that the Democrats had set: "Yesterday, Senator McCain and I issued a joint statement, saying in one voice that this is no time to be playing politics. And on the way here, we were on the brink of a deal. Now, there are those who think we should start from scratch. ... If we are indeed starting over, the consequences could well be severe."

But, of course, there was no deal yet. [Rep. Spencer] Bachus [R., Ala.] had been maneuvered into giving credibility to the appearance of one. But he, [House Minority Leader John] Boehner and [Senate Minority Leader Mitch] McConnell had since issued statements disclaiming the idea that there ever had been a deal. Now Obama and the Democrats were skillfully setting up the story line that McCain's intervention had polarized the situation and that Republicans were walking away from an agreement. It was brilliant political theater that was about to degenerate into farce. Skipping protocol, the president turned to McCain to offer him a chance to respond: "I think it's fair that I give you the chance to speak next."

But McCain demurred. "I'll wait my turn," he said. It was an incredible moment, in every sense. This was supposed to be McCain's meeting—he'd called it, not the president, who had simply accommodated the Republican candidate's wishes. Now it looked as if McCain had no plan at all—his idea had been to suspend his campaign and summon us all to this meeting. It was not a strategy, it was a political gambit, and the Democrats had matched it with one of their own.

There it is. McCain had no alternative. You can disagree all you want about the details of that meeting, but the fact remains that McCain could have derailed the first stimulus and distanced himself from both Obama and Bush. Obama had called McCain's bluff. But McCain did not have the free market economics team in place to call "all in." After that it was all down hill for McCain and he never came any closer than that day to catching Obama.

In hindsight, I don't think the TARP was needed to stabilize the system. I am not an expert, but I know that financial institutes are judged by different standards for bankruptcy than are other businesses. Emergency action may have been needed, but it might have been a holiday on financial institution bankruptcy filings or some other fix that didn't commit the taxpayers to unlimited liability. I know for a fact that the TARP was a bad policy.

The voters went on to make a rational choice. Polls at the time showed the TARP plan to be unpopular, but given that both candidates ultimately supported a continuation of Bush policies, they voted for the one who appeared to have handled the crisis calmly, not the one who grandstanded like Michael Scott, but couldn't back up his play.

Poll history here, if you want to check my time line.

My initial thoughts at the time here and here.

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