Economics

McCain Semi-Recants Bailout Support; Hopes Arizonans Have Short-Term Memory Loss

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You may have heard that 2008 Republican Party presidential nominee John McCain is facing the challenge of his life in the GOP primary for his long-safe Senate seat. I would bet half my bank account that talk radio shouter J.D. Hayworth won't get within 10 percentage points of the guy, but the race is producing some classic McCain equivocation, such as this two-step on his support for the September/October 2008 bailouts:

the four-term senator says he was misled by then-Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke. McCain said the pair assured him that the $700 billion Troubled Asset Relief Program would focus on what was seen as the cause of the financial crisis, the housing meltdown.

"Obviously, that didn't happen," McCain said in a meeting Thursday with The [Arizona] Republic's Editorial Board, recounting his decision-making during the critical initial days of the fiscal crisis. "They decided to stabilize the Wall Street institutions, bail out (insurance giant) AIG, bail out Chrysler, bail out General Motors…. What they figured was that if they stabilized Wall Street—I guess it was trickle-down economics—that therefore Main Street would be fine."

Does this square with history? I don't think it does, no.

First, if McCain was against bailing out AIG back then, he sure had a funny way of saying it:

"The government was forced to commit $85 billion," McCain said in a statement. "These actions stem from failed regulation, reckless management and a casino culture on Wall Street that has crippled one of the most important companies in America. […] The focus of any such action should be to protect the millions of Americans who hold insurance policies, retirement plans and other accounts with AIG," he said. "We must not bail out the management and speculators who created this mess. They had months of warnings following the Bear Stearns debacle, and they failed to act. We should never again allow the United States to be in this position."

He may have wanted us to hear "we must not," but the actionable verb phrase in the statement was "was forced to."

Second, if McCain was dead set against bailing out these "speculators," what was he doing proposing $300 billion to ever Tom, Dick and Harry behind or underwater on a mortgate? Did none of these people speculate? Here's Jacob Sullum from back then:

Under John McCain's mortgage bailout plan, you don't even have to default. He is promising anyone with negative equity a fixed-rate, 30-year mortgage at 5 percent, with the principal reduced based on the decline in the home's market value. If you're lucky enough to have made a really bad gamble on rising home prices, this deal might be enough to root for a McCain victory.

Third, and directly pursuant to McCain's claim to be against "stabiliz[ing] the Wall Street institutions," let's hit the replay button on September 2008:

"But who would ever have imagined," asks Salon's Andrew Leonard, "that the most extreme proposal for government intrusiveness in the private sector would come from John McCain?" How so? Leonard looks at what McCain said on Friday, and concludes he "proposed what looks to me to be the most extreme regulatory proposal I've yet seen suggested to deal with the current crisis."

McCain proposed creating a Mortgage and Financial Institutions trust to intervene early and "help financial institutions avoid bankruptcy." Leonard reacts: "Let's get this straight — the man who says he is fundamentally a deregulator and that government should get out of the way of the private sector is proposing an 'early intervention' system in which the government will be watching the books of all major financial institutions so as to steer them away from potential insolvency?!"

Finally, the Arizona senator contradicts himself (or something) later in the same Republic interview:

But McCain stopped short of calling the TARP a mistake.

"Something had to be done because the world's financial system was on the verge of collapse," he said. "Any economist, liberal or conservative, would agree with that. The action they took, I don't agree with."

Any economist, apparently, except for these 100.

McCain has long been one of the leading exemplars of do-something politics; it's one of many reasons why journalists (who tend to have a similar approach) loved him for so long. (Though Maureen Dowd and Dana Milbank have finally stepped off the bandwagon, 10 years too late.) When you get yourself to a place where "something has to be done," details be damned, then the crocodile tears kinda lose their powers of persuasion. And voters would be right to conclude that you are likely to "do something" next time around, too.

For an alternative history of McCain's bailout histrionics, read this L.A. Times campaign fantasia of mine. And for a book-length examination of his governing ideology, try McCain: The Myth of a Maverick.