The Financial Crisis Is McCain's Katrina

The Financial Crisis Is McCain's Katrina

By Daniel Henninger - October 16, 2008

If John McCain fails in the next 19 days to catch Barack Obama, his slow response to the financial hurricane of 2008 will be Exhibit A.

The betting here is that when the McCain campaign's black box is recovered it will show he lost altitude during the six days from Sept. 24, when Sen. McCain suspended his campaign, to Sept. 29, when the House GOP defeated the first Paulson Plan to rescue the American financial system. Neither Mr. McCain nor the GOP is likely to recover before Nov. 4 from those six dramatic days, when they did little to deal with Hurricane Fannie's Category 50 financial crisis.

It has been said, fairly, that the Bush presidency began its fall from favor with the American people during Hurricane Katrina. The first day that Katrina rolled over New Orleans, the federal government did nothing; and for several days, did little more. The Bush government's eventual mobilization on the victims' behalf earned the president no credit. He did not recover from those first days of minimal participation in a massive crisis.

Call it Katrina Dysfunction Syndrome. The McCain camp should have seen the symptoms.

On Wednesday Sept. 24, Mr. McCain announced he was suspending his presidential campaign to return to Washington, likening the financial crisis to 9/11. Newt Gingrich praised the decision as akin to candidate Dwight Eisenhower's dramatic "I will go to Korea" speech in October 1952. Arriving in Washington, Gen. McCain quickly discovered that his troops in the Republican Congress were in disarray. Congressional Republicans hadn't really been led by anyone for at least a year. It was no surprise that the Paulson Plan, which indeed was controversial, broke the GOP into factions.

History in its wisdom may record who made the right and wrong calls through this period of financial ruin. But make no mistake: The infighting over the Paulson Plan among conservatives -- always looking for an excuse to bolt the McCain candidacy -- neutralized Mr. McCain at the exact moment that the U.S. electorate was focusing like a laser on the crisis.

The need for immediate action was manifest and undeniable. On Wednesday Sept. 17, formerly rock-solid money-market funds began to collapse. Citing "market-wide liquidity issues," a big Putnam fund announced it would distribute its assets to customers. Other funds came under similar pressure. That Thursday, the U.S. credit system, the economy's most essential mechanism, began to lock up.

A Journal headline Friday morning Sept. 19 read: "U.S. Drafts Sweeping Plan to Fight Crisis as Turmoil Worsens in Credit Markets." That weekend, Goldman and Morgan Stanley abandoned their status as investment banks. The next Thursday, the day after Mr. McCain's dramatic announcement, the government seized Washington Mutual Bank and sold it to J.P. Morgan, the "largest failure in U.S. banking history." That weekend, a run began at giant Wachovia bank.

The U.S.'s financial levees had been breached. The foundation of its daily lending superstructure was being undermined.

Amid all this, on Monday Sept. 29, House Republicans voted to defeat the rescue plan. Many of the GOP's concerns were legitimate, notably the difficulty of later scaling back the abrupt expansion of federal power. They did kill the Frank-Dodd slush fund for Acorn-like housing lobbies. In no sense, though, was this a normal legislative exercise, with the luxury of time to debate a federalized prescription drug benefit or a Supreme Court nomination.

Flames were shooting out of the upper floors of the U.S. financial system. Elected officials simply cannot announce that because of flaws in a planned rescue effort, they refuse to participate in the bucket brigade. To a voter in Lorain, Ohio, this looked like an abdication.

Conventional wisdom holds that John McCain damaged himself by arriving in Washington without anything to contribute. True. It is also true, however, that the dug-in GOP opposition froze McCain between the party's divided factions and their followers. Obama could simply watch; all eyes were on his opponent.

Over that span, the terrified stock market cratered, wiping out individual voter wealth. Four very long days elapsed before Congress approved the plan, but as with Katrina, voters will only remember the days when the GOP didn't act.

The last thing the McCain campaign needed (or Republicans in close races, such as Sen. Elizabeth Dole in North Carolina) was to be seen by the American people heading for the locker room at crunch time with disaffected House Members. The Real Clear Politics national poll average in the Sept. 22-24 period had McCain a mere three points behind Obama, who was at 48% -- a statistical dead heat. In the week since the congressional in-fighting, Sen. Obama's numbers have drifted above 50% for the first time, and Sen. McCain's have drifted downward.

In politics, the Katrina catastrophe principle -- do something! -- trumps everything. Republicans occupying or vying for the presidency have now violated it twice. Live and learn.

Daniel Henninger is deputy editor of The Wall Street Journal's editorial page.

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