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How should McCain play the Bear Stearns bailout?

March 17, 2008

The financial crisis is a prime moment for McCain to showcase his populist credentials, while solidifying his support with the base.

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The Bear Stearns bailout presents a strong opportunity for McCain to show off his credentials on economic matters. The conventional wisdom is that McCain should support the action of the Federal Reserve in bailing Bear Stearns out. However, I believe that McCain should not only oppose any further bailouts but he should lead the charge against the actions of the Federal Reserve. Although he should make it clear that he supports a general loosening of monetary policy, he should make it clear that, just as the government cannot subsidise manufacturing jobs in the auto and textile industries, taxpayers’s money should not be used to shield businesses from the consequences of their decisions. He should clearly and unapologetically stress that such policies are an affront to fiscal discipline and will create huge moral risks.

At the same time McCain should suggest that such funds should be diverted into solving the long-term structural problems of the American economy. For instance, he could introduce legislation in the Senate that would divert such funds into re-training programmes for displaced workers or to expanding the Earned Income Tax Credit. This sort of action would be risky but, like his crusade on pork barrel spending, win him support from both the Republican base but also those on the centre-left. After all, McCain’s opposition to the post 9/11 bailout of the airplane industry didn’t lose him any support. At worst McCain can argue that he alone is prepared to tell some ‘hard truths’.

What do you think? Please leave your comments below.

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One comment

  1. McCain (I believe this was stated BEFORE the Bear Stearns bail out — so it has trapped him) has already spoke on this subject. McCain warned “against vigorous government action to solve the deepening mortgage crisis and the market turmoil it has caused, saying that ‘it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers”.

    Re. the Bear Stearns buyout: If it looks like a bailout and quacks like a bailout, it is a bailout. Let’s not delude ourselves.

    John, Boise, ID



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