Will Christina Romer Cripple The Obama's presidency Even Before It Starts?

One problem with the economic team Barack Obama presented on Monday in Chicago is that it includes people whose cultural background is directly opposed to what it should be, and to what Obama promises to do. Much has been said about Larry Summers, directly responsible for the banking and insurance deregulation of the Nineties, as The New York Times pointed out today:

As treasury secretary in 2000, Mr. Summers championed the law that deregulated derivatives, the financial instruments — a k a toxic assets — that have spread the financial losses from reckless lending around the globe. He refused to heed the critics who warned of dangers to come. That law, still on the books, reinforced the false belief that markets would self-regulate. And it gave the Bush administration cover to ignore the ever-spiraling risks posed by derivatives and inadequate supervision.
Mr. Summers now will advise a president who has promised to impose rational and essential regulations on chaotic financial markets. What has he learned?

Even more interesting is the case of Christina Romer, a professor at the University of California, Berkeley, who apparently was not shy to offer her Greenspan-like ideas as late as September 2007, when sensible economists such as Dean Baker and James Galbraith already sounded the alarm.

John Judis, senior editor at The New Republic, points out that Romer, in a paper about economic policy in the Sixties, wrote:

In my opinion, better policy, particularly on the part of the Federal Reserve, is directly responsible for the low inflation and the virtual disappearance of the business cycle in the last 25 years. In this area, the policy mistakes of the 1960s were a painful, but not permanent, detour on the road to excellent economic performance.

It must be remembered that "the road to excellent economic performance" has been paved by Federal Reserve-created market bubbles, and that these bubbles, in the end, have provoked the crash which is under our eyes. Maybe the "virtual disappearance of the business cycle" was, well, "virtual," and the real cycle came back with a vengeance, in the form of today's downturn (even after the gains of the last two days, the S&P500, is down forty per cent compared to one year ago). But let's read more:

Overall, the story of stabilization policy of the last quarter century is one of amazing success. We have seen the triumph of sensible ideas and have reaped the rewards in terms of macroeconomic performance. The costly wrong turn in ideas and macropolicy of the 1960s and 1970s has been righted and the future of stabilization looks bright.

In 2008, the "future of stabilization" has been all but bright (and not even acceptable) simply because economists of Romer's mind frame, obsessed by balancing the budget, and keeping a tight control over money supply, completely ignore the dangers of the new financial instruments proliferated during "the triumph of sensible ideas."

Now, confronted to a crisis of big magnitude, Barack Obama has promised a large program of building infrastructures, giving tax-relief to middle-class families, financing a "green revolution" in the field of energy, all things that will cost an enormous amount of money on top of what the federal government is already spending. What does Romer say about that?

On the idea that persistent deficits don’t matter, I think there is widespread consensus that that too is not true. There may be differences in our estimates of the size of the eventual effects, but most economists agree that deficits over decades unquestionably reduce national saving and have consequences for long-run standards of living.

And Romer, parroting the discredited economic theory that public investments financed by deficits "crowd out" private investments, continues:

at some point, the debt burden reaches a level that threatens the confidence of investors. Such a meltdown and a sudden stop of lending would unquestionably have enormous real

consequences.

Indeed, a "meltdown and a sudden stop of lending" materialized last September, but the cause was definitely not the debt burden of the public sector, quite the opposite: it was the collapse of trust inside the private sector that triggered the crisis.

Seasoned political reporter E. J. Dionne has a piece in Real Clear Politics, where he quotes an Obama's close adviser: Obama "feels very strongly that this is not just a short-term fix but a long-term retooling of the American economy, [he] has a holistic view of the economy. Health care is going to be part of it, and so will green energy investments, education reform and a new approach to regulating financial markets."
So, the question is: what will Romer do as chair of Obama's Council of Economic Advisers? Answer: she will do her best to discard this "holistic view", eviscerate Obama's agenda, and promote Ronald Reagan's and George W. Bush's catastrophic economic policies. 

Do "Teams of Rivals" Work in The Long Run?

With the almost-certain appointment of Hillary Clinton as secretary of State, Barack Obama seems indeed decided to imitate Abraham Lincoln, who "pulled in all the people who had been running against him into his Cabinet," as Obama himself has summarized the thesis of Doris Kearns Goodwin's book on the Lincoln presidency, "Team of Rivals" (look at the cover on our right bar).

That seems to be political astute at this moment. However, one should be aware that in 1861 it didn't work that well for Lincoln. The problems created by the decision to put in the cabinet William Seward as secretary of State and Salmon Chase as Treasury secretary are well described by Matthew Pinsker, who teaches Civil War history at Dickinson College in Pennsylvania, in this piece for the Los Angeles Times:

Lincoln's decision to embrace former rivals inevitably meant ignoring old friends -- a development they took badly. "We made Abe and, by God, we can unmake him," complained Chicago Tribune Managing Editor Joseph Medill in 1861. Especially during 1861 and 1862, the first two years of Lincoln's initially troubled administration, friends growled over his ingratitude as former rivals continued to play out their old political feuds.

In fairness, Goodwin describes several of these more difficult moments, such as when Secretary of State William Seward tried to seize political command from Lincoln during the Ft. Sumter crisis. But she passes over their consequences too easily. 

Though Seward, the former New York senator who had been the Republican front-runner, eventually proved helpful to the president, the impact of repeated disloyalty and unnecessary backroom drama from him and several other Cabinet officers was a significant factor in the early failures of the Union war effort. 

By December 1862, there was a full-blown Cabinet crisis.

"We are now on the brink of destruction," Lincoln confided to a close friend after being deluged with congressional criticism and confronted by resignations from both Seward and Treasury Secretary Salmon P. Chase. Goodwin suggests that Lincoln's quiet confidence and impressive emotional intelligence enabled him to survive and ultimately forge an effective team out of his former rivals, but that's more wishful thinking than serious analysis.

Consider this inconvenient truth: Out of the four leading vote-getters for the 1860 Republican presidential nomination whom Lincoln placed on his original team, three left during his first term -- one in disgrace, one in defiance and one in disgust. 

Simon Cameron was the disgraced rival, Lincoln's failed first secretary of War. Goodwin essentially erased him from her group biography, not mentioning him in the book's first 200 pages, even though he placed third, after Seward and Lincoln, on the first Republican presidential ballot. Cameron proved so corrupt and inept that the Republican-controlled House of Representatives censured him after he was removed from office in 1862.

Chase was the defiant rival. The Treasury chief never reconciled himself to Lincoln's victory, continuously angling to replace him. Lincoln put up with this aggravation until he secured renomination and then dumped his brilliant but arrogant subordinate because, in his words, their "mutual embarrassment" was no longer sustainable. 

Atty. Gen. Edward Bates was the disgusted rival. The elder statesman -- 67 when he was appointed -- never felt at home in the Lincoln Cabinet and played only a marginal role in shaping policy. He resigned late in the first term. His diary reflects deep discontent with what he considered the relentless political maneuvering of his Cabinet peers and even the president. (...)

Only Seward endured throughout the Civil War. He and Lincoln did become friends, and he provided some valuable political advice, but the significance of his contributions as Lincoln's secretary of State have been challenged by many historians, and his repeated fights with other party leaders were always distracting. 

John Hay, one of Lincoln's closest aides, noted in his diary that by the summer of 1863, the president had essentially learned to rule his Cabinet with "tyrannous authority," observing that the "most important things he decides & there is no cavil." 

Over the years, it has become easy to forget that hard edge and the once bad times that nearly destroyed a president. Lincoln's Cabinet was no team. His rivals proved to be uneven as subordinates. Some were capable despite their personal disloyalty, yet others were simply disastrous.

So, we should hope that Obama's Cabinet will be a team and that his previous rivals Clinton and Richardson will prove to be capable and loyal. One should be aware, however, that an hyper-ambitious secretary of State with hawkish views in foreign policy will present more than a risk of personal disloyalty, she could alienate the very political base who was critical in Obama's election, and create a disastrous infighting inside the administration.

Paulson: "I didn't have the authority for anything"

It's nice to discover that our analysis of the blatantly illegal actions taken by Secretary Paulson is shared, somehow late, by The Washington Post:

During his 28 months at the Treasury, Paulson has accumulated more power than nearly any of his predecessors and has wielded it boldly, even brazenly at times, in a bid to tame the financial crisis of a lifetime. He has burst through the customary boundaries that separate federal agencies, bent regulations to his will and pushed up against legal limits. As financial firms tumble and traditional oversight agencies prove impotent, Paulson has filled the void with his 6-foot-1 frame, summoning the rest of Washington and Wall Street to get in line.

"Even if you don't have the authorities -- and frankly I didn't have the authorities for anything -- if you take charge, people will follow," Paulson said in an interview. "Someone has to pull it all together."

It's truly amazing to discover that in the 2,280-word article there is no hint of doubt, scandal, or indignation for Paulson's openly admitted crimes ("I didn't have the authorities for anything"). True, compared to what Bush and Cheney did, this is peanuts (but are 700 billion peanuts?)

Is Larry Summers Better Than Greenspan And Paulson?

The infotainment obsession that dominates mainstream media has utterly trivialized the issue of the possible appointment of Larry Summers as Treasury Secretary in the Obama administration. It seems that the main problem would be the "veto" of feminist groups because of his infamous remarks about women and science, when he was President at Harvard. While he amply demonstrated his lack of political sensitivity, and tact (not to mention a deep ignorance of human biology) the fact of the matter is that he wants to become again the Treasury secretary. And in this capacity he should deal with the problems of a financial crisis whose origins go back to the three men shown on this cover of Time magazine in February  1999. Rubin, Greenspan and Summers opposed all attempts to regulate the derivatives market in the 1990s. As a New York Times reader pointed out today,

Brooksley Born, head of the Commodity Futures Trading Commission, proposed greater transparency in derivatives trading in the late 1990s, involving disclosure of trades and reserves available in case of losses. Summers called Born into his office to chastise her for such a proposal. Eventually her reforms were killed through the efforts of Summers, Robert Rubin, and Alan Greenspan — the great wise men. Now we live with the consequences.

At least, Greenspan feigned to be repentant: not so Larry Summers. They have indeed NOT saved the world, but only postponed the financial meltdown. Would Summer's appointment be a change in Washington?

Has Hank Paulson Ever Read The U.S. Constitution?

In October, we raised the issue of what it means for American democracy having a Treasury Secretary who uses public money as he pleases (here and here). And we have followed up with several posts in November. Now, the Center for American Progress has published an interesting comment on the last “Hank” Paulson's press conference, and we think it's worth reading part of it (see the full text here).

Treasury Secretary Paulson yesterday made it absolutely clear that he had no intention of using the authority granted to him by Congress under the $700 billion Troubled Asset Relief Program, or TARP, to purchase troubled mortgage-related assets or to provide relief to struggling homeowners facing foreclosures. The message was clear to homeowners facing foreclosure and their neighbors watching the value of their homes plummet—drop dead.

Having already spent $250 billion to recapitalize banks with no strings attached and an additional $40 billion to restructure and sweeten the now $150 billion bailout of U.S. insurance giant American International Group Inc., there remains only $60 billion available to Treasury to spend before having to go back to Congress to request the second $350 billion tranche appropriated by Congress for TARP. But Paulson told Congress none of that money will be used to purchase mortgage-related assets—despite that being the premise under which the staggering sums of money were granted.

Paulson was quite open in his about-face: “In crafting the financial rescue package, we and the Congress agreed that Treasury would use its leverage as a major purchaser of troubled mortgages to work with servicers and achieve more aggressive mortgage modification standards. Now that we are not planning to purchase illiquid mortgage assets, we must find another way to meet that commitment.”

Translation: Having foreclosed making an investment in mortgages for the purpose of restructuring them, we now need to scramble to find an alternative.

The Center for American Progress has long advocated for the transfer of troubled mortgages out of the hands of the current holders of these assets because they are either unable or unwilling to modify the loans so that families can pay their mortgages, shifting these mortgages into the hands of an entity able and willing to make the necessary modifications to provide benefits to homeowners and investors alike. With simple modifications to the so-called Real Estate Mortgage Investment Conduit, or REMIC rules, barriers to participation by mortgage servicers in mortgage restructurings would be eliminated, and Treasury could purchase the mortgages.

The discount at which mortgage-backed securities are currently valued in the secondary market by institutional investors provides ample room for modifications to be made while still offering Treasury—and by extension the taxpayers—a reasonable return on these investments. But given that Treasury is not using the money to deal with the housing crisis, what are they going to use the money for?

We should only add that Article I, Section 8, of the U.S. Constitution clearly prescribes (among other things): "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law, and a regular Staement and Account of the Receipts and Expenditures of all public Money shall be published".

Kucinich Shows That Some Democrats Understand What Is Happening

Yesterday, Neel Kashkari, Treasury's interim head of the $700 billion bailout package testified in Congress, and we must say that some Democrats dared to ask the right questions.

For example, Rep. Dennis Kucinich, D-Ohio, chairman of the panel, said the Treasury Department had "abdicated its responsibility" to prevent home foreclosures, and he added that the changes in implementing the bailout announced by Treasury Secretary Henry Paulson this week (see our previous posts on this topic below) 

break with congressional intent, contradict public assurances previously made by Treasury and leave the federal government without an adequate mechanism to stem the tide of home foreclosures

We couldn't have said better.

Naomi Klein on Wall Street and Spineless Democrats

Naomi Klein writes in The Nation about the transition, and she has no kind words for the spineless Democratic leadership:

The more details emerge, the clearer it becomes that Washington's handling of the Wall Street bailout is not merely incompetent. It is borderline criminal.

In a moment of high panic in late September, the US Treasury unilaterally pushed through a radical change in how bank mergers are taxed--a change long sought by the industry. Despite the fact that this move will deprive the government of as much as $140 billion in tax revenue, lawmakers found out only after the fact. According to the Washington Post, more than a dozen tax attorneys agree that "Treasury had no authority to issue the [tax change] notice."

Of equally dubious legality are the equity deals Treasury has negotiated with many of the country's banks. According to Congressman Barney Frank, one of the architects of the legislation that enables the deals, "Any use of these funds for any purpose other than lending--for bonuses, for severance pay, for dividends, for acquisitions of other institutions, etc.--is a violation of the act." Yet this is exactly how the funds are being used.

Then there is the nearly $2 trillion the Federal Reserve has handed out in emergency loans. Incredibly, the Fed will not reveal which corporations have received these loans or what it has accepted as collateral. Bloomberg News believes that this secrecy violates the law and has filed a federal suit demanding full disclosure.

Read the entire article, and let your voice heard by your Senator and Representative.

"No Money Shall Be Drawn From The Treasury..."

It's somehow amazing that Congress, the media, and the public are not calling what the secretary of the Treasury is doing for what it is: a financial Coup d'Etat. Congress was steamrolled into approving a $700 billion plan under which the federal government would buy up toxic assets from banks. As Phil Mattera writes,

That plan was put on the back burner by Treasury Secretary Henry Paulson as he instead embarked on a program—never debated by Congress—to purchase holdings in the banks themselves.

Today, we also learn, from the New York Times, that now the Treasury Shifts Focus in Credit Bailout to the Consumer. This should be better than the previous Paulson's proposals, but was that approved somewhere, or at the very least debated in the House and in the Senate? 

One should go no farther than the Washington Post to find the answer: "It's a mess," said Eric M. Thorson, the Treasury Department's inspector general, who has been working to oversee the bailout program:

I don't think anyone understands right now how we're going to do proper oversight of this thing.

Last time I checked my battered copy of the Constitution, I noticed that Article I, Section 8, stipulates, "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law, and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published..."

If the law approved by Congress appropriated money to buy assets from banks, can the Treasury use it to purchase holdings, to support mergers between banks, or to unlock the frozen consumer credit market? Should the answer be "yes," why Mr. Paulson could not use it to build a new financial city in the desert of Arizona, pay for the landing of marines on the shores of financial-rich Japan, or direct NASA to explore the gold-rich mountains of Jupiter in order to strengthen the financial position of the U.S.?

Reward The Democratic Coalition, or Pay The Price in 2010

The interest of the media is focused on Obama's team, which is no small matter, but in order to assess the chances of success of the new democratic president, we should start from the basics: the coalition he put together, and the situation of the country. Let's remember what we wrote here in March:

While the interest of the media is focused on the candidates, political scientists should look at the tectonic shift under way in the American electorate. Seven years of Bush Administration have played the role of midwife to a new coalition of groups that is making the party younger, more liberal, and more responsive to women, Latinos, and African-Americans.

The exit polls have indeed validated this prediction: Obama won 99-1 among African Americans, 67-30 among Latinos, and 66-30 among the 18-29 voters. At the same time, Obama had the best results of any Democratic candidate among postgraduate educated Americans (64%) and a good performance among Catholics (53% versus the 47% collected by catholic candidate John Kerry).

Contrary to the conventional wisdom of a race "too close to call," spread by mainstream media, these results were easy to forecast because of long-term trends in the American electorate:

About 90 percent of those identifying with a political party vote for that party's presidential candidate The exit polls in 2004 showed that John Kerry had won 89 percent of the Democratic vote, George W. Bush 93 percent of the Republican vote. As it is, this translates in a huge advantage for the party that is ahead in what political scientists call "party identification," simply because the pool of voters is larger. And what is the situation on this front? The Democratic advantage is now of almost 10 points,

In October, it was about 7 point, which matched precisely the gap of 6.5% between Obama and McCain after all the votes were counted.

And what was the main issue of this election? Economy, as we wrote back in April:

McCain is the Republican candidate in a year when all the the strong currents of American politics favor the Democrats. The economic crisis and the social tragedy of million of people losing their home will be on the forefront of voters' concerns in November. The same can be said for the Iraq war, that vanished from the TV screen, but not from the mind of citizens: two-thirds still want the troops home ASAP.

After the Convention, if Obama will adopt Bill Clinton's 1992 slogan "It's the Economy, stupid!" that will be enough for the Democrats to win.

Now, the problem is that the voters trust Obama to deliver the miracle of a good economy in a matter of weeks, when under any conceivable scenario the American economy will not grow at all next year, and will remain in dire straits in 2010, too. According to The New York Times, "2009 could turn out to be fairly miserable. The American consumer, long the spender of last resort for the global economy, may finally be spent."

This means that any incremental measure, any fiscal timidity in launching new programs targeted to the most depressed areas and to the most suffering segments of the population would be catastrophic. We must remember that even mild downturn as the one of 1990 have lasting consequences: at that time, an imploding real estate bubble, a construction bust, a banking crisis, and a credit crunch made the nation's gross domestic product fell 3.0 percent in the fourth quarter of 1990 and 2.0 percent in the first quarter of 1991. But even after the economy started expanding again, the unemployment rate kept rising until it hit 7.8 percent in June of 1992, and people keep thinking that economic conditions were bad still in 1994.
Obama probably raised unrealistic expectations, but his message was received as a promise: "the public expects results, and may not listen to excuses for very long if a Democratic Congress and a Democratic White House can't get their act together in time." Therefore, the Obama administration would pay the ultimate political price if it doesn't act boldly. The fate of Clinton, who acted clumsily in his first 100 days, and was not able to convince a democratic Congress to pass his health care reform should be remembered: two years later, the Democrats lost 55 seats in the House, and the Republican majority last for the next twelve years.

Right now, there is indeed a vast conspiracy of bankers and lobbyists to have Obama's ear, and convince him that the catastrophic Paulson's plan (money with no strings attached) should continue. This is the first thing to reverse: not one dime should be thrown into Wall Street's toxic pit, and the FBI should start investigate both those who accepted the money, and those who disbursed it.

The second point should be solving the tragedy of foreclosures, leaving families in their homes as much as possible; to this purpose, it will be necessary to create an agency charged of buying mortgages and renegotiating them with banks, as it existed between 1936 and 1951 (one of the great successes of the New Deal).

Last, but not least, it is urgent to provide fiscal relief to families under $75,000 a year (the core of Obama's coalition) and to launch a plan of rebuilding American crumbling infrastructures, starting with the states where this task is more urgent: Pennsylvania, Ohio, Indiana, Michigan. Instead of "saving" General Motors, let's build some high-speed railways, and metropolitan transit systems.

Young People Won the Election for Obama

Sure, the picture of Obama with his economic team had the purpose of reassuring Americans concerned because of the financial crises, but it certainly conveyed no message of change whatsoever. Right in the middle is Paul Volcker, 81 (and the architect of Regan's victory in 1980). At the far right, Larry Summers, booted from the top post at Harvard in 2005 because he said that women "are not that good in mathematics." To the left, Robert Rubin (70) who was secretary of the Treasury 15 years ago. Are these the men young people elected to change America?

As a remainder OF HOW IMPORTANT THE YOUNG VOTE WAS LAST TUESDAY, we host here an analysis of the results by Patrick Ruffini, who is a conservative columnist, but is good at math. His conclusions: Obama's ENTIRE POPULAR VOTE MAJORITY is accounted for by his increased appeal to youth and African Americans.

As a sidenote to Obama's 66-32 blowout among 18-29 voters, check out how these same voters voted for the House. Not much different: 63-34.

So, in casting an identity politics vote for Barack Obama, a hip young (by political standards) African American, young voters were also apt to vote straight ticket for the Democrats down ballot. Nor is this new: the 2004 Democratic margin in the House among these voters mirrored the Kerry vote (+11 for Democrats vs. +9 for Kerry).

People have been focusing on whether the youth vote was up. It was -- slightly: going from 17 to 18 percent. But the real story about the youth vote is not how many "new" voters Obama got to show up. It's how he produced a gargantuan 25% swing among existing young voters, or those who were sure to vote for the first time anyway.

How big?

18 percent times a 25 percent increase in the Democratic margin equals 4.5 points, or a majority of Obama's popular vote margin. Had the Democratic 18-29 vote stayed the same as 2004's already impressive percentage, Obama would have won by about 2 points, and would not have won 73 electoral votes from Florida, Ohio, North Carolina, or Indiana.

So, to clarify here: Obama's youth margin = 73 electoral votes. Without the economic crisis, this would have been the difference.

In the House, the youth margin for Democratic candidates was up 18 points from 2004 and 7 points from 2006 (with a 50% increase in the voter pool from '06). The 18-29 demographic's net contribution to Democratic margins in the House went from 12% x 22% = 2.64% in 2006, to 18% x 29% = 5.22% in 2008. How many of our guys [Ruffini refers here to Republican candidates] lost by 2.6% or less? [My answer: about 20, that means that there would have been no increase in the 2006 Democratic majority in the House without the young voters]. For the most part it was the same young voters, who were conditioned to vote for Democratic candidates after switching to Obama.

Related to this are African Americans. Here too, turnout was up a point from 12% to 13%, or Census + 1. But that's only part of the story. The biggest part is Obama's increased margins, moving from 88-11 in '04 to 95-4 in '08. The black vote's net contribution to Democrats moved from 9.7 points to 11.8 points (91% x 13%), or an increase of 2.1 points.

Now, let's be generous and shave 10% off the youth effect assuming some of these youths are African American, but also tempered by the fact that the young black vote is already so highly Democratic that a 25% swing is impossible here. 4.1 percent (18-29) + 2.1 percent (AA's) equals 6.2 percent. Obama's current popular vote margin is 6.1 percent.

Obama's entire popular vote majority is accounted for by his increased appeal to youth and African Americans.

This is not to say that a white male (or female) Democratic candidate would not have won the election. The youth and African American figures would have moved some, though not as strongly for them, and if it was Hillary, you'd have seen a similar phenomenon with women voters. So, simply transposing 2004 figures onto 2008 isn't the right baseline. But this is a dramatic statement nonetheless. Obama has reshaped the electorate. And it's been only partially through new voter registration. He has gobbled up every last, existing young voter and African American (FTW, I get the distinct sense that Condi Rice too voted for Obama).

As of today, Obama has 364 votes in the electoral college, 96 more than needed (Missori is recounting, but McCain is slightly ahead there). As Obama's youth margin is worth 73 electoral votes, without taking into account the impact of ground mobilization fueled by a million yooung volunteers, that means Obama is the President-elect almost only because of young Americans who have faith in him. It would be unwise to forget that.

The End of Conservatism and A New Liberal Majority?

Obama won, Congress has large Democratic majorities in both the House and the Senate, but the important question today is: "Has the conservative political cycle that began in 1968 come to an end?" On this topic, we host a contribution by Eric Alterman, who is a professor of Journalism at CUNY, and a friend. This piece come from The Nation.

Readers of the Washington Post woke up one recent Friday morning to a remarkable juxtaposition of two ostensibly unrelated articles. The first was a news analysis titled "The End of American Capitalism?" which heralded the apparent demise of laissez-faire as the intellectual underpinning of the nation's economic system. In the same paper was another story: "Anger Is Crowd's Overarching Emotion at McCain Rally," which described a John McCain event characterized by hysterical crowd attacks on Barack Obama as an ally of terrorists, a "socialist" and other angry epithets. By coincidence, the thread that connected these two disparate stories could be found that morning in the New York Times, in an implicitly self-critical column by David Brooks. He wrote: "Modern conservatism began as a movement of dissident intellectuals.... Driven by a need to engage elite opinion, conservatives tried to build an intellectual counterestablishment with think tanks and magazines. They disdained the ideas of the liberal professoriate, but they did not disdain the idea of a cultivated mind.... But over the past few decades, the Republican Party has driven away people who live in cities, in highly educated regions and on the coasts.... What had been a disdain for liberal intellectuals slipped into a disdain for the educated class as a whole."

Brooks--a nearly perfect product of the right-wingers' long-term investment in the fertilization of the conservative imagination, having done stints at the Wall Street Journal editorial page and The Weekly Standard before being invited to the [New York] Times and PBS's NewsHour--was unwittingly explaining the connection between the collapse of Friedmanite capitalism and the mindless fury of the Republican base. The upshot is that conservatives, having fed at the trough of power for the better part of three decades, are out of ideas and have targeted their appeal to a coterie of Americans remarkably similar to the minority coalition enjoyed by Barry Goldwater in 1964, with an angry, retrograde message that harks back to Joe McCarthy. McCain's baffling, fumbling performances at the presidential debates reflect this confusion. He didn't know whether to attack Obama or defend what remains of his reputation. Pathetically, he ended up accomplishing neither.

Liberals and progressives, however, are in the opposite position. Obama has proven an inspirational messenger, speaking to and for a public eager to embrace the kind of politics that has been demonized and trivialized for the past eight years by mainstream media desperate to deflect the right's accusations of "liberal bias." According to the Pew Center's extensive national survey, released well before this endless election got under way, roughly 70 percent of respondents believe that the government has a responsibility "to take care of people who can't take care of themselves." Two-thirds (66 percent)--including most of those who say they would prefer a smaller government (57 percent)--support government-funded health insurance for all citizens. Most also regard the nation's corporations as too powerful, while nearly two-thirds (65 percent) say corporate profits are too high--about the same number who say "labor unions are necessary to protect the working person" (68 percent). When it comes to the environment, a large majority (83 percent) back stricter laws and regulations, while 69 percent agree "we should put more emphasis on fuel conservation than on developing new oil supplies" and 60 percent say they would "be willing to pay higher prices in order to protect the environment."

Yet the MSM [mainstream media] --with precious few exceptions--remain wedded to right-wing assumptions long since discredited by reality. We don't need to look at extremes like the infamous performance of ABC's George Stephanopoulos and Charles Gibson in the Clinton-Obama debate in January--one that may possibly have cost that network any hope of participating in the general election debates. Just examine the thrust of the questions asked during the Obama-McCain contests. Even absent distractions like lapel pins and preacher politics, virtually all questions regarding the financial crisis assumed that the meltdown calls for a drastic reduction in public investment--as if Keynesianism, rather than Friedmanite economics, were somehow at fault. And why was just about every foreign policy question predicated on the alleged efficacy of neocon-style threats of the use of force? Where were the questions about the need for collective action to combat climate change? Where were the debates about the causes and effects of the global migration and food crises? Why did we hear not a single inquiry about the challenges to labor and environmental standards arising from the billion or so workers in China, India and elsewhere, who stand ready to displace millions of Americans in our increasingly globalized workplace? And where were the questions about torture, wiretapping US citizens and restoring respect for our Constitution?

In a wonderfully apoplectic editorial titled "A Liberal Supermajority," frightened [Wall Street] Journal editors worried that an Obama landslide could presage "one of the most profound political and ideological shifts in U.S. history. Liberals would dominate the entire government in a way they haven't since 1965, or 1933." Among the coming horrors: "Medicare for all...[a] green revolution...national, election-day voter registration...the end of Guantanamo and military commissions...'net neutrality' rules...."

America's liberal supermajority has watched as its country has been degraded and dishonored for the past eight years while many in the MSM [mainstream media] have either cheered, acquiesced or looked the other way. If you ask me, the pundit with the greatest gift for political prophecy right now is the late, great Sam Cooke: "It's been a long, long time coming, but I know a change is [finally] going to come."

Have Champagne, Break the Glasses (But Keep a Couple of Aspirins at Hand)

The polls opened in Indiana a few minutes ago, and in about 18 hours (because of different time zones) they will close. My prediction is that we will know the result of this record-breaking presidential election early, maybe very early if Barack Obama wins where no Democratic candidate has won since 1964: Virginia e Indiana. The entire world should party all night, if the results will bring a close not only the catastrophic presidency of George W. Bush, but the entire conservative cycle that began in Chicago in 1968. And the gift is even sweeter because the celebration will be in Chicago, propelled again to the center of national stage by a gifted politician who began his career not far from the same Grant Park where the police of then-mayor Richard J. Daley rioted while the "Entire world [was] watching." 

Therefore, tonight we should drink champagne, and break the glasses Russian-style, before going to bed, but tomorrow morning we shall take a couple of aspirins with the coffee, because formidable challenges lay ahead.

The greatest problem for the new administration will be the fact that, responding to the desire for change, Barack Obama implicitly promised to the  voters that he wants, and can, "wipe clean the slate of history and begin again from scratch," as John Judis write in TNR a few months ago. Few columnists, however, have measured the implications of this promise today.

No Country can free itself from geography and history: this should be obvious in the U.S., as it is in the rest of the world from Lisbon to St.Petersburg, and from Tehran to Sidney. Unfortunately, the U.S. still thinks of itself as a Country with a "mission" to fulfill, nothing like the other, "normal" countries of the world. It is American exceptionalism that supplies the bedrock for the pretense of being able to "begin again from scratch" when needed.

American exceptionalism, as most ideologies, is an important resource for leaders who position themselves on its wavelength, and Barack Obama surfed it with grace this year. However, in time he is bound to disappoint his followers because promises based on ideology cannot be fulfilled. Leaders who capitalize on the desire for political change will disappoint supporters even more, because voters don't realize that the Founding Fathers did their best to prevent, or at least slow, any change.
Any political scientist, or historian, could tell citizens that separation of powers, checks and balances, and countermajoritarian institutions like the Supreme Court, were devised precisely to forbid changes, and to create a structure that will last for centuries. The authors of the Constitution were not optimistic about human nature, nor was Abraham Lincoln, who openly expressed his doubts concerning the political institutions born in Philadelphia in 1787: "Now," he said in his Gettysburg address, "we are engaged in a great civil war, testing whether that nation, or any nation, so conceived and so dedicated, can long endure." The Founding Fathers had only a modicum of faith in their fellow citizens, and ingeniously created a weak federal government that would not put Liberty in danger.
In time, the weak government grew strong but obstacles to its reform are as formidable today as they were in 1787 or in 1861. American Presidents cannot be tyrannical, but neither can they be efficient. Their appetite for reform inevitably clashes with lobbies, petty squabbles in the House, money interests in the Senate, and frank hostility in the Supreme Court. The Commander in Chief can easily invade a foreign country, but has trouble in giving health care to children.
Congress could, and would, pass legislation in order to give health care to children, but only if Big Pharma, American Doctors, and other relevant lobbies give their assent. Forty Republican senators will be enough to filibuster any proposal that would implement Obama's campaign promises. And both branches of Government will bow to a reactionary the Supreme Court that will not change its political bias for decades.
Magic moments come only once in a generation, and often they are a source of tragic disappointments when politicians like Bob Kennedy or Martin L. King pay the price of their commitment. Should Barack Obama become President on January 20, he would probably be a weak President, not because of a lack of character, or of political qualifications, but because the Constitution wants him (or anybody else) this way. Sure, Franklin Roosevelt, Lyndon Johnson and Ronald Reagan were strong leaders but even them were able to implement only a fraction of their ambitious agenda. One can only hope that Barack Obama will reveal his true self in office, a character more like the one of Abraham Lincoln than to those of Jimmy Carter's or Bill Clinton's.

Republicans Operatives Asked By Judge If They Electronically Manipulated Elections

Probably, this year we will not hear many claims that the elections were "stolen," simply because the result will be so overwhelming that any manipulation of some touch-screen voting machines would be useless. We host, however, this opinion by Yale professor Sheila Levrant de Bretteville, on the proceedings against a Republican operative which may reveal a lot about the events of 2000 and 2004.

This election November 4th is now less likely to be rigged because the computer IT guru of the Republican party has been exposed and compelled to appear in an Ohio federal court this past Friday, Oct. 31. The judge ruled that he, Michael Connell, would have to testify under oath on Monday, Nov. 3 about his work for George Bush and Karl Rove electronically manipulating
elections. So, less than 24 hours before the polls open on Tuesday and 20 years after he began doing computer work for Bush Senior, Michael Connell will finally have to begin answering questions about what he has done to help Republicans win (steal) elections. However, the questions in the deposition on Monday will be much narrower, limited to his relationship with Karl Rove, how an "intelligent man in the middle" computer can change the tabulation of the vote, how a remote Trojan Horse computer program can manipulate the tabulation in real time as the statewide count is being tallied and effect the outcome of an election, and how the GOP company Triad was able to help rig the 2004 vote in Ohio. Some of Connell's testimony may be made public before the election. 
You can see Connell's picture beside the website he designed for McCain, at
www.velvetrevolution.us and there is more information at  www.RoveCyberGate.com.
In the past, Michael Connell has set up websites for Bush/Quayle, Jeb Bush, Bush/Cheney, Katherine Harris (in Florida 2000), Saxby Chambliss (who ran against Max Cleland in 2002), SwiftBoat Veterans. Evidence indicates that he has been at the scene of many stolen elections.
Now we are beginning to understand how it was done with computers inserted invisibly into the process of tabulating the vote before the outcome is announced. Connell may well be innocent of any wrong doing. He may have only programmed the computers while others designed and carried out the dirty work. It will be for the judge to decide if he, or higher ups,
are guilty. But light is being shed on his shady history and he is going to be held accountable. Preparing for his court hearing on Friday and deposition this Monday, Connell was surely distracted from any last minute fine tuning of his election tampering network.
Even more important, he knows that the gig is up, people are on to him and that a federal judge is watching his every move. He knows that he might go to jail if he doesn't tell who told him to do what, -implicate higher ups. And this may make the higher ups, the unseen ones calling the shots, disinclined to throw another election to the Republicans.
Sheila Levrant de Bretteville

Does Paulson’s Plan Really Exist?

Looking ahead, nothing could be more interesting (and terrifying) of this post by our friend Philip Mattera of Dirt Diggers Digest:

Those who regard Treasury Secretary Henry Paulson’s bailout program as a step toward socialism should remember that such a system involves not just government ownership but also some degree of centralized economic planning. With all the twists and turns in Paulson’s actions, it is difficult to determine whether he is indeed trying to guide some aspects of U.S. business but is doing so in a way we mere mortals cannot understand.

Especially puzzling is Treasury’s approach to deciding which banks should receive capital infusions. It was no surprise that the first $125 billion went to nine of the country’s largest financial institutions, since Paulson believes that shoring up the big guys is key to restoring stability to the system. But when he then turned to regional banks for smaller injections, it was unclear why some were on the list and others were not (at least not yet).

As Fortune points out, Paulson seems to have deliberately omitted Cleveland’s National City Bank (which is now being sold to PNC) because of its precarious portfolio of bad home loans, but he included similarly situated ones such as Milwaukee’s Marshall & Isley. Now that Paulson, under pressure, is reportedly planning to extend the capital program to privately held banks, whose finances are less transparent, it will be more difficult to figure out if there is rhyme or reason to Treasury’s picks.

Paulson was so lackadaisical in structuring the bailout that the banks getting the federal investments did not hesitate to signal that they would use the funds not to make loans but rather to finance acquisitions and continue paying out dividends and probably big executive bonuses. Presumably responding to criticism from other quarters, ranging from members of Congress to the United Steelworkers, some banks are promising that they will take steps to ease the credit crunch. Yet it is unlikely these limited gestures will be enough to shore up a financial system that grows weaker by the day.

So, are things going according to Paulson’s plan—or is there no real plan but simply an ad hoc set of measures that desperately seek to prevent a collapse?

Nothing more should be said before a new Treasury Secretary is confirmed by the Senate. If that will happen only when barter will be again the typical tool of commerce over the prairies of buffalo-rich North America is another matter.

November 4: What The Math Tells Us

As we wrote two weeks ago, the race is indeed tightening, but any forecast about the Presidential and Congressional elections of next Tuesday must be based not on the last maneuvering of the candidates, but on long-term political trends. All the more so, given the fact that an important fraction of the electorate already cast their ballots, or decided to do so before November 4. Whatever McCain or Palin could say between today and next Tuesday, about one voter in five already voted, and those who did so largely broke in favor of Obama, particularly in the West and in the South, where the opposite should have happened.

The key point we must bear in mind is that the political trend in recent years has been a strong polarization of the electorate, a factor that was central to Karl Rove's successful strategy. About 90 percent of those identifying with a political party vote for that party's presidential candidate. The exit polls in 2004 showed that John Kerry had won 89 percent of the Democratic vote, George W. Bush 93 percent of the Republican vote. As it is, this translates in a huge advantage for the party that is ahead in what political scientists call "party identification," simply because the pool of voters is larger. 

And what is the situation on this front? The Democratic advantage in September was about 4 points, according to Rasmussen. That disparity is now probably larger because early September was the moment of McCain's convention, the high tide of Republican fortunes this year.

However, imagine that in November the gap remains the same, and that the same 120 million Americans who voted in 2004 will vote (there will be more voters, but we'll talk about that later). If Obama will keep the share of 90 percent of the Democratic vote, that translates into an advantage of several million votes for him. The math is quite simple:

90 percent of 46.8 million votes for the Democratic standard bearer (total: 42.1) against 90 percent of 40.8 million votes for the Republican one (total: 36.7). In a moment of painful economic hardship as this one, there is no way the so-called Independents would split 50-50 between the two parties: more probably they will go 55-45 for the Democratic candidate. That means another 4 million votes in the democratic column (Independents are about a third of the voters, as of today). As there will be new voters, a large majority of them pulling the lever for the democratic candidates because of superior field work by the Obama's campaign, this will bring another 2 million votes net advantage to him.

Question: Can the voters who secretly cannot bear the idea of voting for a "nigger" reverse a 11.5 MILLION VOTES ADVANTAGE on November 4th? The answer is: "No, at this point in the game that is not possible." 

Obama has been excellent in reassuring independents about his ability to tackle the economic crisis, and he can count on the traditional Democratic constituencies now pouring into the voting boots, especially women, Latinos and young people: they will give the Democrats a comfortable edge. Right now, calculations about the electoral college give the Democratic candidate a solid majority, but the victory might be much larger, with Obama collecting more than 300 votes in the electoral college. His supporters should work hard, but can sleep well.

Obama's "Tax Tsunami"

As we wrote some time ago, conservatives already start complaining about the Obama administration "raising taxes," something that seems a bit premature, giving the fact that before anything could happen on this issue, at least TEN things must happen:

1) Obama should win a majority in the Electoral College on November 4

2) He should survive the plans to assassinate him through January 20, 2009

3) He should be sworn in on January 20

4) He should nominate a Secretary of the Treasury

5) This individual should be confirmed by the Senate

6) A plan to change the tax code should be presented to Congress

7) It should pass in the House

8) It should break an almost-certain filibuster in the Senate

9) It should pass the Senate

and finally, supposing that the bill doesn't need to go to a House-Senate conference to reconcile the differences,

10) It will go to Obama's desk for his signature, and in some time, it will be implemented.

Now, even if points 1, 2, 3 and 4 are reasonable forecasts (John McCain wouldn't agree, but that is that), all other requirements are events that may or may not happen. The Senate could be a stumbling block difficult to overcome, particularly on points n. 5 and 8. In the best case, nothing will happen before April or May next year, and this is a very optimistic forecast.

It sound almost comical, therefore, that former Republican candidate for vice president in 1996 Jack Kemps could write: 

In their new book, "The End of Prosperity," Art Laffer, Steve Moore and Peter Tanous argue that the threat of this tax tsunami is already destabilizing our financial markets and causing capital flight from America.

They write, "Hot capital is escaping over the borders out of the United States and flowing into China, India, Europe, and even Japan. . . Starting in late 2007, foreigners started pulling their money out of the United States, and Americans started investing more abroad. Global investors are losing confidence in the U.S.

These global investors are so terrified by Obama's bolshevik plans that the U.S. dollar went up almost 30% against the euro in just three months (from 0.63 in  July to 0.80 yesterday). "Losing confidence" in the currency, indeed.

Financial Crisis: Thinking Ahead

We have today a guest, economist Joseph Halevi, who thinks ahead to the possible developments of the financial crisis. 

There is no major change in perspectives despite a lot of institutional talk, most of which is not very substantive such as that at the Beijing meeting. 

The centre of gravity of financial vulnerability is now the maze of the derivatives of credit default swaps. They are being hollowed out and, to that effect, I should mention some institutional steps, which are taken individually and are not coordinated except possibly one.

The first is by France and concerns the formation of a State financial institution with the objective of preventing take overs of French industrial companies by hedge funds, In effect this stops hedge funds from trading in firms' stocks. Many people on the "left" would like that but, whatever its merit, it does not address the compelling issue of vanishing investment plans. What it does it will allow the companies to close down and even relocate abroad or shift production to their foreign plants (it is happening with Renault which is shifting output to Roumania and Brazil), thereby firing workers, without their stocks being traded and speculated as junk stocks. The unemployed will be unemployed, period. 

In the same vein the Berlusconi government in Italy is preparing

legislation to guarantee borrowing by firms, that is to underwrite

firms' debt vis à vis banks, while banks are also guaranteed by the

Central Bank, ultimately by the ECB. The crucial issue is that firms

will borrow less because demand is evaporating, hence it does not solve the issue of labor losses nor does it guarantee a recovery. It simply protects capital from every possible direction: banks are even protected twice. 

A credit default swaps clearing house is being planned by the Euro15. In effect this means making the credit default swaps non convertible, i.e. non tradeable. This is an important event if it goes ahead. Credit default swaps were used also to 'cover' for the external deficits of the deficit countries. By rendering them non convertible the deficit countries will have to pay up, hence the external constraint will become visible and binding again (as I always thought it to be in the core of the functioning of the economy). 

On the other hand, CDS are highly toxic because they condense all the other forms of debt. They were not only used to ensure against potential default but also to make money in both directions simultaneously. Since hedge funds hold a great deal of CDS, the decisions to keep hedge funds at bay will reduce the 'value' of the CDS, hence the need of a clearing house for an orderly euthanasia of this type of paper. 

Japan and China are the only countries that have initiated policies from the spending side. Japan's new package is an extended version of that passed in July or August. Public works and some income support schemes. However it is just a "stay afloat like a dead corpse strategy" reminiscent of the 1990s when they did everything to absorb production without much success.

Japan has huge structural problems since it is the perfect Marxian

"overproduction cum disproportionality"  economy, given the size of its heavy industry and capital goods sectors. It is very difficult to bring up domestic demand to the level needed to ensure recovery. And now they are also subjected to the revaluation of the yen vis à vis the US $ without the mitigating factor of US growth; hence they experience hyper revaluation vis à vis the Euro where demand is also not doing well.

Furthermore, an important Japanese export market for heavy machinery (and thus for Japan's external surpluses, which are now dwindling), the Korean, is just drifting away because of the deep Korean crisis. Japan is really in a big blackish hole. Nothing much can be expected from those keynesesque measures therefore.

China has undertaken the only noticeable spending program. It is based on placing orders at its own heavy industry through very large programs of structural investments. But many consumption goods sectors are being affected by the fall in demand in the USA and it is difficult to see how the sectoral composition of the economy can be changed in the short, or even medium, run. Moreover if the spending programs are based on the heavy industry sectors, the slow down and actual crisis in the exporting sectors like toys etc. will exacerbate the gap between domestic production and domestic consumption demand. Thus China can find itself in a dynamic version of the Japanese situation. 

We should also expect major real crises in Latin America, given what is happening to Brazil and Argentina. The fall in oil revenues prevents Venezuela from acting as a benevolent lender. After all they helped Argentina to pay the rest of the debt by buying it themselves. Notice that through Venezuela and the energy-raw materials surpluses of Argentina, Brazil some others, the Latin America economy is more dollarized than ever. But now raw materials prices are falling and the values of the Real and the Argentinian Peso are falling drastically. They are back in a real deflation+ price cum interest rates inflation crisis. Indeed Brazil had to increase interest rates sharply to stem the outflow of capital.

India: India has the fourth largest trade deficit in the world. They make up for it through capital inflows on the capital accounts and invisibles on the current account. With the credit crunch underway the ability to make money by sending money to India will be severely limited. Hence the situation is wobbly but I think they will still expand in their own Indian style.

Notice that, in spite of all the talk about coordination there is none.

They present their trips to Camp David, Paris, Beijing as coordination, but there is nothing concretely there. Every country uses its own finances, the only common elements are: to throw money at banks and - for the USA-EURO15 relations - the unlimited unsecured and non recourse lending of $ by the US Federal Reserve to the ECB. As to the common ASEAN fund supported by China, Japan and Korea fund we should judge it

when we see it, if we will see it. I cannot possibly figure the Asean

countries being capable of managing that fund given their litigious relations, it will have to be done by Japan with China and Korea. 

The crisis is generating fragmentation in the world economy.

Democracy, the Treasury and the Federal Reserve

As the financial crisis unfolds, it may be important to discuss not only various technical solutions to the current mess, but also what the recent events tell us about the functioning of "democracy" in Washington, DC. 

I put "democracy" into quotation marks because it appears that the long decline of Congress relevance vis-à-vis the President, the Treasury, and the Federal Reserve has now possibly reached a non-return point.

These are the remarks of Sam Peltzman, Professor Emeritus of Economics at the University of Chicago, a couple of weeks ago, commenting on the bailouts:

The Federal Reserve and the Treasury (...) have the demonstrated ability to act without serious democratic restraint. 

How else can one interpret the sudden revelation that $29 billion of the full faith and credit of the 

US Treasury had been committed to the Bear Stearns transaction, or the equally sudden 

undebated and unvoted announcement that $85 billion of government funds had been loaned to 

AIG? If there is any principle that emerges from these announcements – and non- 

announcements like the decision not to rescue Lehman Brothers – it seems to be that amounts at 

least as large as $85 billion can be appropriated, or not, at the discretion of official Washington.

As the Constitution reserves to Congress, and Congress alone, the power of appropriating public money, it appears that another legacy of the Bush administration will be the ultimate irrelevance of Congress in serious matters like war or economic catastrophe. This irrelevance is duly reflected in the current standing of Congress in the court of public opinion, where its current approval rate is about as good as Wall Street's credit, around 8% of approval. However, this is a profoundly unhealthy situation, and Barack Obama will be wise in reflecting on it, resisting the temptation of using the quasi-dictatorial powers he will inherit from George W. Bush, even for good purposes. 

When Readers Are Wiser Than Pundits

The discussion inside the fractured conservative camp continues, and this comment by a Californian reader of Bill Kristol's column in The New York Times seems perfectly on target:

Joe the Plumber is exactly the problem of the Republican party. He has never benefited, and will never benefit, from the Republican policies. While Joe is too ignorant to realize that, most of the other Plumbers (the smart ones) are dumping the Republican party as quickly as they can. Which leaves the party without both those that read books and those that do not (but are smart). What is left? Joe the Plumber and Sarah Palin. A promising future, no doubt...

This reader's opinion about about the beneficiaries of Republican policies is supported by a Nobel-class analysis about the income decline  for average Americans during the last eight years.

Now Conservatives Think Ahead To President Obama

Another week is over, and a quick assessment would go something like this:

1) Whatever John McCain says, the voters don't believe it, not even if Joe the Plumber supports it.

2) Whatever the Bush administration does, the Wall-Street-types don't believe it for more than a couple of hours.

In other words, this is a crisis of trust in the ability of Republicans of all stripes to solve the economic mess, and this feeling can't possibly turn around before the election.

3) All this is perfectly clear to any conservative with an IQ in the 90-110 range, as shown by the last Matthew Kaminski's column in the Wall Street Journal.

What is interesting in Kaminski's piece is the fact that in his 1300-word column, nowhere the possibility that Barack Obama will NOT be elected is mentioned. The very title, "The Axelrod Method. The 'change' president could be in for a rough ride on Capitol Hill," indicates that while McCain's campaigns launches its last fireworks, conservatives start thinking to a completely different subject: the possible failure of Obama's first term.

Kaminsky writes about the election of Deval Patrick, governor of Massachusetts:

As a path to power, the Axelrod method appears to be the best thing going today. Coming into the 2006 race, Mr. Patrick was a political novice with 1%-2% name recognition in a state that's 6% black . He faced off against a sitting state attorney general favored by the Democratic Party establishment. The former Clinton administration lawyer energized the grass-roots and youth vote with superior organization and stirring oratory. The candidate himself was the message; the campaign dwelled on his personal story, not the issues. (...) Massachusetts never saw anything like it. Mr. Patrick upset the favorite in the Democratic primary and won the general election by 21 points.

Then Kaminski, goes into the details of the difficult relationship between the governor and the Democratic legislature:

That crusading optimism, so critical to his election victory, fast bumped up against established Democratic interests such as the police unions and power brokers on Beacon Hill. They didn't know Mr. Patrick, didn't appreciate him jumping the queue to the governor's chair, didn't buy his reformist outsider message, and frankly liked things as they were. Great speeches or popular support were insufficient for Mr. Patrick to get his way.

And Kaminski makes his final point forecasting "a rough ride" for Obama, when dealing with "the Democratic warhorses on Capitol Hill."

Well, no doubt that the Republican candidate for president  will be happy to hear THAT (with still 17 days to go) but let's put aside John McCain's feelings, and discuss the scenario offered by the Wall Street Journal.

First, Kaminski could have found a better example than the one of a first-term governor: in fact, president Carter's relationship with Democratic Congress between 1977 and 1981, would be much more significant. 

Jimmy Carter, indeed had trouble in having legislation passed by Congress, as had Bill Clinton in 1993-1995. It would be fair to say that all Democratic presidents, including Franklin Roosevelt, had sooner or later strong difficulties in implementing their agenda because of resistance from Congress. Only Roosevelt in his first term (before the "Court-Packing" episode) and Lyndon Johnson after the 1964 landslide were able to lead Congress in the direction they wanted.

Carter and Clinton, on the contrary, were both governors of backward Southern states, real outsiders in the party. Clinton was more well-connected than Carter, but his first term began in worst possible way, with troubles in confirming his cabinet, and the public relation disaster of gays in the military. Clinton got only 43% of the popular vote, and no senator or representative felt obliged to him for his election.

What about president Obama? If the Democratic ticket wins on November 4, it will be largely because a perfect campaign that has reshaped the political geography of the country. Axelrod's and Plouffes' efforts in mobilizing activists and voters from North Dakota to Louisiana will benefit local Democratic candidates for the House and the Senate, many of whom will enter Congress only because of Obama's coattails.

Obama will win with more than 50% of the popular vote (FiveThirtyEight's forecasts, the best in the business, give him 52%) and a large majority in the electoral college. He will bring to Washington a NEW Democratic majority in the Senate, a majority that today exists only in name (the party controls 49 seats, and only the conditional support of two independents allows Harry Reid to claim the mantle of Senate Majority Leader). Democratic candidates for a senate seat might win in states like Texas, on November 4: will they forget in a minute who is the leader that propelled them over the top? And representative who will win in arch-conservatives districts will give Obama a "rough ride?"

Maybe.

However, a more plausible scenario is that President Obama will start with strong majorities in both houses of Congress, and that the bulk of these senators and representatives will be grateful to him, and decided to implement his agenda to turn the page after eight years of George W. Bush. The sense of urgency created by financial chaos will add to the discipline of the troops, exactly as happened during Franklin Roosevelt's first term. The fact that the mood of the country changed, and that Democrats will be on the verge of a filibuster-proof majority in the Senate will strengthen the administration enormously.

What Barack Obama will be able to do is another matter. Two wars and a depression will tax his abilities enough, Congress will not be the top of his concerns.

McCain Should Have Trusted His Istincts

In less than two weeks, the conservative camp appears to be reduced to shambles. Polls are cruel, of course, but the amount of finger-pointing, and the speed of defections from the McCain campaign are nevertheless astonishing. It started in September with several voices critical of the choice of Sarah Palin (most prominently, George Will). In October, we already reported the grumbling on the Right after the second debate, with writers from the National Review and the Weekly Standard clearly distancing themselves from John McCain. 

Last Saturday, it was the turn of Christopher Buckley, booted from the same National Review that his father founded because of his endorsement of Obama, and Monday Bill Kristol, editor of the Weekly Standard, proposed quite seriously of firing the entire McCain's team. 

The same day, former Bush's speechwriter David Frum had this to say in his blog: "Do my correspondents truly believe that - but for my pitiful media and social ambitions - nobody in America would have noticed that Sarah Palin cannot speak three coherent consecutive words about finance or economics? In the past month, Sarah Palin's negative ratings have risen by 12 points. She briefly boosted the McCain ticket, but that effect subsided by the end of September. Blue-collar white women (!) now reject Palin as unqualified for the presidency 48-43, according to the Wall-Street Journal/NBC poll.

On Tuesday, Matthew Dowd, a political consultant and former chief strategist for George W. Bush's in 2004, proclaimed during the Time Warner Summit panel that, in his heart of hearts, McCain knew he put the country at risk with his VP choice and that he would "have to live" with that fact for the rest of his career. And the show goes on.

Actually, Dowd said something very interesting: "They didn't let John McCain pick the person he wanted to pick as VP, when Sarah Palin got picked instead of Joe Lieberman."  His idea is that a candidate must trust his own instincts, and not let his handlers take vital decisions. This is precisely what reporter Joe Klein wrote a few years ago in a book about the rise of political consultants,a process that trivialized American politics and debased the democratic process.

In Politics Lost, Klein wrote that in 1976, when he tried to snatch the republican nomination from Gerald Ford, Ronald Reagan hired a consultant named John Sears, whom he didn't know and who didn't share his right-wing instincts. But when he ran for president again in 1980, Reagan fired Sears, trusting his gut when it mattered most. By contrast, Gore in 2000 and Kerry in 2004 lacked the self-confidence to fire the consultants who kept them from saying what they really believed. Gore, a passionate environmentalist, wanted to talk about global warming. But when he did, he was sabotaged by his own advisers, who forced him back to poll-tested standbys like Social Security and prescription drugs -- and, in the process, turned him into a robot. Kerry's anti-Vietnam activism went to the core of his political soul. But high-priced consultants such as Bob Shrum considered the subject too risky to mention. So Kerry didn't tell Americans about this crucial aspect of his political and moral development and left the so-called Swift Boat Veterans who smeared him to do it instead.

Gore and Kerry paid the price for not being true to themselves, and so will John McCain, who never was a right-wing nut like George W. Bush and his cronies. He understood that in a year when the winds blow in the Democratic sails, independent voters will be a key constituency. He appealed to them, and Lieberman, a Democratic turncoat, would have been the natural choice to give the ticket a coherent profile.

It's not his fault if the Republican political machine is dominated by zealots, who never loved him and imposed a Karl Rove protege, Steve Schmidt, as chief of his campaign. It was Schmidt, who only knows Rove's strategy of "mobilizing the faithful" who vetoed Lieberman and picked Sarah Palin, with the effect of energizing the base... and alienating everybody else. But it was his fault to accept Schmidt and let him manage the campaign.

John McCain should have trusted his instincts: maybe he would have lost anyway, but he would have spared himself, and the Country, the sight of angry mobs chanting "Kill him! Kill him!," not to mention the embarrassment of someone like Sarah Palin in the spotlight. 

Obama's Lead Will Shrink in The Next Three Weeks

A new poll by The Washington Post gives a large advantage to Obama, 53 per cent to 43 per cent, and these numbers are close to those of many respected pollsters. The race has solidified, and Obama's victory is hardly in doubt (Howard Wolfson wrote as much in The New Republic on October 5).

However, it's important to know that in the next three weeks this large gap will shrink. When the ballots will be counted the real margin could be close. This year may be different, and a Democratic landslide is a possibility, but the historical experience tells us that in a polarized political environment the results are more likely to be 51% to 49% than 55% to 45%.

At mid-October in 1992, Bill Clinton held a 14-point advantage over incumbent George H.W. Bush but he won the election by six points only. In 1976, Jimmy Carter had a lead of 13 points over incumbent Gerald Ford in Gallup polling; in the end, Carter defeated him by two points only.

The 1976 election is of great interest to us because it was surprisingly close, given the fact that it was the first one after a political catastrophe like Watergate that hit the Republicans at least as hard as the current economic catastrophe is striking them.

Actually Ford, had small amounts of ballots shifted in his direction in just two states, could have won.

In many states, the two candidates finished neck-and-neck: in Ohio, Carter won by less than 6,000 votes out of 4 million cast. In Mississippi, the Democratic candidate received only 15,000 votes more than the Republican. These two states had 32 votes in the electoral college, and that would have been enough to give Ford a majority of 272 votes, keeping the White House in Republican hands.

It's fair to say that would have been a truly amazing development, because Carter had a 1,700,000 ballots edge in the popular vote (50% to 48%), a much larger margin of Al Gore (who won the popular vote by about 550,000 votes). One may also stress the fact that Ford already was extremely lucky in winning 240 electoral votes, because he prevailed over Carter by the slimmest margin in California and Illinois (2%), and sneaked through in Iowa (22,000 votes) New Mexico (10,000), Nevada (9,000) and Maine (4,000 votes).

Nevertheless, the Ford performance should remind us of the amazing ability of Republicans in winning even after they brought disaster to the country. In 2008, that shouldn't happen but one should note that the race card, reactivated by McCain's campaign with its last ads, will play a role on November 4. It will not be a role as large as it had been in the past, but many voters who simply dislike Obama and look for a good reason for NOT voting him, will cast a ballot and these ballots will be counted. That will bring closer results than many pollsters and pundits forecast today.

More Conservatives Ready To Give Up

While Republicans launch a new ads campaign against Obama, linking him to Bill Ayers, of Weatherman Underground fame, Weekly Standard editor Bill Kristol said on “Fox News Sunday”: “[T]he main thing to say about these negative ads [is] they haven't worked. Obama's favorable rating is as high as it's been in three months. It's actually gone up in the last month. So it's a stupid campaign.”

Coming from the son of Irving Kristol, a die-hard neoconservative, it's quite an endorsement for the Republican ticket (by the way, another scion of a blue-blood conservative dynasty, Christopher Buckley, let know yesterday that he will vote for Obama).

After The Debate, Many Conservatives Seem Ready To Give Up/2

There is a VERY interesting picture posted on Flickr by Brett of FiveThirtyEight, my blog of choice for political statistics analysis. The photo (here the Flickr gallery) shows Sarah Palin signing a "Palin 2012" placard.

This is truly unprecedented: the very existence of this sign, created by her supporters, means either that they think John McCain will win, but not survive his first term, or that they think Obama will win, and prepare themselves for 2012. In both cases, John McCain's should not be too happy. The truth is that his campaign is simply irrelevant to them, something rather odd for the true believers when the election of November 4 will tke place in three weeks.

Don't Expect Things Go Better Before January 20, 2009

The week is over, and a quick assessment would go something like this: 

1) Whatever the Bush administration does, the markets don't believe it.

2) Whatever John McCain says, the voters don't believe it (look at the last polls and trends here). 

In other words, this is a crisis of trust in the ability of government to solve the financial chaos and the sentiment can't possibly turn around before the world is sure that the Bush-Cheney crowd has packed its luggage for good. That means things might start recover not on November 5, but more likely on January 20, when Obama will be sworn in (a McCain's victory will bring the country back to the era of barter, so this possibility will not be discussed here).

Everything started with the real estate bubble, therefore we should start from there.

Houses are normally purchased on credit, and while an individual can pay back his mortgage debt by selling the house to someone else, society as a whole can’t do that. Mortgage servicing, therefore, has to be financed from its own income (real estate is only marginally influenced by foreigners's buying), income which is derived from selling goods and services. The ratio of asset prices to consumer prices gives the best measure of how hard or how easy that is to achieve. While there is no obvious “magic number” for the ratio (and the servicing cost of debt will rise and fall with changes in interest rates), its level tells us how sustainable house prices are at any point in time. A low ratio implies very affordable housing; a high one implies expensive housing, and one that lasts in the long term implies a bubble.

The bubble in US housing prices is obvious: between 1892 and 1995, the average for this index was 103, while its previous peak value–set over a century ago in 1894–was 133.6. This long run maximum was breached in 1989, and the housing bubble continued even after the Stock Market "dot com" bubble temporarily burst in 2001. The house index peaked in 2004 at 228, over twice the historic norm, and 70% above the highest level the index had reached in 1894. If the index reverts to anything like its historic norm, then US house prices have much further to fall. Even now, after a 10-15% fall from its peak, the index is still almost twice the pre-1995 long term average. 

This means that the banks will become owners of more and more houses, because less and less families will be able to pay their mortgages, set at high and unrealistic levels. And the prices for more houses will go down more and more, stressing the balance sheet of the soon-to-be-nationalized banks even further. Nobody knows where the bottom is. Read this about the Panic of 2008.

After The Debate, Many Conservatives Seem Ready To Give Up

In the last 10 days, polls have been hard to swallow for Republicans. Nevertheless, it's remarkable that many right-wing commentators already start to accept the obvious: McCain will lose, and lose badly. A few excerpts from what was published last night immediately after the debate in Nashville:

"If McCain were running in a year when his party wasn't getting crushed by a series of calamities, he might be winning this race. But tonight obviously wasn't enough. Obama, meanwhile, just has to appear plausible and he did" (Rich Lowry at National Review).

"John McCain had a very strong debate tonight. It's too bad for him that it came on a night when Barack Obama was nearly flawless. The debate began with questions on the economy and for thirty minutes Obama answered those questions with the kind of substance that I suspect anxious voters wanted to hear and with exactly the right tone--empathic, aggravated, and determined. Most important, he spoke to voters in their own language." (Stephen Hayes at the Weekly Standard).

"Does any of this change the fundamentals of the presidential race? Probably not. Those fundamentals are being determined in a global financial crisis that neither candidate did anything to cause or prevent. (...) Sometimes being in a presidential campaign is like trying to steer a glacier. You do what you can, but you are mainly along for the ride. Tonight, McCain did what he could. But the party with executive power – the party more closely identified with banking and Wall Street – is being blamed for the current crisis." (Michael Gerson at Washington Post).

"With due respect, I think tonight was a disaster for our side. I'm dumbfounded that no one else seems to think so. Obama did everything he needed to do, McCain did nothing he needed to do." (Andy McCarthy at National Review).

And among the rank-and-file the spirits are quite low as well:

"The debate was a draw. It seems that both candidates are willing to play it safe -- surprising, at least, for McCain, given that he's behind. (...) McCain was effective, but there were many missed opportunities and anyone hoping this debate would be a game-changer is bound to be disappointed. (Carol Platt Liebau at TownHall.com)

"Well I have gone outside and pulled up my Mcain/Palin sign. This election is over. I will vote for Mcain but I know that come Nov. 5 Obama will be our president-elect. I feel sorry for Sarah Palin. A once promising career will be permanently connected to the landslide loss of John McCain." (email message to Mark Steyn at National Review).

A final comment by a TPM reader: 

"My intuition is that McCain conceded tonight. Sure, he shot a few across the bow but he did not go nuclear. He did not engage Obama in the way Palin does on the stump with her references to Ayers, Rezko and Wright. It's as if McCain couldn't bring himself to do so. All his attacks were kind of half-hearted. He's given it his best shot, but when the time came to go for the killer punch, or at the very least, attempt one on prime-time national TV, he blinked." 

The Race Has Taken Its Shape

Today, The Washington Post has a story about Republicans' strategy that begins this way: "Sen. John McCain and his Republican allies are readying a newly aggressive assault on Sen. Barack Obama's character, believing that to win in November they must shift the conversation back to questions about the Democrat's judgment, honesty and personal associations," One may ask: "And what did they do so far, if not talking about Obama's character and personal associations?" Their entire panoply of TV ads focused on one theme only: "Not Ready to Lead." Remarkably consistent, but not particularly convincing for voters, so far.
Now, the situation in the field is this: Obama has gained a 7-10 point margin over John McCain in the last ten days, depending from the polling organisation, and he seems to be ahead among men and women, among independents, and in all swing states. The financial crisis of the last two weeks, and the first debate, clearly made voters say they are ready to vote for him.
That means he should easily win in November: he will need only to keep the blue States where John Kerry prevailed in 2004, and win in states like Iowa, Colorado and New Mexico where he enjoys comfortable margins in the polls: +5% in Colorado, +11% in Iowa, +8% in New Mexico. That would make 273 votes in the Electoral College, more than the "magic number" of 270. Even a loss in New Hampshire (a vague possibility) would give Obama 269 votes, and a tie which would be decided by the House of Representatives, where Democrats will enjoy a very large margin.
This, however, is an extremely conservative forecast: polls give him good chances of winning in Florida, Virginia, Ohio, Nevada and even North Carolina, creating a large majority in the Electoral College for a Democratic President who will have strong Democratic majorities in Congress (the party should pick several seats in the House, and Democrats are on the brink of a filibuster-proof majority in the Senate).
During the last month of campaign everything can happen, but the race has taken its shape: voters are ready for change, as they were in 1980 when they broke for Reagan after a long period of balance between him and incumbent president Jimmy Carter.
John McCain will have a hard time in convincing voters that, on November 4, the main issue should be Obama's character and not the tragic situation of the economy.

Is General McClellan Winning in Afghanistan?

General McClellan will prevail, said Sarah Palin, the folksy former Mayor Of Wasilla, now a Vice president candidate, during the St. Louis debate last night. She definitely thinks that "Yes," he is leading U.S. troops to victory in the remote valleys of Asia, where those British and Soviet wimps were defeated.

And, no doubt, he will win because he is a true American hero, here shown with his comrades (right in the middle of the picture you can spot president Lincoln, too).

(Note for the few ones who care: today, the name of the general in charge of American troops in Afghanistan is McKiernan, David D. McKiernan).

Russ Feingold Speaks

Senator Russ Feingold of Wisconsin voted "Nay" to the bipartisan financial bill passed by the Senate 74-25, because "it fails to offset the cost of the plan, leaving taxpayers to bear the burden of serious lapses of judgment by private financial institutions, their regulators, and the enablers in Washington who paved the way for this catastrophe by removing the safeguards that had protected consumers and the economy since the great depression. The bailout legislation also fails to reform the flawed regulatory structure that permitted this crisis to arise in the first place. And it doesn't do enough to address the root cause of the credit market collapse, namely the housing crisis. Taxpayers deserve a plan that puts their concerns ahead of those who got us into this mess."
Now, will the 95 Democrats in the House who voted "No" last Monday have enough political courage to resist the lobbying of their disgraced leadership that sold out to the fat cats?

Dennis Kucinich Speaks

Another voice out of the mainstream: Ohio Representative (and briefly candidate for the Democratic nomination) Dennis Kucinich:

"The $700 billion bailout for Wall Street, is driven by fear not fact. This is too much money in too a short a time going to too few people, while too many questions remain unanswered. Why aren't we having hearings on the plan we have just received? Why aren't we questioning the underlying premise of the need for a bailout with taxpayers' money? Why have we not considered any alternatives other than to give $700 billion to Wall Street? Why aren't we asking Wall Street to clean up its own mess? Why aren't we passing new laws to stop the speculation, which triggered this? Why aren't we putting up new regulatory structures to protect investors? How do we even value the $700 billion in toxic assets?

Why aren't we helping homeowners directly with their debt burden? Why aren't we helping American families faced with bankruptcy. Why aren't we reducing debt for Main Street instead of Wall Street? Isn't it time for fundamental change in our debt based monetary system, so we can free ourselves from the manipulation of the Federal Reserve and the banks? Is this the United States Congress or the board of directors of Goldman Sachs? Wall Street is a place of bears and bulls. It is not smart to force taxpayers to dance with bears or to follow closely behind the bulls."

The Strange-Bedfellows Uprising

Yesterday the House rejected the much-amended Paulson's plan. In the cacophony of post-mortem opinions , a different voice was the one of my friend Phil Mattera, of Dirt Digger Digest, who put some things straight. Here is his article:

September 29, 2008 by Phil Mattera

The financial sector has contributed more than $300 million to federal candidates in this election cycle – split evenly between Democrats and Republicans – but it apparently was not enough. Today a motley coalition of free-market-loving right-wingers, fiscally conservative Blue Dog Democrats and anti-corporate left-wingers came together to deliver a stunning rebuke to the Wall Street bailout plan concocted by the Bush Administration and the leadership of both major parties.

The House’s defeat of the $700 billion plan represents (for now, at least) a breakdown in the tradition of acceding to the wishes of Big Business and Big Finance, especially at times when those monied interests need to be saved from their own excesses. It has taken a financial crisis of monumental proportions to expose as never before the rift between the needs of the corporate elite and those of the rest of us.

It has been fascinating to watch this play out across the political spectrum. Conservatives clinging to the ideology of market supremacy find themselves in a clash with corporate elites who have jettisoned their laissez-faire sentiments in favor of unprecedented government intervention. Joining the die-hard conservatives are progressives who oppose the Paulson plan but see the crisis as an opportunity to push for even more aggressive intervention, on behalf of working families.

In between are corporate-friendly Democrats and Republicans who were forced to lash themselves to the mast of the Bush Administration’s wildly unpopular plan. They were proud to have forced Paulson to abandon his original power-grabbing proposal in favor of a bill that included an abundance of oversight and disclosure as well as some safeguards for taxpayers. Yet by retaining same basic bailout concept, they were seen as doing little more than putting lipstick and various other cosmetics on a giant pig of a plan.

By taking Bush and Paulson at their word on the necessity of the bailout, mainstream Democrats, who made up most of the losing side in today’s House vote, have put themselves in a precarious position. This was captured in a vignette in today’s Washington Post account of the marathon weekend negotiations on the ill-fated bill. After the conclusion of a post-midnight press conference, Secretary Paulson, who had been showing signs of exhaustion during the talks, locked arms with Democratic Sen. Chuck Schumer of New York “and leaned heavily on the senator for support as they walked away.”

By trying to act “responsibly” in this tumultuous situation, the Democratic leadership may be literally and figuratively taking on the albatross of the Bush Administration and its Wall Street supplicants. Whether this is a trap that was deliberately set for them is hard to determine at this point, but the result is that Democrats find themselves out of step with the new anti-corporate zeitgeist.

The apparent sea change in attitudes toward Big Business may have repercussions far beyond the current credit crisis. It may also be felt, for example, at the state and local level. Here at the Corporate Research Project and Good Jobs First, we deal all the time with another sort of corporate giveaway – the often huge economic development subsidy packages given to companies ranging from Wal-Mart and Cabela’s to Dell and Toyota.

While we tend to critique those subsidies because they lack job quality standards and take funds away from public schools, there are libertarians who oppose them as an unwarranted intrusion in the market. Perhaps the right-left uprising against the bailout can help us form more effective strange-bedfellows alliances in our work as well. Look out, Corporate America, you may get outflanked from both sides.

Canvassing

Still 35 days to go before the election. In this last stretch of the campaign what counts is going around and talking to people, convincing them not only of the fact that your candidate is the Good Guy but, more important, that they should take the trouble of going to the polls and pull the lever.

In this all-important ground operation, Obama's right-hand David Plouffe has built a very efficient political machine, capable of knocking to the doors even en the most republicans of Republicans neighborhoods. Here is an example of two volunteers' experiences in Florida (courtesy of DailyKos).

***

This weekend I decided to spend canvassing for the campaign for the first time. Me and my girlfriend went and canvassed together in South Tampa. The neighborhood was littered with McCain/Palin signs, one house seemed to be the campaign headquarters with how many signs they had. With that said, there were definitely gonna be some hostility to us.

It was a cool day the high was 79 with low humidity the perfect weather to be out in. The first 3 houses no one was home and we were a bit frustrated seeing as it was our first time. Then we encountered a woman who had just pulled in her driveway. She told us her husband was a staunch Obama supporter but she was distressed that her income bracket fell into the 250k+ category and she didn't want more taxes. I didn't say much more and we left. Soon after we had the door slammed in our faces a few time with the line "I'm Republican". To me I didn't care if they were republican or not I just wanted to know why they were and what issues they cared about.

So after a pretty bad start we knocked on an older home to no avail. We knocked again and then a window opened up and an old lady appeared and asked us what we wanted. We told her we were with the Obama campaign and wanted to ask her a few questions. She told us to come around to the back to talk to her. Her name was Florence. We asked her who she was supporting and she said with such passion Obama. She started about how she thought McCain was liar. She used the L word so effortlessly and convincingly. We then went on to ask about what issues effected her the most. She went on to tell us about the war and how many young lives are lost and that we need to be in Afghanistan.

Soon after discussing the issues she invited us in for some soda and water. I was surprised to hear she was 93 years old. It astounded me how she had such a grasp of the issues. We talked for an hour about her family and her life. She was such an interesting woman who had worked in D.C. during World War II. I was shocked to learn how she was the University of Tampa class of 1940 given the university was established in 1931 and I am in the class 2012. Florence has been living in the same house for over 50 years and has had the same oven for over 66 years and it looked surprisingly new. This was a women who has lived American history and even she knows we need change in this country.

We eventually got onto the subject of Palin and how inexperienced Palin is and Florence even poked fun at the whole Russia affair. Florence definitely knew the issues and the candidates. We eventually had to leave but me and my girlfriend were so happy to have met someone so interesting and just such a sweet old lady. She was truly of the greatest generation.

Even with the doors slammed in our faces and the dirty looks, talking to her made our day. Even if we didn't really meet our goal of persuading and swing voters we still got to meet someone special and remind us of why we were canvassing. It wasn't just for politics but to get out into the community and meet new people we would never would have met otherwise. I can gladly say I will be doing more canvassing until election day and helping the campaign any way I can.

Alex

The Bush Era

The Presidency of George W. Bush began in fraud, mob violence, and corruption of the Justice system (remember Florida?). It ends in economic chaos, coupled with two wars impossible to win. When George W. Bush, "the guy with whom you would like to have a beer with," assumed the presidency on January 20, 2001, the Dow Jones index stood at 10,587.59 points. Yesterday, after almost eight years of economic growth, it closed at 10,365.45.

And the worst has yet to come.

Do Voters Think That Obama Was Better? Yes.

There are a number of good opinions on the debate, but most of them are based on feelings, not evidence. Therefore, I will not add my thoughts on the matter, and leave this space to Nate Silver, who has an exellent piece in his blog http://www.fivethirtyeight.com/.

Why Voters Thought Obama Won

TPM has the internals of the CNN poll of debate-watchers, which had Obama winning overall by a margin of 51-38. The poll suggests that Obama is opening up a gap on connectedness, while closing a gap on readiness.

Specifically, by a 62-32 margin, voters thought that Obama was “more in touch with the needs and problems of people like you”. This is a gap that has no doubt grown because of the financial crisis of recent days. But it also grew because Obama was actually speaking to middle class voters. Per the transcript, McCain never once mentioned the phrase “middle class” (Obama did so three times). And Obama’s eye contact was directly with the camera, i.e. the voters at home. McCain seemed to be speaking literally to the people in the room in Mississippi, but figuratively to the punditry. It is no surprise that a small majority of pundits seemed to have thought that McCain won, even when the polls indicated otherwise; the pundits were his target audience.

Something as simple as Obama mentioning that he’ll cut taxes for “95 percent of working families” is worth, I would guess, a point or so in the national polls. Obama had not been speaking enough about his middle class tax cut; there was some untapped potential there, and Obama may have gotten the message to sink in tonight

By contrast, I don’t think McCain’s pressing Obama on earmarks was time well spent for him. One, it simply is not something that voters care all that much about, given the other pressures the economy faces. But also, it is not something that voters particularly associate with Obama, as the McCain campaign had not really pressed this line of attack. If you’re going to introduce a new line of attack late in a campaign, it has better be a more effective one that earmarks. And then there was McCain's technocratic line about the virtues of lowering corporate taxes, one which might represent perfectly valid economic policy, but which was exactly the sort of patrician argument that lost George H.W. Bush the election in 1992.

Meanwhile, voters thought that Obama “seemed to be the stronger leader” by a 49-43 margin, reversing a traditional area of McCain strength. And voters thought that the candidates were equally likely to be able to handle the job of president if elected.

These internals are worse for McCain than the topline results, because they suggest not only that McCain missed one of his few remaining opportunities to close the gap with Barack Obama, but also that he has few places to go. The only category in which McCain rated significantly higher than Obama was on “spent more time attacking his opponent”. McCain won that one by 37 points.

My other annoyance with the punditry is that they seem to weight all segments of the debate equally. There were eight segments in this debate: bailout, economy, spending, Iraq, Afghanistan, Iran, Russia, terrorism. The pundit consensus seems to be that Obama won the segments on the bailout, the economy, and Iraq, drew the segment on Afghanistan, and lost the other four. So, McCain wins 4-3, right? Except that, voters don’t weight these issues anywhere near evenly. In Peter Hart’s recent poll for NBC, 43 percent of voters listed the economy or the financial crisis as their top priority, 12 percent Iraq, and 13 percent terrorism or other foreign policy issues. What happens if we give Obama two out of three economic voters (corresponding to the fact that he won two out of the three segments on the economy), and the Iraq voters, but give McCain all the “other foreign policy” voters?

Issue Priority Obama McCain

Economy 43 --> 29 14

Iraq 12 --> 12 0

Foreign Pol. 13 --> 0 13

==========================================

Total 41 27

By this measure, Obama “won” by 14 points, which almost exactly his margin in the CNN poll.

McCain’s essential problem is that his fundamental strength – his experience -- is specifically not viewed by voters as carrying over to the economy. And the economy is pretty much all that voters care about these days.

P.S. The CBS poll of undecideds has more confirmatory detail. Obama went from a +18 on "understanding your needs and problems" before the debate to a +56 (!) afterward. And he went from a -9 on "prepared to be president" to a +21.

Transcript of the first presidential debate

WASHINGTON (CNN ) -- Sens. John McCain and Barack Obama debated on the campus of the University of Mississippi Friday night. The moderator for the debate was Jim Lehrer of the NewsHour on PBS. What follows is the full transcript of the debate:

LEHRER: Gentlemen, at this very moment tonight, where do you stand on the financial recovery plan?

First response to you, Senator Obama. You have two minutes.

OBAMA: Well, thank you very much, Jim, and thanks to the commission and the University of Mississippi, "Ole Miss," for hosting us tonight. I can't think of a more important time for us to talk about the future of the country.

You know, we are at a defining moment in our history. Our nation is involved in two wars, and we are going through the worst financial crisis since the Great Depression.

And although we've heard a lot about Wall Street, those of you on Main Street I think have been struggling for a while, and you recognize that this could have an impact on all sectors of the economy.

And you're wondering, how's it going to affect me? How's it going to affect my job? How's it going to affect my house? How's it going to affect my retirement savings or my ability to send my children to college? 

So we have to move swiftly, and we have to move wisely. And I've put forward a series of proposals that make sure that we protect taxpayers as we engage in this important rescue effort.

No. 1, we've got to make sure that we've got oversight over this whole process; $700 billion, potentially, is a lot of money.

No. 2, we've got to make sure that taxpayers, when they are putting their money at risk, have the possibility of getting that money back and gains, if the market -- and when the market returns.

No. 3, we've got to make sure that none of that money is going to pad CEO bank accounts or to promote golden parachutes.

And, No. 4, we've got to make sure that we're helping homeowners, because the root problem here has to do with the foreclosures that are taking place all across the country. 

Now, we also have to recognize that this is a final verdict on eight years of failed economic policies promoted by George Bush, supported by Senator McCain, a theory that basically says that we can shred regulations and consumer protections and give more and more to the most, and somehow prosperity will trickle down.

It hasn't worked. And I think that the fundamentals of the economy have to be measured by whether or not the middle class is getting a fair shake. That's why I'm running for president, and that's what I hope we're going to be talking about tonight.

LEHRER: Senator McCain, two minutes.

MCCAIN: Well, thank you, Jim. And thanks to everybody.

And I do have a sad note tonight. Senator Kennedy is in the hospital. He's a dear and beloved friend to all of us. Our thoughts and prayers go out to the lion of the Senate.

I also want to thank the University of Mississippi for hosting us tonight.

And, Jim, I -- I've been not feeling too great about a lot of things lately. So have a lot of Americans who are facing challenges. But I'm feeling a little better tonight, and I'll tell you why.

Because as we're here tonight in this debate, we are seeing, for the first time in a long time, Republicans and Democrats together, sitting down, trying to work out a solution to this fiscal crisis that we're in.

And have no doubt about the magnitude of this crisis. And we're not talking about failure of institutions on Wall Street. We're talking about failures on Main Street, and people who will lose their jobs, and their credits, and their homes, if we don't fix the greatest fiscal crisis, probably in -- certainly in our time, and I've been around a little while.

But the point is -- the point is, we have finally seen Republicans and Democrats sitting down and negotiating together and coming up with a package.

This package has transparency in it. It has to have accountability and oversight. It has to have options for loans to failing businesses, rather than the government taking over those loans. We have to -- it has to have a package with a number of other essential elements to it.

And, yes, I went back to Washington, and I met with my Republicans in the House of Representatives. And they weren't part of the negotiations, and I understand that. And it was the House Republicans that decided that they would be part of the solution to this problem.

But I want to emphasize one point to all Americans tonight. This isn't the beginning of the end of this crisis. This is the end of the beginning, if we come out with a package that will keep these institutions stable.

And we've got a lot of work to do. And we've got to create jobs. And one of the areas, of course, is to eliminate our dependence on foreign oil.

LEHRER: All right, let's go back to my question. How do you all stand on the recovery plan? And talk to each other about it. We've got five minutes. We can negotiate a deal right here.

But, I mean, are you -- do you favor this plan, Senator Obama, and you, Senator McCain? Do you -- are you in favor of this plan?

OBAMA: We haven't seen the language yet. And I do think that there's constructive work being done out there. So, for the viewers who are watching, I am optimistic about the capacity of us to come together with a plan.

The question, I think, that we have to ask ourselves is, how did we get into this situation in the first place?

Two years ago, I warned that, because of the subprime lending mess, because of the lax regulation, that we were potentially going to have a problem and tried to stop some of the abuses in mortgages that were taking place at the time.

Last year, I wrote to the secretary of the Treasury to make sure that he understood the magnitude of this problem and to call on him to bring all the stakeholders together to try to deal with it.

So -- so the question, I think, that we've got to ask ourselves is, yes, we've got to solve this problem short term. And we are going to have to intervene; there's no doubt about that.

But we're also going to have to look at, how is it that we shredded so many regulations? We did not set up a 21st-century regulatory framework to deal with these problems. And that in part has to do with an economic philosophy that says that regulation is always bad.

LEHRER: Are you going to vote for the plan, Senator McCain?

MCCAIN: I -- I hope so. And I...

LEHRER: As a United States senator...

MCCAIN: Sure.

LEHRER: ... you're going to vote for the plan?

MCCAIN: Sure. But -- but let me -- let me point out, I also warned about Fannie Mae and Freddie Mac and warned about corporate greed and excess, and CEO pay, and all that. A lot of us saw this train wreck coming.

But there's also the issue of responsibility. You've mentioned President Dwight David Eisenhower. President Eisenhower, on the night before the Normandy invasion, went into his room, and he wrote out two letters.

One of them was a letter congratulating the great members of the military and allies that had conducted and succeeded in the greatest invasion in history, still to this day, and forever.

And he wrote out another letter, and that was a letter of resignation from the United States Army for the failure of the landings at Normandy.

Somehow we've lost that accountability. I've been heavily criticized because I called for the resignation of the chairman of the Securities and Exchange Commission. We've got to start also holding people accountable, and we've got to reward people who succeed.

But somehow in Washington today -- and I'm afraid on Wall Street -- greed is rewarded, excess is rewarded, and corruption -- or certainly failure to carry out our responsibility is rewarded.

As president of the United States, people are going to be held accountable in my administration. And I promise you that that will happen.

LEHRER: Do you have something directly to say, Senator Obama, to Senator McCain about what he just said?

OBAMA: Well, I think Senator McCain's absolutely right that we need more responsibility, but we need it not just when there's a crisis. I mean, we've had years in which the reigning economic ideology has been what's good for Wall Street, but not what's good for Main Street.

And there are folks out there who've been struggling before this crisis took place. And that's why it's so important, as we solve this short-term problem, that we look at some of the underlying issues that have led to wages and incomes for ordinary Americans to go down, the -- a health care system that is broken, energy policies that are not working, because, you know, 10 days ago, John said that the fundamentals of the economy are sound.

LEHRER: Say it directly to him.

OBAMA: I do not think that they are.

LEHRER: Say it directly to him.

OBAMA: Well, the -- John, 10 days ago, you said that the fundamentals of the economy are sound. And...

MCCAIN: Are you afraid I couldn't hear him?

LEHRER: I'm just determined to get you all to talk to each other. I'm going to try.

OBAMA: The -- and I just fundamentally disagree. And unless we are holding ourselves accountable day in, day out, not just when there's a crisis for folks who have power and influence and can hire lobbyists, but for the nurse, the teacher, the police officer, who, frankly, at the end of each month, they've got a little financial crisis going on.

They're having to take out extra debt just to make their mortgage payments. We haven't been paying attention to them. And if you look at our tax policies, it's a classic example.

LEHRER: So, Senator McCain, do you agree with what Senator Obama just said? And, if you don't, tell him what you disagree with.

MCCAIN: No, I -- look, we've got to fix the system. We've got fundamental problems in the system. And Main Street is paying a penalty for the excesses and greed in Washington, D.C., and on Wall Street.

So there's no doubt that we have a long way to go. And, obviously, stricter interpretation and consolidation of the various regulatory agencies that weren't doing their job, that has brought on this crisis.

But I have a fundamental belief in the goodness and strength of the American worker. And the American worker is the most productive, the most innovative. America is still the greatest producer, exporter and importer.

But we've got to get through these times, but I have a fundamental belief in the United States of America. And I still believe, under the right leadership, our best days are ahead of us.

LEHRER: All right, let's go to the next lead question, which is essentially following up on this same subject.

And you get two minutes to begin with, Senator McCain. And using your word "fundamental," are there fundamental differences between your approach and Senator Obama's approach to what you would do as president to lead this country out of the financial crisis?

MCCAIN: Well, the first thing we have to do is get spending under control in Washington. It's completely out of control. It's gone -- we have now presided over the largest increase in the size of government since the Great Society.

We Republicans came to power to change government, and government changed us. And the -- the worst symptom on this disease is what my friend, Tom Coburn, calls earmarking as a gateway drug, because it's a gateway. It's a gateway to out-of-control spending and corruption.

And we have former members of Congress now residing in federal prison because of the evils of this earmarking and pork-barrel spending.

You know, we spent $3 million to study the DNA of bears in Montana. I don't know if that was a criminal issue or a paternal issue, but the fact is that it was $3 million of our taxpayers' money. And it has got to be brought under control.

As president of the United States, I want to assure you, I've got a pen. This one's kind of old. I've got a pen, and I'm going to veto every single spending bill that comes across my desk. I will make them famous. You will know their names.

Now, Senator Obama, you wanted to know one of the differences. a million dollars for every day that he's been in the United States Senate.

I suggest that people go up on the Web site of Citizens Against Government Waste, and they'll look at those projects.

That kind of thing is not the way to rein in runaway spending in Washington, D.C. That's one of the fundamental differences that Senator Obama and I have.

LEHRER: Senator Obama, two minutes.

OBAMA: Well, Senator McCain is absolutely right that the earmarks process has been abused, which is why I suspended any requests for my home state, whether it was for senior centers or what have you, until we cleaned it up.

And he's also right that oftentimes lobbyists and special interests are the ones that are introducing these kinds of requests, although that wasn't the case with me.

But let's be clear: Earmarks account for $18 billion in last year's budget. Senator McCain is proposing -- and this is a fundamental difference between us -- $300 billion in tax cuts to some of the wealthiest corporations and individuals in the country, $300 billion.

Now, $18 billion is important; $300 billion is really important.

And in his tax plan, you would have CEOs of Fortune 500 companies getting an average of $700,000 in reduced taxes, while leaving 100 million Americans out.

So my attitude is, we've got to grow the economy from the bottom up. What I've called for is a tax cut for 95 percent of working families, 95 percent.

And that means that the ordinary American out there who's collecting a paycheck every day, they've got a little extra money to be able to buy a computer for their kid, to fill up on this gas that is killing them.

And over time, that, I think, is going to be a better recipe for economic growth than the -- the policies of President Bush that John McCain wants to -- wants to follow.

LEHRER: Senator McCain?

MCCAIN: Well, again, I don't mean to go back and forth, but he...

LEHRER: No, that's fine.

MCCAIN: Senator Obama suspended those requests for pork-barrel projects after he was running for president of the United States. He didn't happen to see that light during the first three years as a member of the United States Senate, $932 million in requests.

Maybe to Senator Obama it's not a lot of money. But the point is that -- you see, I hear this all the time. "It's only $18 billion." Do you know that it's tripled in the last five years? Do you know that it's gone completely out of control to the point where it corrupts people? It corrupts people.

That's why we have, as I said, people under federal indictment and charges. It's a system that's got to be cleaned up.

I have fought against it my career. I have fought against it. I was called the sheriff, by the -- one of the senior members of the Appropriations Committee. I didn't win Miss Congeniality in the United States Senate.

Now, Senator Obama didn't mention that, along with his tax cuts, he is also proposing some $800 billion in new spending on new programs.

Now, that's a fundamental difference between myself and Senator Obama. I want to cut spending. I want to keep taxes low. The worst thing we could do in this economic climate is to raise people's taxes.

OBAMA: I -- I don't know where John is getting his figures. Let's just be clear.

What I do is I close corporate loopholes, stop providing tax cuts to corporations that are shipping jobs overseas so that we're giving tax breaks to companies that are investing here in the United States. I make sure that we have a health care system that allows for everyone to have basic coverage.

I think those are pretty important priorities. And I pay for every dime of it.

But let's go back to the original point. John, nobody is denying that $18 billion is important. And, absolutely, we need earmark reform. And when I'm president, I will go line by line to make sure that we are not spending money unwisely.

But the fact is that eliminating earmarks alone is not a recipe for how we're going to get the middle class back on track.__OBAMA: And when you look at your tax policies that are directed primarily at those who are doing well, and you are neglecting people who are really struggling right now, I think that is a continuation of the last eight years, and we can't afford another four.

LEHRER: Respond directly to him about that, to Senator Obama about that, about the -- he's made it twice now, about your tax -- your policies about tax cuts.

MCCAIN: Well -- well, let me give you an example of what Senator Obama finds objectionable, the business tax.

Right now, the United States of American business pays the second-highest business taxes in the world, 35 percent. Ireland pays 11 percent.

Now, if you're a business person, and you can locate any place in the world, then, obviously, if you go to the country where it's 11 percent tax versus 35 percent, you're going to be able to create jobs, increase your business, make more investment, etcetera.

I want to cut that business tax. I want to cut it so that businesses will remain in -- in the United States of America and create jobs.

But, again, I want to return. It's a lot more than $18 billion in pork-barrel spending. I can tell you, it's rife. It's throughout.

The United States Senate will take up a continuing resolution tomorrow or the next day, sometime next week, with 2,000 -- 2,000 -- look at them, my friends. Look at them. You'll be appalled.

And Senator Obama is a recent convert, after requesting $932 million worth of pork-barrel spending projects.

So the point is, I want people to have tax cuts. I want every family to have a $5,000 refundable tax credit so they can go out and purchase their own health care. I want to double the dividend from $3,500 to $7,000 for every dependent child in America.

I know that the worst thing we could possibly do is to raise taxes on anybody, and a lot of people might be interested in Senator Obama's definition of "rich."

LEHRER: Senator Obama, you have a question for Senator McCain on that?

OBAMA: Well, let me just make a couple of points.

LEHRER: All right.

OBAMA: My definition -- here's what I can tell the American people: 95 percent of you will get a tax cut. And if you make less than $250,000, less than a quarter-million dollars a year, then you will not see one dime's worth of tax increase.

Now, John mentioned the fact that business taxes on paper are high in this country, and he's absolutely right. Here's the problem: There are so many loopholes that have been written into the tax code, oftentimes with support of Senator McCain, that we actually see our businesses pay effectively one of the lowest tax rates in the world.

And what that means, then, is that there are people out there who are working every day, who are not getting a tax cut, and you want to give them more.

It's not like you want to close the loopholes. You just want to add an additional tax cut over the loopholes. And that's a problem.

Just one last point I want to make, since Senator McCain talked about providing a $5,000 health credit. Now, what he doesn't tell you is that he intends to, for the first time in history, tax health benefits.

So you may end up getting a $5,000 tax credit. Here's the only problem: Your employer now has to pay taxes on the health care that you're getting from your employer. And if you end up losing your health care from your employer, you've got to go out on the open market and try to buy it.

It is not a good deal for the American people. But it's an example of this notion that the market can always solve everything and that the less regulation we have, the better off we're going to be.

MCCAIN: Well, you know, let me just...

LEHRER: We've got to go to another lead question.

MCCAIN: I know we have to, but this is a classic example of walking the walk and talking the talk.

We had an energy bill before the United States Senate. It was festooned with Christmas tree ornaments. It had all kinds of breaks for the oil companies, I mean, billions of dollars worth. I voted against it; Senator Obama voted for it.

OBAMA: John, you want to give oil companies another $4 billion.

MCCAIN: You've got to look at our record. You've got to look at our records. That's the important thing.

Who fought against wasteful and earmark spending? Who has been the person who has tried to keep spending under control?

Who's the person who has believed that the best thing for America is -- is to have a tax system that is fundamentally fair? And I've fought to simplify it, and I have proposals to simplify it.

Let's give every American a choice: two tax brackets, generous dividends, and, two -- and let Americans choose whether they want the -- the existing tax code or they want a new tax code.

And so, again, look at the record, particularly the energy bill. But, again, Senator Obama has shifted on a number of occasions. He has voted in the United States Senate to increase taxes on people who make as low as $42,000 a year.

OBAMA: That's not true, John. That's not true.

MCCAIN: And that's just a fact. Again, you can look it up.

OBAMA: Look, it's just not true. And if we want to talk about oil company profits, under your tax plan, John -- this is undeniable -- oil companies would get an additional $4 billion in tax breaks.

Now, look, we all would love to lower taxes on everybody. But here's the problem: If we are giving them to oil companies, then that means that there are those who are not going to be getting them. And...

MCCAIN: With all due respect, you already gave them to the oil companies.

OBAMA: No, but, John, the fact of the matter is, is that I was opposed to those tax breaks, tried to strip them out. We've got an emergency bill on the Senate floor right now that contains some good stuff, some stuff you want, including drilling off-shore, but you're opposed to it because it would strip away those tax breaks that have gone to oil companies.

LEHRER: All right. All right, speaking of things that both of you want, another lead question, and it has to do with the rescue -- the financial rescue thing that we started -- started asking about.

And what -- and the first answer is to you, Senator Obama. As president, as a result of whatever financial rescue plan comes about and the billion, $700 billion, whatever it is it's going to cost, what are you going to have to give up, in terms of the priorities that you would bring as president of the United States, as a result of having to pay for the financial rescue plan?

OBAMA: Well, there are a range of things that are probably going to have to be delayed. We don't yet know what our tax revenues are going to be. The economy is slowing down, so it's hard to anticipate right now what the budget is going to look like next year.

But there's no doubt that we're not going to be able to do everything that I think needs to be done. There are some things that I think have to be done.

We have to have energy independence, so I've put forward a plan to make sure that, in 10 years' time, we have freed ourselves from dependence on Middle Eastern oil by increasing production at home, but most importantly by starting to invest in alternative energy, solar, wind, biodiesel, making sure that we're developing the fuel-efficient cars of the future right here in the United States, in Ohio and Michigan, instead of Japan and South Korea.

We have to fix our health care system, which is putting an enormous burden on families. Just -- a report just came out that the average deductible went up 30 percent on American families.

They are getting crushed, and many of them are going bankrupt as a consequence of health care. I'm meeting folks all over the country. We have to do that now, because it will actually make our businesses and our families better off.

The third thing we have to do is we've got to make sure that we're competing in education. We've got to invest in science and technology. China had a space launch and a space walk. We've got to make sure that our children are keeping pace in math and in science.

And one of the things I think we have to do is make sure that college is affordable for every young person in America.

And I also think that we're going to have to rebuild our infrastructure, which is falling behind, our roads, our bridges, but also broadband lines that reach into rural communities.

Also, making sure that we have a new electricity grid to get the alternative energy to population centers that are using them.

So there are some -- some things that we've got to do structurally to make sure that we can compete in this global economy. We can't shortchange those things. We've got to eliminate programs that don't work, and we've got to make sure that the programs that we do have are more efficient and cost less.

LEHRER: Are you -- what priorities would you adjust, as president, Senator McCain, because of the -- because of the financial bailout cost?

MCCAIN: Look, we, no matter what, we've got to cut spending. We have -- as I said, we've let government get completely out of control.

Senator Obama has the most liberal voting record in the United States Senate. It's hard to reach across the aisle from that far to the left.

The point -- the point is -- the point is, we need to examine every agency of government.

First of all, by the way, I'd eliminate ethanol subsidies. I oppose ethanol subsidies.

I think that we have to return -- particularly in defense spending, which is the largest part of our appropriations -- we have to do away with cost-plus contracts. We now have defense systems that the costs are completely out of control.

We tried to build a little ship called the Littoral Combat Ship that was supposed to cost $140 million, ended up costing $400 million, and we still haven't done it.

So we need to have fixed-cost contracts. We need very badly to understand that defense spending is very important and vital, particularly in the new challenges we face in the world, but we have to get a lot of the cost overruns under control.

I know how to do that.

MCCAIN: I saved the taxpayers $6.8 billion by fighting a contract that was negotiated between Boeing and DOD that was completely wrong. And we fixed it and we killed it and the people ended up in federal prison so I know how to do this because I've been involved these issues for many, many years. But I think that we have to examine every agency of government and find out those that are doing their job and keep them and find out those that aren't and eliminate them and we'll have to scrub every agency of government.

LEHRER: But if I hear the two of you correctly neither one of you is suggesting any major changes in what you want to do as president as a result of the financial bailout? Is that what you're saying?

OBAMA: No. As I said before, Jim, there are going to be things that end up having to be ...

LEHRER: Like what?

OBAMA: ... deferred and delayed. Well, look, I want to make sure that we are investing in energy in order to free ourselves from the dependence on foreign oil. That is a big project. That is a multi-year project.

LEHRER: Not willing to give that up?

OBAMA: Not willing to give up the need to do it but there may be individual components that we can't do. But John is right we have to make cuts. We right now give $15 billion every year as subsidies to private insurers under the Medicare system. Doesn't work any better through the private insurers. They just skim off $15 billion. That was a give away and part of the reason is because lobbyists are able to shape how Medicare works.

They did it on the Medicaid prescription drug bill and we have to change the culture. Tom -- or John mentioned me being wildly liberal. Mostly that's just me opposing George Bush's wrong headed policies since I've been in Congress but I think it is that it is also important to recognize I work with Tom Coburn, the most conservative, one of the most conservative Republicans who John already mentioned to set up what we call a Google for government saying we'll list every dollar of federal spending to make sure that the taxpayer can take a look and see who, in fact, is promoting some of these spending projects that John's been railing about.

LEHRER: What I'm trying to get at this is this. Excuse me if I may, senator. Trying to get at that you all -- one of you is going to be the president of the United States come January. At the -- in the middle of a huge financial crisis that is yet to be resolved. And what I'm trying to get at is how this is going to affect you not in very specific -- small ways but in major ways and the approach to take as to the presidency.

MCCAIN: How about a spending freeze on everything but defense, veteran affairs and entitlement programs.

LEHRER: Spending freeze?

MCCAIN: I think we ought to seriously consider with the exceptions the caring of veterans national defense and several other vital issues.

LEHRER: Would you go for that?

OBAMA: The problem with a spending freeze is you're using a hatchet where you need a scalpel. There are some programs that are very important that are under funded. I went to increase early childhood education and the notion that we should freeze that when there may be, for example, this Medicare subsidy doesn't make sense.

Let me tell you another place to look for some savings. We are currently spending $10 billion a month in Iraq when they have a $79 billion surplus. It seems to me that if we're going to be strong at home as well as strong abroad, that we have to look at bringing that war to a close.

MCCAIN: Look, we are sending $700 billion a year overseas to countries that don't like us very much. Some of that money ends up in the hands of terrorist organizations. We have to have wind, tide, solar, natural gas, flex fuel cars and all that but we also have to have offshore drilling and we also have to have nuclear power.

Senator Obama opposes both storing and reprocessing of spent nuclear fuel. You can't get there from here and the fact is that we can create 700,000 jobs by building constructing 45 new nuclear power plants by the year 2030. Nuclear power is not only important as far as eliminating our dependence on foreign oil but it's also responsibility as far as climate change is concerned and the issue I have been involved in for many, many years and I'm proud of the work of the work that I've done there along with President Clinton.

LEHRER: Before we go to another lead question. Let me figure out a way to ask the same question in a slightly different way here. Are you -- are you willing to acknowledge both of you that this financial crisis is going to affect the way you rule the country as president of the United States beyond the kinds of things that you have already -- I mean, is it a major move? Is it going to have a major affect?

OBAMA: There's no doubt it will affect our budgets. There is no doubt about it. Not only -- Even if we get all $700 billion back, let's assume the markets recover, we' holding assets long enough that eventually taxpayers get it back and that happened during the Great Depression when Roosevelt purchased a whole bunch of homes, over time, home values went back up and in fact government made a profit. If we're lucky and do it right, that could potentially happen but in the short term there's an outlay and we may not see that money for a while.

And because of the economy's slowing down, I think we can also expect less tax revenue so there's no doubt that as president I'm go doing have to make some tough decision.

The only point I want to make is this, that in order to make the tough decisions we have to know what our values are and who we're fighting for and our priorities and if we are spending $300 billion on tax cuts for people who don't need them and weren't even asking for them, and we are leaving out health care which is crushing on people all across the country, then I think we have made a bad decision and I want to make sure we're not shortchanging our long term priorities.

MCCAIN: Well, I want to make sure we're not handing the health care system over to the federal government which is basically what would ultimately happen with Senator Obama's health care plan. I want the families to make decisions between themselves and their doctors. Not the federal government. Look. We have to obviously cut spending. I have fought to cut spending. Senator Obama has $800 billion in new spending programs. I would suggest he start by canceling some of those new spending program that he has.

We can't I think adjust spending around to take care of the very much needed programs, including taking care of our veterans but I also want to say again a healthy economy with low taxes would not raising anyone's taxes is probably the best recipe for eventually having our economy recover.

And spending restraint has got to be a vital part of that. And the reason, one of the major reasons why we're in the difficulties we are in today is because spending got out of control. We owe China $500 billion. And spending, I know, can be brought under control because I have fought against excessive spending my entire career. And I got plans to reduce and eliminate unnecessary and wasteful spending and if there's anybody here who thinks there aren't agencies of government where spending can be cut and their budgets slashed they have not spent a lot of time in Washington.

OBAMA: I just want to make this point, Jim. John, it's been your president who you said you agreed with 90 percent of the time who presided over this increase in spending. This orgy of spending and enormous deficits you voted for almost all of his budgets. So to stand here and after eight years and say that you're going to lead on controlling spending and, you know, balancing our tax cuts so that they help middle class families when over the last eight years that hasn't happened I think just is, you know, kind of hard to swallow.

LEHRER: Quick response to Senator Obama.

MCCAIN: It's well-known that I have not been elected Miss Congeniality in the United States Senate nor with the administration. I have opposed the president on spending, on climate change, on torture of prisoner, on - on Guantanamo Bay. On a -- on the way that the Iraq War was conducted. I have a long record and the American people know me very well and that is independent and a maverick of the Senate and I'm happy to say that I've got a partner that's a good maverick along with me now.

LEHRER: All right. Let's go another subject. Lead question, two minutes to you, senator McCain. Much has been said about the lessons of Vietnam. What do you see as the lessons of Iraq?

MCCAIN: I think the lessons of Iraq are very clear that you cannot have a failed strategy that will then cause you to nearly lose a conflict. Our initial military success, we went in to Baghdad and everybody celebrated. And then the war was very badly mishandled. I went to Iraq in 2003 and came back and said, we've got to change this strategy. This strategy requires additional troops, it requires a fundamental change in strategy and I fought for it. And finally, we came up with a great general and a strategy that has succeeded.

This strategy has succeeded. And we are winning in Iraq. And we will come home with victory and with honor. And that withdrawal is the result of every counterinsurgency that succeeds.__MCCAIN: And I want to tell you that now that we will succeed and our troops will come home, and not in defeat, that we will see a stable ally in the region and a fledgling democracy.

The consequences of defeat would have been increased Iranian influence. It would have been increase in sectarian violence. It would have been a wider war, which the United States of America might have had to come back.

So there was a lot at stake there. And thanks to this great general, David Petraeus, and the troops who serve under him, they have succeeded. And we are winning in Iraq, and we will come home. And we will come home as we have when we have won other wars and not in defeat.

LEHRER: Two minutes, how you see the lessons of Iraq, Senator Obama?

OBAMA: Well, this is an area where Senator McCain and I have a fundamental difference because I think the first question is whether we should have gone into the war in the first place.

Now six years ago, I stood up and opposed this war at a time when it was politically risky to do so because I said that not only did we not know how much it was going to cost, what our exit strategy might be, how it would affect our relationships around the world, and whether our intelligence was sound, but also because we hadn't finished the job in Afghanistan.

We hadn't caught bin Laden. We hadn't put al Qaeda to rest, and as a consequence, I thought that it was going to be a distraction. Now Senator McCain and President Bush had a very different judgment.

And I wish I had been wrong for the sake of the country and they had been right, but that's not the case. We've spent over $600 billion so far, soon to be $1 trillion. We have lost over 4,000 lives. We have seen 30,000 wounded, and most importantly, from a strategic national security perspective, al Qaeda is resurgent, stronger now than at any time since 2001.

We took our eye off the ball. And not to mention that we are still spending $10 billion a month, when they have a $79 billion surplus, at a time when we are in great distress here at home, and we just talked about the fact that our budget is way overstretched and we are borrowing money from overseas to try to finance just some of the basic functions of our government.

So I think the lesson to be drawn is that we should never hesitate to use military force, and I will not, as president, in order to keep the American people safe. But we have to use our military wisely. And we did not use our military wisely in Iraq.

LEHRER: Do you agree with that, the lesson of Iraq?

MCCAIN: The next president of the United States is not going to have to address the issue as to whether we went into Iraq or not. The next president of the United States is going to have to decide how we leave, when we leave, and what we leave behind. That's the decision of the next president of the United States.

Senator Obama said the surge could not work, said it would increase sectarian violence, said it was doomed to failure. Recently on a television program, he said it exceed our wildest expectations.

But yet, after conceding that, he still says that he would oppose the surge if he had to decide that again today. Incredibly, incredibly Senator Obama didn't go to Iraq for 900 days and never

LEHRER: Well, let's go at some of these things...

MCCAIN: Senator Obama is the chairperson of a committee that oversights NATO that's in Afghanistan. To this day, he has never had a hearing.

LEHRER: What about that point?

MCCAIN: I mean, it's remarkable.

LEHRER: All right. What about that point?

OBAMA: Which point? He raised a whole bunch of them.

LEHRER: I know, OK, let's go to the latter point and we'll back up. The point about your not having been...

OBAMA: Look, I'm very proud of my vice presidential selection, Joe Biden, who is the chairman of the Senate Foreign Relations Committee, and as he explains, and as John well knows, the issues of Afghanistan, the issues of Iraq, critical issues like that, don't go through my subcommittee because they're done as a committee as a whole.

But that's Senate inside baseball. But let's get back to the core issue here. Senator McCain is absolutely right that the violence has been reduced as a consequence of the extraordinary sacrifice of our troops and our military families.

They have done a brilliant job, and General Petraeus has done a brilliant job. But understand, that was a tactic designed to contain the damage of the previous four years of mismanagement of this war.

And so John likes -- John, you like to pretend like the war started in 2007. You talk about the surge. The war started in 2003, and at the time when the war started, you said it was going to be quick and easy. You said we knew where the weapons of mass destruction were. You were wrong.

You said that we were going to be greeted as liberators. You were wrong. You said that there was no history of violence between Shiite and Sunni. And you were wrong. And so my question is...

LEHRER: Senator Obama...

OBAMA: ... of judgment, of whether or not -- of whether or not -- if the question is who is best-equipped as the next president to make good decisions about how we use our military, how we make sure that we are prepared and ready for the next conflict, then I think we can take a look at our judgment.

LEHRER: I have got a lot on the plate here...

MCCAIN: I'm afraid Senator Obama doesn't understand the difference between a tactic and a strategy. But the important -- I'd like to tell you, two Fourths of July ago I was in Baghdad. General Petraeus invited Senator Lindsey Graham and me to attend a ceremony where 688 brave young Americans, whose enlistment had expired, were reenlisting to stay and fight for Iraqi freedom and American freedom.

I was honored to be there. I was honored to speak to those troops. And you know, afterwards, we spent a lot of time with them. And you know what they said to us? They said, let us win. They said, let us win. We don't want our kids coming back here.

And this strategy, and this general, they are winning. Senator Obama refuses to acknowledge that we are winning in Iraq.

OBAMA: That's not true.

MCCAIN: They just passed an electoral...

OBAMA: That's not true.

MCCAIN: An election law just in the last few days. There is social, economic progress, and a strategy, a strategy of going into an area, clearing and holding, and the people of the country then become allied with you. They inform on the bad guys. And peace comes to the country, and prosperity.

That's what's happening in Iraq, and it wasn't a tactic.

LEHRER: Let me see...

OBAMA: Jim, Jim, this is a big...

MCCAIN: It was a stratagem. And that same strategy will be employed in Afghanistan by this great general. And Senator Obama, who after promising not to vote to cut off funds for the troops, did the incredible thing of voting to cut off the funds for the troops in Iraq and Afghanistan.

OBAMA: Jim, there are a whole bunch of things we have got to answer. First of all, let's talk about this troop funding issue because John always brings this up. Senator McCain cut -- Senator McCain opposed funding for troops in legislation that had a timetable, because he didn't believe in a timetable.

I opposed funding a mission that had no timetable, and was open- ended, giving a blank check to George Bush. We had a difference on the timetable. We didn't have a difference on whether or not we were going to be funding troops.

We had a legitimate difference, and I absolutely understand the difference between tactics and strategy. And the strategic question that the president has to ask is not whether or not we are employing a particular approach in the country once we have made the decision to be there.

The question is, was this wise? We have seen Afghanistan worsen, deteriorate. We need more troops there. We need more resources there. Senator McCain, in the rush to go into Iraq, said, you know what? We've been successful in Afghanistan. There is nobody who can pose a threat to us there.

This is a time when bin Laden was still out, and now they've reconstituted themselves. Secretary of Defense Robert Gates himself acknowledges the war on terrorism started in Afghanistan and it needs to end there.

But we can't do it if we are not willing to give Iraq back its country. Now, what I've said is we should end this war responsibly. We should do it in phases. But in 16 months we should be able to reduce our combat troops, put -- provide some relief to military families and our troops and bolster our efforts in Afghanistan so that we can capture and kill bin Laden and crush al Qaeda.

And right now, the commanders in Afghanistan, as well as Admiral Mullen, have acknowledged that we don't have enough troops to deal with Afghanistan because we still have more troops in Iraq than we did before the surge.

MCCAIN: Admiral Mullen suggests that Senator Obama's plan is dangerous for America.

OBAMA: That's not the case.

MCCAIN: That's what ...

OBAMA: What he said was a precipitous...

MCCAIN: That's what Admiral Mullen said.

OBAMA: ... withdrawal would be dangerous. He did not say that. That's not true.

MCCAIN: And also General Petraeus said the same thing. Osama bin Laden and General Petraeus have one thing in common that I know of, they both said that Iraq is the central battleground.

Now General Petraeus has praised the successes, but he said those successes are fragile and if we set a specific date for withdrawal -- and by the way, Senator Obama's original plan, they would have been out last spring before the surge ever had a chance to succeed.

And I'm -- I'm -- understand why Senator Obama was surprised and said that the surge succeeded beyond his wildest expectations.

MCCAIN: It didn't exceed beyond mine, because I know that that's a strategy that has worked and can succeed. But if we snatch defeat from the jaws of victory and adopt Senator Obama's plan, then we will have a wider war and it will make things more complicated throughout the region, including in Afghanistan.

LEHRER: Afghanistan, lead -- a new -- a new lead question. Now, having resolved Iraq, we'll move to Afghanistan.

And it goes to you, Senator Obama, and it's a -- it picks up on a point that's already been made. Do you think more troops -- more U.S. troops should be sent to Afghanistan, how many, and when?

OBAMA: Yes, I think we need more troops. I've been saying that for over a year now.

And I think that we have to do it as quickly as possible, because it's been acknowledged by the commanders on the ground the situation is getting worse, not better.

We had the highest fatalities among U.S. troops this past year than at any time since 2002. And we are seeing a major offensive taking place -- al Qaeda and Taliban crossing the border and attacking our troops in a brazen fashion. They are feeling emboldened.

And we cannot separate Afghanistan from Iraq, because what our commanders have said is we don't have the troops right now to deal with Afghanistan.

So I would send two to three additional brigades to Afghanistan. Now, keep in mind that we have four times the number of troops in Iraq, where nobody had anything to do with 9/11 before we went in, where, in fact, there was no al Qaeda before we went in, but we have four times more troops there than we do in Afghanistan.

And that is a strategic mistake, because every intelligence agency will acknowledge that al Qaeda is the greatest threat against the United States and that Secretary of Defense Gates acknowledged the central front -- that the place where we have to deal with these folks is going to be in Afghanistan and in Pakistan.

So here's what we have to do comprehensively, though. It's not just more troops.

We have to press the Afghan government to make certain that they are actually working for their people. And I've said this to President Karzai.

No. 2, we've got to deal with a growing poppy trade that has exploded over the last several years.

No. 3, we've got to deal with Pakistan, because al Qaeda and the Taliban have safe havens in Pakistan, across the border in the northwest regions, and although, you know, under George Bush, with the support of Senator McCain, we've been giving them $10 billion over the last seven years, they have not done what needs to be done to get rid of those safe havens.

And until we do, Americans here at home are not going to be safe.

LEHRER: Afghanistan, Senator McCain?

MCCAIN: First of all, I won't repeat the mistake that I regret enormously, and that is, after we were able to help the Afghan freedom fighters and drive the Russians out of Afghanistan, we basically washed our hands of the region.

And the result over time was the Taliban, al Qaeda, and a lot of the difficulties we are facing today. So we can't ignore those lessons of history.

Now, on this issue of aiding Pakistan, if you're going to aim a gun at somebody, George Shultz, our great secretary of state, told me once, you'd better be prepared to pull the trigger.

I'm not prepared at this time to cut off aid to Pakistan. So I'm not prepared to threaten it, as Senator Obama apparently wants to do, as he has said that he would announce military strikes into Pakistan.

We've got to get the support of the people of -- of Pakistan. He said that he would launch military strikes into Pakistan.

Now, you don't do that. You don't say that out loud. If you have to do things, you have to do things, and you work with the Pakistani government.

Now, the new president of Pakistan, Kardari (sic), has got his hands full. And this area on the border has not been governed since the days of Alexander the Great.

I've been to Waziristan. I can see how tough that terrain is. It's ruled by a handful of tribes.

And, yes, Senator Obama calls for more troops, but what he doesn't understand, it's got to be a new strategy, the same strategy that he condemned in Iraq. It's going to have to be employed in Afghanistan.

And we're going to have to help the Pakistanis go into these areas and obtain the allegiance of the people. And it's going to be tough. They've intermarried with al Qaeda and the Taliban. And it's going to be tough. But we have to get the cooperation of the people in those areas.

And the Pakistanis are going to have to understand that that bombing in the Marriott Hotel in Islamabad was a signal from the terrorists that they don't want that government to cooperate with us in combating the Taliban and jihadist elements.

So we've got a lot of work to do in Afghanistan. But I'm confident, now that General Petraeus is in the new position of command, that we will employ a strategy which not only means additional troops -- and, by the way, there have been 20,000 additional troops, from 32,000 to 53,000, and there needs to be more.

So it's not just the addition of troops that matters. It's a strategy that will succeed. And Pakistan is a very important element in this. And I know how to work with him. And I guarantee you I would not publicly state that I'm going to attack them.

OBAMA: Nobody talked about attacking Pakistan. Here's what I said.

And if John wants to disagree with this, he can let me know, that, if the United States has al Qaeda, bin Laden, top-level lieutenants in our sights, and Pakistan is unable or unwilling to act, then we should take them out.

Now, I think that's the right strategy; I think that's the right policy.

And, John, I -- you're absolutely right that presidents have to be prudent in what they say. But, you know, coming from you, who, you know, in the past has threatened extinction for North Korea and, you know, sung songs about bombing Iran, I don't know, you know, how credible that is. I think this is the right strategy.

Now, Senator McCain is also right that it's difficult. This is not an easy situation. You've got cross-border attacks against U.S. troops.

And we've got a choice. We could allow our troops to just be on the defensive and absorb those blows again and again and again, if Pakistan is unwilling to cooperate, or we have to start making some decisions.

And the problem, John, with the strategy that's been pursued was that, for 10 years, we coddled Musharraf, we alienated the Pakistani population, because we were anti-democratic. We had a 20th-century mindset that basically said, "Well, you know, he may be a dictator, but he's our dictator."

And as a consequence, we lost legitimacy in Pakistan. We spent $10 billion. And in the meantime, they weren't going after al Qaeda, and they are more powerful now than at any time since we began the war in Afghanistan.

That's going to change when I'm president of the United States.

MCCAIN: I -- I don't think that Senator Obama understands that there was a failed state in Pakistan when Musharraf came to power. Everybody who was around then, and had been there, and knew about it knew that it was a failed state.

But let me tell you, you know, this business about bombing Iran and all that, let me tell you my record.

Back in 1983, when I was a brand-new United States congressman, the one -- the person I admired the most and still admire the most, Ronald Reagan, wanted to send Marines into Lebanon.

And I saw that, and I saw the situation, and I stood up, and I voted against that, because I was afraid that they couldn't make peace in a place where 300 or 400 or several hundred Marines would make a difference. Tragically, I was right: Nearly 300 Marines lost their lives in the bombing of the barracks.

And then we had Somalia -- then we had the first Gulf War. I supported -- I supported that.

I supported us going into Bosnia, when a number of my own party and colleagues was against that operation in Bosnia. That was the right thing to do, to stop genocide and to preserve what was necessary inside of Europe.

I supported what we did in Kosovo. I supported it because ethnic cleansing and genocide was taking place there.

And I have a record -- and Somalia, I opposed that we should turn -- turn the force in Somalia from a peacekeeping force into a peacemaking force, which they were not capable of.

So I have a record. I have a record of being involved in these national security issues, which involve the highest responsibility and the toughest decisions that any president can make, and that is to send our young men and women into harm's way.

And I'll tell you, I had a town hall meeting in Wolfeboro, New Hampshire, and a woman stood up and she said, "Senator McCain, I want you to do me the honor of wearing a bracelet with my son's name on it."

He was 22 years old and he was killed in combat outside of Baghdad, Matthew Stanley, before Christmas last year. This was last August, a year ago. And I said, "I will -- I will wear his bracelet with honor."

And this was August, a year ago. And then she said, "But, Senator McCain, I want you to do everything -- promise me one thing, that you'll do everything in your power to make sure that my son's death was not in vain."

That means that that mission succeeds, just like those young people who re-enlisted in Baghdad, just like the mother I met at the airport the other day whose son was killed. And they all say to me that we don't want defeat.__MCCAIN: A war that I was in, where we had an Army, that it wasn't through any fault of their own, but they were defeated. And I know how hard it is for that -- for an Army and a military to recover from that. And it did and we will win this one and we won't come home in defeat and dishonor and probably have to go back if we fail.

OBAMA: Jim, let me just make a point. I've got a bracelet, too, from Sergeant - from the mother of Sergeant Ryan David Jopeck, sure another mother is not going through what I'm going through.

No U.S. soldier ever dies in vain because they're carrying out the missions of their commander in chief. And we honor all the service that they've provided. Our troops have performed brilliantly. The question is for the next president, are we making good judgments about how to keep America safe precisely because sending our military into battle is such an enormous step.

And the point that I originally made is that we took our eye off Afghanistan, we took our eye off the folks who perpetrated 9/11, they are still sending out videotapes and Senator McCain, nobody is talking about defeat in Iraq, but I have to say we are having enormous problems in Afghanistan because of that decision.

And it is not true you have consistently been concerned about what happened in Afghanistan. At one point, while you were focused on Iraq, you said well, we can "muddle through" Afghanistan. You don't muddle through the central front on terror and you don't muddle through going after bin Laden. You don't muddle through stamping out the Taliban.

I think that is something we have to take seriously. And when I'm president, I will.

LEHRER: New ...

MCCAIN: You might think that with that kind of concern that Senator Obama would have gone to Afghanistan, particularly given his responsibilities as a subcommittee chairman. By the way, when I'm subcommittee chairman, we take up the issues under my subcommittee. But the important thing is -- the important thing is I visited Afghanistan and I traveled to Waziristan and I traveled to these places and I know what our security requirements are. I know what our needs are. So the point is that we will prevail in Afghanistan, but we need the new strategy and we need it to succeed.

But the important thing is, if we suffer defeat in Iraq, which General Petraeus predicts we will, if we adopted Senator Obama's set date for withdrawal, then that will have a calamitous effect in Afghanistan and American national security interests in the region. Senator Obama doesn't seem to understand there is a connected between the two.

LEHRER: I have some good news and bad news for the two of you. You all are even on time, which is remarkable, considering we've been going at it ...

OBAMA: A testimony to you, Jim.

LEHRER: I don't know about that. But the bad news is all my little five minute things have run over, so, anyhow, we'll adjust as we get there. But the amount of time is even.

New lead question. And it goes two minutes to you, Senator McCain, what is your reading on the threat to Iran right now to the security of the United States?

MCCAIN: My reading of the threat from Iran is that if Iran acquires nuclear weapons, it is an existential threat to the State of Israel and to other countries in the region because the other countries in the region will feel compelling requirement to acquire nuclear weapons as well.

Now we cannot a second Holocaust. Let's just make that very clear. What I have proposed for a long time, and I've had conversation with foreign leaders about forming a league of democracies, let's be clear and let's have some straight talk. The Russians are preventing significant action in the United Nations Security Council.

I have proposed a league of democracies, a group of people - a group of countries that share common interests, common values, common ideals, they also control a lot of the world's economic power. We could impose significant meaningful, painful sanctions on the Iranians that I think could have a beneficial effect.

The Iranians have a lousy government, so therefore their economy is lousy, even though they have significant oil revenues. So I am convinced that together, we can, with the French, with the British, with the Germans and other countries, democracies around the world, we can affect Iranian behavior.

But have no doubt, but have no doubt that the Iranians continue on the path to the acquisition of a nuclear weapon as we speak tonight. And it is a threat not only in this region but around the world.

What I'd also like to point out the Iranians are putting the most lethal IEDs into Iraq which are killing young Americans, there are special groups in Iran coming into Iraq and are being trained in Iran. There is the Republican Guard in Iran, which Senator Kyl had an amendment in order to declare them a sponsor of terror. Senator Obama said that would be provocative.

So this is a serious threat. This is a serious threat to security in the world, and I believe we can act and we can act with our friends and allies and reduce that threat as quickly as possible, but have no doubt about the ultimate result of them acquiring nuclear weapons.

LEHRER: Two minutes on Iran, Senator Obama.

OBAMA: Well, let me just correct something very quickly. I believe the Republican Guard of Iran is a terrorist organization. I've consistently said so. What Senator McCain refers to is a measure in the Senate that would try to broaden the mandate inside of Iraq. To deal with Iran.

And ironically, the single thing that has strengthened Iran over the last several years has been the war in Iraq. Iraq was Iran's mortal enemy. That was cleared away. And what we've seen over the last several years is Iran's influence grow. They have funded Hezbollah, they have funded Hamas, they have gone from zero centrifuges to 4,000 centrifuges to develop a nuclear weapon.

So obviously, our policy over the last eight years has not worked. Senator McCain is absolutely right, we cannot tolerate a nuclear Iran. It would be a game changer. Not only would it threaten Israel, a country that is our stalwart ally, but it would also create an environment in which you could set off an arms race in this Middle East.

Now here's what we need to do. We do need tougher sanctions. I do not agree with Senator McCain that we're going to be able to execute the kind of sanctions we need without some cooperation with some countries like Russia and China that are, I think Senator McCain would agree, not democracies, but have extensive trade with Iran but potentially have an interest in making sure Iran doesn't have a nuclear weapon.

But we are also going to have to, I believe, engage in tough direct diplomacy with Iran and this is a major difference I have with Senator McCain, this notion by not talking to people we are punishing them has not worked. It has not worked in Iran, it has not worked in North Korea. In each instance, our efforts of isolation have actually accelerated their efforts to get nuclear weapons. That will change when I'm president of the United States.

LEHRER: Senator, what about talking?

MCCAIN: Senator Obama twice said in debates he would sit down with Ahmadinejad, Chavez and Raul Castro without precondition. Without precondition. Here is Ahmadinenene [mispronunciation], Ahmadinejad, who is, Ahmadinejad, who is now in New York, talking about the extermination of the State of Israel, of wiping Israel off the map, and we're going to sit down, without precondition, across the table, to legitimize and give a propaganda platform to a person that is espousing the extermination of the state of Israel, and therefore then giving them more credence in the world arena and therefore saying, they've probably been doing the right thing, because you will sit down across the table from them and that will legitimize their illegal behavior.

The point is that throughout history, whether it be Ronald Reagan, who wouldn't sit down with Brezhnev, Andropov or Chernenko until Gorbachev was ready with glasnost and perestroika.

Or whether it be Nixon's trip to China, which was preceded by Henry Kissinger, many times before he went. Look, I'll sit down with anybody, but there's got to be pre-conditions. Those pre-conditions would apply that we wouldn't legitimize with a face to face meeting, a person like Ahmadinejad. Now, Senator Obama said, without preconditions.

OBAMA: So let's talk about this. First of all, Ahmadinejad is not the most powerful person in Iran. So he may not be the right person to talk to. But I reserve the right, as president of the United States to meet with anybody at a time and place of my choosing if I think it's going to keep America safe.

And I'm glad that Senator McCain brought up the history, the bipartisan history of us engaging in direct diplomacy.

Senator McCain mentioned Henry Kissinger, who's one of his advisers, who, along with five recent secretaries of state, just said that we should meet with Iran -- guess what -- without precondition. This is one of your own advisers.

Now, understand what this means "without preconditions." It doesn't mean that you invite them over for tea one day. What it means is that we don't do what we've been doing, which is to say, "Until you agree to do exactly what we say, we won't have direct contacts with you."

There's a difference between preconditions and preparation. Of course we've got to do preparations, starting with low-level diplomatic talks, and it may not work, because Iran is a rogue regime.

But I will point out that I was called naive when I suggested that we need to look at exploring contacts with Iran. And you know what? President Bush recently sent a senior ambassador, Bill Burns, to participate in talks with the Europeans around the issue of nuclear weapons.

Again, it may not work, but if it doesn't work, then we have strengthened our ability to form alliances to impose the tough sanctions that Senator McCain just mentioned.

And when we haven't done it, as in North Korea -- let me just take one more example -- in North Korea, we cut off talks. They're a member of the axis of evil. We can't deal with them.

And you know what happened? They went -- they quadrupled their nuclear capacity. They tested a nuke. They tested missiles. They pulled out of the nonproliferation agreement. And they sent nuclear secrets, potentially, to countries like Syria.

When we re-engaged -- because, again, the Bush administration reversed course on this -- then we have at least made some progress, although right now, because of the problems in North Korea, we are seeing it on shaky ground.

And -- and I just -- so I just have to make this general point that the Bush administration, some of Senator McCain's own advisers all think this is important, and Senator McCain appears resistant.

He even said the other day that he would not meet potentially with the prime minister of Spain, because he -- you know, he wasn't sure whether they were aligned with us. I mean, Spain? Spain is a NATO ally.

MCCAIN: Of course.

OBAMA: If we can't meet with our friends, I don't know how we're going to lead the world in terms of dealing with critical issues like terrorism.

MCCAIN: I'm not going to set the White House visitors schedule before I'm president of the United States. I don't even have a seal yet.

Look, Dr. Kissinger did not say that he would approve of face-to- face meetings between the president of the United States and the president -- and Ahmadinejad. He did not say that.

OBAMA: Of course not.

MCCAIN: He said that there could be secretary-level and lower level meetings. I've always encouraged them. The Iranians have met with Ambassador Crocker in Baghdad.

What Senator Obama doesn't seem to understand that if without precondition you sit down across the table from someone who has called Israel a "stinking corpse," and wants to destroy that country and wipe it off the map, you legitimize those comments.

This is dangerous. It isn't just naive; it's dangerous. And so we just have a fundamental difference of opinion.

As far as North Korea is concerned, our secretary of state, Madeleine Albright, went to North Korea. By the way, North Korea, most repressive and brutal regime probably on Earth. The average South Korean is three inches taller than the average North Korean, a huge gulag.

We don't know what the status of the dear leader's health is today, but we know this, that the North Koreans have broken every agreement that they've entered into.

And we ought to go back to a little bit of Ronald Reagan's "trust, but verify," and certainly not sit down across the table from -- without precondition, as Senator Obama said he did twice, I mean, it's just dangerous.

OBAMA: Look, I mean, Senator McCain keeps on using this example that suddenly the president would just meet with somebody without doing any preparation, without having low-level talks. Nobody's been talking about that, and Senator McCain knows it. This is a mischaracterization of my position.

When we talk about preconditions -- and Henry Kissinger did say we should have contacts without preconditions -- the idea is that we do not expect to solve every problem before we initiate talks.

And, you know, the Bush administration has come to recognize that it hasn't worked, this notion that we are simply silent when it comes to our enemies. And the notion that we would sit with Ahmadinejad and not say anything while he's spewing his nonsense and his vile comments is ridiculous. Nobody is even talking about that.

MCCAIN: So let me get this right. We sit down with Ahmadinejad, and he says, "We're going to wipe Israel off the face of the Earth," and we say, "No, you're not"? Oh, please.

OBAMA: No, let me tell...

MCCAIN: By the way, my friend, Dr. Kissinger, who's been my friend for 35 years, would be interested to hear this conversation and Senator Obama's depiction of his -- of his positions on the issue. I've known him for 35 years.

OBAMA: We will take a look.

MCCAIN: And I guarantee you he would not -- he would not say that presidential top level.

OBAMA: Nobody's talking about that.

MCCAIN: Of course he encourages and other people encourage contacts, and negotiations, and all other things. We do that all the time.

LEHRER: We're going to go to a new...

MCCAIN: And Senator Obama is parsing words when he says precondition means preparation.

OBAMA: I am not parsing words.

MCCAIN: He's parsing words, my friends.

OBAMA: I'm using the same words that your advisers use.

Please, go ahead.

LEHRER: New lead question.

Russia, goes to you, two minutes, Senator Obama. How do you see the relationship with Russia? Do you see them as a competitor? Do you see them as an enemy? Do you see them as a potential partner?

OBAMA: Well, I think that, given what's happened over the last several weeks and months, our entire Russian approach has to be evaluated, because a resurgent and very aggressive Russia is a threat to the peace and stability of the region.

Their actions in Georgia were unacceptable. They were unwarranted. And at this point, it is absolutely critical for the next president to make clear that we have to follow through on our six-party -- or the six-point cease-fire. They have to remove themselves from South Ossetia and Abkhazia.

It is absolutely important that we have a unified alliance and that we explain to the Russians that you cannot be a 21st-century superpower, or power, and act like a 20th-century dictatorship.

And we also have to affirm all the fledgling democracies in that region, you know, the Estonians, the Lithuanians, the Latvians, the Poles, the Czechs, that we are, in fact, going to be supportive and in solidarity with them in their efforts. They are members of NATO.

And to countries like Georgia and the Ukraine, I think we have to insist that they are free to join NATO if they meet the requirements, and they should have a membership action plan immediately to start bringing them in.

Now, we also can't return to a Cold War posture with respect to Russia. It's important that we recognize there are going to be some areas of common interest. One is nuclear proliferation.

They have not only 15,000 nuclear warheads, but they've got enough to make another 40,000, and some of those loose nukes could fall into the hands of al Qaeda.

This is an area where I've led on in the Senate, working with a Republican ranking member of the Senate Foreign Relations Committee, Dick Lugar, to deal with the proliferation of loose nuclear weapons. That's an area where we're going to have to work with Russia.

But we have to have a president who is clear that you don't deal with Russia based on staring into his eyes and seeing his soul. You deal with Russia based on, what are your -- what are the national security interests of the United States of America?

And we have to recognize that the way they've been behaving lately demands a sharp response from the international community and our allies.

LEHRER: Two minutes on Russia, Senator McCain.

MCCAIN: Well, I was interested in Senator Obama's reaction to the Russian aggression against Georgia. His first statement was, "Both sides ought to show restraint."

Again, a little bit of naivete there. He doesn't understand that Russia committed serious aggression against Georgia. And Russia has now become a nation fueled by petro-dollars that is basically a KGB apparatchik-run government.

I looked into Mr. Putin's eyes, and I saw three letters, a "K," a "G," and a "B." And their aggression in Georgia is not acceptable behavior.

I don't believe we're going to go back to the Cold War. I am sure that that will not happen. But I do believe that we need to bolster our friends and allies. And that wasn't just about a problem between Georgia and Russia. It had everything to do with energy.

There's a pipeline that runs from the Caspian through Georgia through Turkey. And, of course, we know that the Russians control other sources of energy into Europe, which they have used from time to time.

It's not accidental that the presidents of Latvia, Estonia, Lithuania, Poland, and Ukraine flew to Georgia, flew to Tbilisi, where I have spent significant amount of time with a great young president, Misha Saakashvili.

MCCAIN: And they showed solidarity with them, but, also, they are very concerned about the Russian threats to regain their status of the old Russian to regain their status of the old Russian empire.

Now, I think the Russians ought to understand that we will support -- we, the United States -- will support the inclusion of Georgia and Ukraine in the natural process, inclusion into NATO.

We also ought to make it very clear that the Russians are in violation of their cease-fire agreement. They have stationed additional troops in Abkhazia and South Ossetia.

By the way, I went there once, and we went inside and drove in, and there was a huge poster. And this is -- this is Georgian territory. And there was a huge poster of Vladimir Putin, and it said, "Vladimir Putin, our president."

It was very clear, the Russian intentions towards Georgia. They were just waiting to seize the opportunity.

So, this is a very difficult situation. We want to work with the Russians. But we also have every right to expect the Russians to behave in a fashion and keeping with a -- with a -- with a country who respects international boundaries and the norms of international behavior.

And watch Ukraine. This whole thing has got a lot to do with Ukraine, Crimea, the base of the Russian fleet in Sevastopol. And the breakdown of the political process in Ukraine between Tymoshenko and Yushchenko is a very serious problem.

So watch Ukraine, and let's make sure that we -- that the Ukrainians understand that we are their friend and ally.

LEHRER: You see any -- do you have a major difference with what he just said?

OBAMA: No, actually, I think Senator McCain and I agree for the most part on these issues. Obviously, I disagree with this notion that somehow we did not forcefully object to Russians going into Georgia.

I immediately said that this was illegal and objectionable. And, absolutely, I wanted a cessation of the violence, because it put an enormous strain on Georgia, and that's why I was the first to say that we have to rebuild the Georgian economy and called for a billion dollars that has now gone in to help them rebuild.

Because part of Russia's intentions here was to weaken the economy to the point where President Saakashvili was so weakened that he might be replaced by somebody that Putin favored more.

Two points I think are important to think about when it comes to Russia.

No. 1 is we have to have foresight and anticipate some of these problems. So back in April, I warned the administration that you had Russian peacekeepers in Georgian territory. That made no sense whatsoever.

And what we needed to do was replace them with international peacekeepers and a special envoy to resolve the crisis before it boiled over.

That wasn't done. But had it been done, it's possible we could have avoided the issue.

The second point I want to make is -- is the issue of energy. Russia is in part resurgent and Putin is feeling powerful because of petro-dollars, as Senator McCain mentioned.

That means that we, as one of the biggest consumers of oil -- 25 percent of the world's oil -- have to have an energy strategy not just to deal with Russia, but to deal with many of the rogue states we've talked about, Iran, Venezuela.

And that means, yes, increasing domestic production and off-shore drilling, but we only have 3 percent of the world's oil supplies and we use 25 percent of the world's oil. So we can't simply drill our way out of the problem.

What we're going to have to do is to approach it through alternative energy, like solar, and wind, and biodiesel, and, yes, nuclear energy, clean-coal technology. And, you know, I've got a plan for us to make a significant investment over the next 10 years to do that.

And I have to say, Senator McCain and I, I think agree on the importance of energy, but Senator McCain mentioned earlier the importance of looking at a record.

Over 26 years, Senator McCain voted 23 times against alternative energy, like solar, and wind, and biodiesel.

And so we -- we -- we've got to walk the walk and not just talk the talk when it comes to energy independence, because this is probably going to be just as vital for our economy and the pain that people are feeling at the pump -- and, you know, winter's coming and home heating oil -- as it is our national security and the issue of climate change that's so important.

LEHRER: We've got time for one more lead question segment. We're way out of...

LEHRER: Quick response and then...

MCCAIN: No one from Arizona is against solar. And Senator Obama says he's for nuclear, but he's against reprocessing and he's against storing. So...

OBAMA: That's just not true, John. John, I'm sorry, but that's not true.

MCCAIN: ... it's hard to get there from here. And off-shore drilling is also something that is very important and it is a bridge.

And we know that, if we drill off-shore and exploit a lot of these reserves, it will help, at temporarily, relieve our energy requirements. And it will have, I think, an important effect on the price of a barrel of oil.

OBAMA: I just have to respond very quickly, just to correct -- just to correct the record.

MCCAIN: So I want to say that, with the Nunn-Lugar thing...

LEHRER: Excuse me, Senator.

OBAMA: John?

MCCAIN: ... I supported Nunn-Lugar back in the early 1990s when a lot of my colleagues didn't. That was the key legislation at the time and put us on the road to eliminating this issue of nuclear waste and the nuclear fuel that has to be taken care of.

OBAMA: I -- I just have to correct the record here. I have never said that I object to nuclear waste. What I've said is that we have to store it safely.

And, Senator McCain, he says -- he talks about Arizona.

LEHRER: All right.

OBAMA: I've got to make this point, Jim.

LEHRER: OK.

OBAMA: He objects...

MCCAIN: I have voted for alternate fuel all of my time...

OBAMA: He -- he -- he objects...

LEHRER: One at a time, please.

OBAMA: He objected...

LEHRER: One at a time.

MCCAIN: No one can be opposed to alternate energy.

OBAMA: All right, fair enough. Let's move on. You've got one more energy -- you've got one more question.

LEHRER: This is the last -- last lead question. You have two minutes each. And the question is this, beginning with you, Senator McCain.

What do you think the likelihood is that there would be another 9/11-type attack on the continental United States?

MCCAIN: I think it's much less than it was the day after 9/11. I think it -- that we have a safer nation, but we are a long way from safe.

And I want to tell you that one of the things I'm most proud of, among others, because I have worked across the aisle. I have a long record on that, on a long series of reforms.

But after 9/11, Senator Joe Lieberman and I decided that we needed a commission, and that was a commission to investigate 9/11, and find out what happened, and fix it.

And we were -- we were opposed by the administration, another area where I differed with this administration. And we were stymied until the families of 9/11 came, and they descended on Washington, and we got that legislation passed.

And there were a series of recommendations, as I recall, more than 40. And I'm happy to say that we've gotten written into law most of those reforms recommended by that commission. I'm proud of that work, again, bipartisan, reaching across the aisle, working together, Democrat and Republican alike.

So we have a long way to go in our intelligence services. We have to do a better job in human intelligence. And we've got to -- to make sure that we have people who are trained interrogators so that we don't ever torture a prisoner ever again.

We have to make sure that our technological and intelligence capabilities are better. We have to work more closely with our allies. I know our allies, and I can work much more closely with them.

But I can tell you that I think America is safer today than it was on 9/11. But that doesn't mean that we don't have a long way to go.

And I'd like to remind you, also, as a result of those recommendations, we've probably had the largest reorganization of government since we established the Defense Department. And I think that those men and women in those agencies are doing a great job.

But we still have a long way to go before we can declare America safe, and that means doing a better job along our borders, as well.

LEHRER: Two minutes, Senator Obama.

OBAMA: Well, first of all, I think that we are safer in some ways. Obviously, we've poured billions of dollars into airport security. We have done some work in terms of securing potential targets, but we still have a long way to go.

We've got to make sure that we're hardening our chemical sites. We haven't done enough in terms of transit; we haven't done enough in terms of ports.

And the biggest threat that we face right now is not a nuclear missile coming over the skies. It's in a suitcase.

This is why the issue of nuclear proliferation is so important. It is the -- the biggest threat to the United States is a terrorist getting their hands on nuclear weapons.

And we -- we are spending billions of dollars on missile defense. And I actually believe that we need missile defense, because of Iran and North Korea and the potential for them to obtain or to launch nuclear weapons, but I also believe that, when we are only spending a few hundred million dollars on nuclear proliferation, then we're making a mistake.

The other thing that we have to focus on, though, is al Qaeda. They are now operating in 60 countries. We can't simply be focused on Iraq. We have to go to the root cause, and that is in Afghanistan and Pakistan. That's going to be critical. We are going to need more cooperation with our allies.

And one last point I want to make. It is important for us to understand that the way we are perceived in the world is going to make a difference, in terms of our capacity to get cooperation and root out terrorism.

And one of the things that I intend to do as president is to restore America's standing in the world. We are less respected now than we were eight years ago or even four years ago.

OBAMA: And this is the greatest country on Earth. But because of some of the mistakes that have been made -- and I give Senator McCain great credit on the torture issue, for having identified that as something that undermines our long-term security -- because of those things, we, I think, are going to have a lot of work to do in the next administration to restore that sense that America is that shining beacon on a hill.

LEHRER: Do you agree there's much to be done in a new administration to restore...

MCCAIN: But in the case of missile defense, Senator Obama said it had to be, quote, "proven." That wasn't proven when Ronald Reagan said we would do SDI, which is missile defense. And it was major -- a major factor in bringing about the end of the Cold War.

We seem to come full circle again. Senator Obama still doesn't quite understand -- or doesn't get it -- that if we fail in Iraq, it encourages al Qaeda. They would establish a base in Iraq.

The consequences of defeat, which would result from his plan of withdrawal and according to date certain, regardless of conditions, according to our military leaders, according to every expert, would lead to defeat -- possible defeat, loss of all the fragile sacrifice that we've made of American blood and treasure, which grieves us all.

All of that would be lost if we followed Senator Obama's plan to have specific dates with withdrawal, regardless of conditions on the ground.

And General Petraeus says we have had great success, but it's very fragile. And we can't do what Senator Obama wants to do.

That is the central issue of our time. And I think Americans will judge very seriously as to whether that's the right path or the wrong path and who should be the next president of the United States.

LEHRER: You see the same connections that Senator McCain does?

OBAMA: Oh, there's no doubt. Look, over the last eight years, this administration, along with Senator McCain, have been solely focused on Iraq. That has been their priority. That has been where all our resources have gone.

In the meantime, bin Laden is still out there. He is not captured. He is not killed. Al Qaeda is resurgent.

In the meantime, we've got challenges, for example, with China, where we are borrowing billions of dollars. They now hold a trillion dollars' worth of our debt. And they are active in countries like -- in regions like Latin America, and Asia, and Africa. They are -- the conspicuousness of their presence is only matched by our absence, because we've been focused on Iraq.

We have weakened our capacity to project power around the world because we have viewed everything through this single lens, not to mention, look at our economy. We are now spending $10 billion or more every month.

And that means we can't provide health care to people who need it. We can't invest in science and technology, which will determine whether or not we are going to be competitive in the long term.

There has never been a country on Earth that saw its economy decline and yet maintained its military superiority. So this is a national security issue.

We haven't adequately funded veterans' care. I sit on the Veterans Affairs Committee, and we've got -- I meet veterans all across the country who are trying to figure out, "How can I get disability payments? I've got post-traumatic stress disorder, and yet I can't get treatment."

So we have put all chips in, right there, and nobody is talking about losing this war. What we are talking about is recognizing that the next president has to have a broader strategic vision about all the challenges that we face.

That's been missing over the last eight years. That sense is something that I want to restore.

MCCAIN: I've been involved, as I mentioned to you before, in virtually every major national security challenge we've faced in the last 20-some years. There are some advantages to experience, and knowledge, and judgment.

And I -- and I honestly don't believe that Senator Obama has the knowledge or experience and has made the wrong judgments in a number of areas, including his initial reaction to Russian invasion -- aggression in Georgia, to his -- you know, we've seen this stubbornness before in this administration to cling to a belief that somehow the surge has not succeeded and failing to acknowledge that he was wrong about the surge is -- shows to me that we -- that -- that we need more flexibility in a president of the United States than that.

As far as our other issues that he brought up are concerned, I know the veterans. I know them well. And I know that they know that I'll take care of them. And I've been proud of their support and their recognition of my service to the veterans.

And I love them. And I'll take care of them. And they know that I'll take care of them. And that's going to be my job.

But, also, I have the ability, and the knowledge, and the background to make the right judgments, to keep this country safe and secure.

Reform, prosperity, and peace, these are major challenges to the United States of America. I don't think I need any on-the-job training. I'm ready to go at it right now.

OBAMA: Well, let me just make a closing point. You know, my father came from Kenya. That's where I get my name.

And in the '60s, he wrote letter after letter to come to college here in the United States because the notion was that there was no other country on Earth where you could make it if you tried. The ideals and the values of the United States inspired the entire world.

I don't think any of us can say that our standing in the world now, the way children around the world look at the United States, is the same.

And part of what we need to do, what the next president has to do -- and this is part of our judgment, this is part of how we're going to keep America safe -- is to -- to send a message to the world that we are going to invest in issues like education, we are going to invest in issues that -- that relate to how ordinary people are able to live out their dreams.

And that is something that I'm going to be committed to as president of the United States.

LEHRER: Few seconds. We're almost finished.

MCCAIN: Jim, when I came home from prison, I saw our veterans being very badly treated, and it made me sad. And I embarked on an effort to resolve the POW-MIA issue, which we did in a bipartisan fashion, and then I worked on normalization of relations between our two countries so that our veterans could come all the way home.

I guarantee you, as president of the United States, I know how to heal the wounds of war, I know how to deal with our adversaries, and I know how to deal with our friends.

LEHRER: And that ends this debate tonight.

On October 2, next Thursday, also at 9:00 p.m. Eastern time, the two vice presidential candidates will debate at Washington University in St. Louis. My PBS colleague, Gwen Ifill, will be the moderator.

For now, from Oxford, Mississippi, thank you, senators, both. I'm Jim Lehrer. Thank you, and good night. 

Undecided voters tilt to Obama

Today, the undecided voters who usually make the difference in a close presidential election are more pessimistic about the direction of the nation than the broader electorate and are looking to Democrat Barack Obama for a solution of economic issues.

In the latest Bloomberg/Los Angeles Times poll, 22 percent of voters said they are undecided or could easily change their preference between Republican John McCain and Obama. 

Almost nine out of 10 of the undecided voters said the country is on the wrong track. That result is 10 points higher than for all registered voters. The percentage of undecided voters who said the economy is doing badly is 7 points higher than among the broader public.

With the candidates locked in a tight contest, yesterday both Obama and McCain were credited of 46% of the preferences by Gallup, they must look to the still uncommitted voters.'' This group is ``more pessimistic than voters overall, which should be worrisome for McCain, since Obama is the candidate that voters believe would strengthen the economy and help get the country out the financial crisis we're in," said the Los Angeles Times polling director.