An Electoral College "Doomsday"

On Nov. 5, the presidential election winds up in a electoral-college tie, 269-269, the Democrat-controlled House picks Sen. Barack Obama as president, but the Senate, with former Democrat Joe Lieberman voting with Republicans, deadlocks at 50-50, so Vice President Dick Cheney steps in to break the tie to make Republican Sarah Palin his successor.

"Wow," said longtime presidential historian Stephen Hess. "Wow, that would be amazing, wouldn't it?"

"If this scenario ever happened, it would be like a scene from the movie 'Scream' for Democrats," said Democratic strategist Mary Anne Marsh. "The only thing worse for the Democrats than losing the White House, again, when it had the best chance to win in a generation, but to do so at the hands of Cheney and Lieberman. That would be cruel."

Sound impossible? It's not. There are at least a half-dozen plausible ways the election can end in a tie, and at least one very plausible possibility - giving each candidate the states in which they now lead in the polls, only New Hampshire - which went Republican in 2000 and Democratic in 2004, each time by just 1.5 percent - needs to swap to the Republican column to wind up with a 269-269 tie.

There are currently 10 tossup states, according to RealClearPol-itics.com, which keeps a running average of all state polls. If Republican presidential nominee Sen. John McCain wins Ohio, Virginia, New Hampshire and Indiana - not at all far-fetched - and Mr. Obama takes reliably Democratic states Pennsylvania and Michigan, and flips Colorado (in which he holds a slight poll lead), with the two splitting New Mexico and Nevada, the electoral vote would be tied at 269.

Absurd? Possibly, and there is not complete agreement among constitutional experts on whether a newly elected Congress or the currently sitting House and Senate would make the decision.

So try this scenario: The newly elected House, seated in January, is unable to muster a majority to choose a president after a 269-269 tie, but the Senate, which is expected to be controlled by Democrats, picks Sen. Joseph R. Biden Jr. from the Democratic ticket. If the House is still deadlocked at noon on Inauguration Day, Jan. 20, Mr. Biden becomes acting president.

Or try this one on for size: Neither the House nor the Senate fulfills its constitutional duty to select the president and the vice president by Jan. 20, so House Speaker Nancy Pelosi, California Democrat, becomes acting president until the whole mess is sorted out.

"That would cause all kinds of lawsuits: We would have 50 Floridas, and we might not know who the president is for two years," said Judith Best, a political science and Electoral College specialist at the State University of New York in Cortland.

The archaic system in the Constitution was set up in the days of oil lamps and horse-drawn carriages. After the presidential vote on the first Tuesday in November, electors have until the Monday after the second Wednesday in December, this year Dec. 15, to reach the state capital, where they cast their ballots for president.

The electoral vote is then transmitted "sealed to the seat of the government of the United States, directed to the president of the Senate," according to the 12th Amendment. If there's a tie, the 1804 amendment says, the House of Representatives "shall choose immediately, by ballot, the president."

"The Constitution says 'immediately,'" Mr. Hess said. "It's that word 'immediately' that makes me believe it's got to be the outgoing Congress that makes the decision, because we know that the Electoral College ballots are counted in December."

But despite the delicious possibility that Mr. Cheney would break a Senate tie to create a Obama-Palin White House, several other constitutional scholars say, forget the Constitution. They say the operative - and decisive - verbiage was set out in U.S. Code Title 3, Chapter 1, Section 15, in 1934.

"Congress shall be in session on the sixth day of January succeeding every meeting of the electors. The Senate and House of Representatives shall meet in the Hall of the House of Representatives at the hour of 1 o'clock in the afternoon on that day," the section says.

That, they say, means the new Congress would decide the president and vice president in the event of an Electoral College tie. Here's where things get dicey, though. Back to the Constitution, the 12th Amendment: " ... in choosing the president, the votes shall be taken by states, the representation from each state having one vote." That means that a state's entire House delegation gets just one vote each - California, with 53 House members, would get one vote; Alaska, with its one representative, would get one vote.

Florida, for instance, has 16 Republicans and nine Democrats. That means the delegation would (almost certainly) vote 16-9 for Mr. McCain, while Colorado, with four Democrats and three Republicans, would vote 4-3 for Mr. Obama.

In the current House, Mr. Obama would win - 27 delegations have a majority of Democrats, 21 have a majority of Republicans, and two states, Kansas and Mr. McCain's home state of Arizona, are evenly split.

But those numbers will change Nov. 4, and Paul Sracic, associate professor in the department of political science Youngstown State University in Ohio, said they could change dramatically. Of the 27 state congressional delegations with a majority of Democrats, 25 of them would switch to deadlocked or Republican control if two or more seats change to Republican.

At least 26 state delegations in the House must agree before the next president can be chosen. But even if Democrats maintain a majority, there would be pressure on Democratic delegations to vote Republican in states where voters chose Mr. McCain.

It took 36 ballots in the House to select Thomas Jefferson as the third president after the 1800 election ended in a 73-73 tie. There was so much animosity after that election that Aaron Burr, elected vice president, faced off in a duel with Alexander Hamilton, who had thrown his support behind Jefferson. Burr shot Hamilton dead in a duel.

The number of electors, 538, is equal to the number of senators - 100 - and representatives - 435 - in the Congress, plus the three electors added in 1961 when the 23rd Amendment gave the District a say in U.S. presidential elections. Thus, there have been 10 presidential elections in which a 269-269 tie was possibly, but it has never occurred.

"The probability of a tie in 2008 is about 1.5 percent, which is slightly higher than we calculated at about the same time back in 2004," said Mr. Sracic, who enlisted the help of the university's math department to come up with a possible 1,024 combinations with the current 10 states now considered tossups.

"What really strikes you is how easy it would be for a tie to occur. Take the 2004 map and switch Iowa, New Mexico and Colorado into the Blue column, which is what the poll numbers indicate. Then, take New Hampshire and give it to McCain, which is what two recent polls suggest is going to happen. There is your tie."

Haiku of the Day

Katrina Iraq

Wall St. and Nine Eleven

Who could do better?

Cram Time for Debates!

By Roger Simon

“Contrary to popular belief,” historian Daniel J. Boorstin once wrote, “Barnum’s great discovery was not how easy it was to deceive the public, but rather how much the public enjoyed being deceived. Especially if they could see how it was being done. They were flattered that anyone would use such ingenuity to entertain them.”

When it comes to presidential debates, the candidates are certainly ingenious when it comes to entertaining us.

The candidates know that debates are not about demonstrating how they would actually behave as president.

They know debates are about showmanship, stagecraft and acting. Which is why Barack Obama and John McCain are spending much of this week rehearsing for their first debate on Friday.

If you were a Martian, you might find it odd that presidential candidates have to rehearse for presidential debates. After all, both Obama and McCain have spent nearly all their adult lives studying serious issues and have spent the past 19 months talking about them on an almost daily basis. But this week, they will stand on mock sets and debate against mock opponents.

All possible questions and all possible answers (they hope) have been compiled in massive briefing books by their staffs, and the only trick is for the candidates to regurgitate those answers while looking spontaneous and sincere. May the best actor win.


The press buys into this. When the debate is over, reporters will write their stories evaluating how well the candidates performed. The stories will be little different than theater reviews. And why should they be different, considering debates are all about theater?

Even the props are important.

Back on Nov. 19 of last year, the Commission on Presidential Debates sent out a press release announcing the dates of the debates and stating: “In each debate except the town meeting format (i.e., the second presidential debate), the candidates will be seated at a table with the moderator.”

But that is not going to happen. On Friday, the candidates will stand behind lecterns, reportedly at the insistence of John McCain. One reason for this might be to show that McCain can stand up and perform for 90 minutes just as vigorously as Obama can.

Another reason, however, might be height: When Mike Dukakis debated the much taller George H.W. Bush in 1988, Dukakis had a little ramp that led to a platform hidden behind his lectern, so that when he stood on the platform he looked taller. (His campaign wanted the ramp so the TV cameras couldn’t capture Dukakis stepping up onto the platform.) McCain is about a half-foot shorter than Obama, and McCain might want to use the same device.

Sound silly? In debates, there is no such thing as silly. There is only stagecraft.

Take stand-ins. Those are the people who play the role of the opponent during the debate rehearsals. They have briefing books, too, and they are supposed to behave like real opponents.

So real, the campaigns now believe, that the stand-ins also have to look like real opponents.

Thus, the McCain campaign felt the need to consider finding a black stand-in to play the role of Barack Obama. According to The Wall Street Journal, McCain was going to use Michael Steele, the former lieutenant governor of Maryland.

For his vice presidential debate, Joe Biden will use Jennifer Granholm, governor of Michigan, as his stand-in to play the role of Sarah Palin.

Of course, candidates are going to use people from their own party to play their opponents, but there is nothing in the background of Steele to suggest he is much like Obama on the issues and nothing in the background of Granholm to suggest she is much like Palin on the issues.

But one is black and one is a woman, and the campaigns want as realistic a dress rehearsal as possible. (After the Wall Street Journal story ran, the McCain campaign said Steele was no longer being considered. But the campaign would not say who it was considering. Maybe Alan Keyes or J.C. Watts should expect a call.)

Debates are some of the few moments in politicking when the campaigns pull back the curtain and invite people to take a look. “See?” the campaigns say. “This is how we stage the show. All for your entertainment!”
And, apparently, nobody finds any of it odd. Though I think you might have a hard time finding a Martian who would believe it.

Meet the New Map....Same as the Old Map

In early summer, the Crystal Ball took its first look at the likely November 4th Electoral College map. Our assessment was that, in the College at least, the contest appeared close. John McCain had 174 solid or likely electoral votes to Barack Obama's 200 solid or likely. The lead switched once we added in states that were "leaning" to one or the other: McCain had 227 votes to Obama's 212, with 270 needed for election. Fully 99 electoral votes in eight other states (CO, MI, NH, NV, OH, PA, VA, and WI) remained in the toss-up category.

We based our map not just on current polling but also the recent historical record in presidential elections. To some degree, this explained the differences between our map and those of some other analysts. As we revise it in this essay, we will once again add a dose of history to current trends, and at least tentatively, we will attempt to narrow the number of toss-ups.

Just think about all that has happened since early July. Obama took his European trip, hailed in some quarters and condemned in others. The McCain campaign came alive for the first time in months, attacking Obama as "the biggest celebrity in the world" after his travels--a hint of the strategy that was to come. Polls narrowed between Obama and McCain, as Obama lost some of his earlier luster. The Democratic Convention in Denver temporarily revived Obama's survey numbers, producing a small convention bounce, mainly on the strength of Obama's closing night speech. Much of the rest of the week had been consumed by intrigue about what the Clintons would or would not do, and Obama's choice of Joe Biden as Veep-nominee was met with general approval but no special enthusiasm. It avoided any controversy but was not, in the overused term of 2008, a "game changer."

Then the presidential contest got its real shake-up. McCain and his staff had not been fooled by the polls that suggested he was gaining on Obama. The underlying, fundamental factors of this election year are strongly Democratic: a highly unpopular Republican president, a deteriorating economy in significant ways, a foreign war most Americans believe should not have been fought, and an enthusiasm gap between the parties that was producing record Democratic donations and voter registrations. McCain was on track to score a respectable second-place finish, the usual fate of candidates of the incumbent party who try to win a third consecutive term.

Always a gambler, McCain rolled the dice and selected a nearly unknown governor of Alaska. Despite scant experience in foreign affairs and on the national stage, Sarah Palin electrified the conservative base of the GOP. Never happy with the maverick McCain, the base recognized that Palin held their views on abortion, guns, creationism, and other social issues. Moreover, Palin shattered the stifling stereotype of the Republican party as the home of "old white males." She was young, attractive, dynamic, and plain spoken. The campaign called her a "reform governor," reinforcing part of McCain's image, and instantly, the McCain-Palin ticket became another way for voters to cast a ballot for change. Palin's potential historic first neutralized somewhat Obama's; her age (44) was even younger than Obama's (47), projecting future-orientation. McCain gave up some of his advantage on experience over Obama--since Palin could hardly be termed more knowledgeable about government than Obama (except by predictable partisans who will always find their nominee's scant resume fuller than the other party's scant one)--but the experience theme wasn't working for McCain anyway.

We won't know for sure whether Palin was fully vetted by the McCain campaign until the post-election books are published, though it certainly looks as though she was not, given the results of various press investigations over the past couple of weeks. Recent history underlines the dangers for the campaign in this. The last two "surprise" VP nominees were disasters for their parties (Democrat Geraldine Ferraro in 1984 and Republican Dan Quayle in 1988), in part because the campaign itself and party elders knew too little to defend the VP nominees from attack. But McCain's staff learned something from the earlier examples, especially Quayle's. Journalists can be counted upon to do their duty, as they see it, and ask a lot of uncomfortable questions about an obscure nominee who might be suddenly thrust into the most powerful office on earth. They will search relentlessly for negative information, and competitively publish and air it as soon as possible. Yet the campaign knew that Republicans hate the mainstream media. Nothing would set the grassroots on fire like a media firestorm about Palin. Presto! Both the media and the GOP base responded in predictable Pavlovian fashion, and for the first time ever, McCain became the hero of the Republican Right, alongside Palin. McCain is now actually free of the need to tend to the conservative base, enabling him to go hunting for the more moderate swing independents who will actually determine the election.

Combined with McCain's convention bounce, Palin's strength among the base, and according to some (but not all) polls, her ability to attract a percentage of white women away from Obama, produced the first sustained, narrow McCain lead of the campaign. As this is written, tracking polls suggest that this bounce has flattened considerably, perhaps entirely.

Whatever the short term picture, McCain is well aware that he has a mountain to climb. When the Palin effect dies down, as all such political phenomena eventually do, he will still have to contend with the albatrosses of Bush, the economy, and (to some degree) Iraq. The financial meltdown of the past week, shocking and appalling to virtually everyone regardless of political philosophy, has given Obama his first real general election opening to return the campaign to Democratic themes. A relieved Obama can be expected to capitalize on American capitalism's deep troubles, as would any candidate in his position.

To win, McCain must keep Obama on the defensive, and for a couple of weeks he did that. McCain and his staff understand that in this environment, he cannot win with a high-minded campaign enveloped in glittering patriotic generalities. McCain must undermine Obama at every turn, unceasingly creating doubts about the Democrat so that McCain becomes the default "change" candidate once a majority of voters have decided that Obama is not the change they desire. In a very different time of peace and prosperity and a popular incumbent Republican president, George H.W. Bush accomplished precisely this, presenting himself as the "kinder, gentler" successor to Ronald Reagan and tagging Michael Dukakis as the unacceptable anti-flag, friendly-to-criminals, pro-ACLU candidate. In 1988 Americans chose Bush's change of emphasis rather than the more drastic philosophical change seemingly embodied by Dukakis.

The Dukakis name is being bandied about now, not by Republicans but by Democrats. In the pit of their anguished stomachs, Democrats fear they are seeing an old movie play out yet again, one they were forced to watch in 1988 (Dukakis), 2000 (Gore), and 2004 (Kerry). For the fourth time, say these Democrats, they have a high-minded nominee who won't fight back, won't gut punch, and refuses to believe that voters will buy the negative attacks being launched against him. The Obama campaign leaders have called these Democrats "handwringers" and "bedwetters", and they may be right. If the Obama team has indeed done the job they claim in voter registration and fundraising, they may be able to ride out the current storms and win when it counts--especially given the pro-Democratic electoral conditions. On the other hand, with the first African-American presidential nominee, they still must worry about racial leakage on Election Day. There isn't a person in the country who can truly measure that effect in advance.

One thing is for sure: If Democrats cannot win in a year like this, when can they win? If American history is the guide, the 2008 election shouldn't be close--and yet it appears to be, at least in mid-September. Appearances can be deceiving, though, and a collapsing financial superstructure can only help the out-of-power party's nominee.

In a practical sense, the election is not near to being won by either side. Fundamental factors aside, campaigns are won day by day, in the trenches. More will happen in the next seven weeks than has occurred in the past seven months. The debates are sure to draw record audiences, and the TV ads and the ground mobilizations will be of a number and intensity never before witnessed. The remaining 46 days will tell the tale.

So let's move to the Electoral College. National surveys are fun but unrevealing. Obama is back on top narrowly, after a couple of weeks with McCain in the lead. As long as the national polls have Obama and McCain close to one another, it is really what happens in the individual leaning and toss-up states that matters.

The Electoral College appears to be closing up. Those partisans who dreamed that the nation would break the Red-and-Blue mold of 2000 and 2004 might be headed for disappointment--assuming the current economic trends do not break the contest wide open in a Democratic direction. McCain is not going to carry more than a couple of Blue states (at most), and Obama is unlikely to win more than a handful of Red states. We now are fairly certain that a minimum of 42 states will keep the same partisan color that they chose in 2004. We would not be shocked if this number topped 45. That's right: After expenditures in the hundreds of millions, all the controversial events of the past four years, and the marathon two-year campaign of 2008, the map may not be radically altered.

Last spring John McCain had hopes that he could appeal to Democratic states like California, New Jersey, and Washington. Those hopes are dashed. Realistically, he can carry only Blue Michigan and New Hampshire, with outside shots at Pennsylvania and Wisconsin. He currently trails in all four, though not by much.

Barack Obama talked optimistically of winning Western states such as Montana and North Dakota, as well as Southern states such as Georgia, Mississippi, and North Carolina. We believe his chances are greatly diminished in all five of these states.

Some shifts have occurred, so let's take a look at the mid-September map as a whole.


Solid -- No Real Chance for Upset

OBAMA - WA, CA, IL, MD, NY, VT, RI, MA, CT, NJ, DE, ME, DC, HI (183 electoral votes)

Comments: Nothing has changed for Obama in this category since mid-July. Obama gained no state he didn't already have by adding Joe Biden to his ticket. Delaware is solidly Democratic.

McCAIN - ID, UT, AZ, WY, SD, NE, KS, OK, TX, LA, AR, KY, WV, TN, AL, SC, MT, ND, GA, MS (163 electoral votes)

Comments: We have McCain gaining 30 electoral votes in this category since mid-July (AK, MT, ND, GA, MS). Sarah Palin has helped in her home state as well as the others. Had Obama chosen Sen. Evan Bayh of IN as his running-mate, we were prepared to move IN into the toss-up category. While some polls have suggested that McCain leads only narrowly there, we still believe it is unlikely that Obama will carry the Hoosier State in the end. Still, given its long border with Illinois, Indiana is going to be closer this year, and we have moved it out of the Solid McCain category and into the Likely McCain grouping.


Likely -- An Upset is Possible but Improbable

OBAMA - OR, MN (17 electoral votes)

Comments: Had McCain chosen Gov. Tim Pawlenty of MN as his running-mate, we were prepared to move MN to the toss-up category. But without Pawlenty, McCain is very unlikely to carry the state, despite a recent poll showing the state tied (right after the GOP Convention had been held in the Twin Cities). Similarly, McCain keeps making noises about Oregon but we see little Palin effect there, and Obama should be able to carry it.

McCAIN - IN (11 electoral votes)

Comments: All the states in this July category (AK, GA, MS, MT, and ND) have now firmed up for McCain. Remember that before Palin's nomination, some Alaska polls had Obama ahead in the state, or behind McCain in low single digits, but Palin will create a handsome victory for McCain. However, as we noted above, we have moved Indiana from Solid to Leaning McCain.


Leaning -- Currently Tilting to One Side but Reversible

OBAMA - IA, NM, WI (22 electoral votes)

Comments: Our guess still is that all three of these states end up in Obama's column. Wisconsin very narrowly voted for Gore and Kerry, but Obama has an excellent organization there. Public and private polls have Wisconsin close again, but Democrats get the edge here. Iowa and New Mexico voted for Bush in 2004. If only one of them switches to Obama this time, it will be Iowa, where McCain has always been weak. As a western state, New Mexico is at least open to voting for its Arizona neighbor. But Obama ought to be able to put New Mexico away, too.

McCAIN - FL, MO, NC (53 electoral votes)

Comments: McCain will have to work hard to hold these three usually Republican states. If he loses even one of them, he will be up against the Electoral College wall. His margin in MO is decent at present, and we expect him to carry the Show Me State. McCain ought to win NC, but he's not going to do it by anything like George W. Bush's double-digit margins. Reliable Tar Heel observers insist to us that the contest is surprisingly close, so we're not about to move NC into a firmer column for McCain yet. Of these three states, we wonder most about FL. Obama was weak there in the Democratic primary and McCain-tilting veterans and seniors are major forces in the state. Yet this mega-state is quirky, and as we learned in both 1996 (when it voted for Clinton) and 2000 (when...oh, you remember), the Sunshine State can reflect national trends quickly. If McCain is faltering in any one of these states in October, it will be an important signal about the likely election outcome. It is difficult to see McCain surviving the loss of a single one.


Toss-Ups -- The Real Deal

CO, MI, NH, NV, OH, PA, VA (89 electoral votes)

Comments: A few of these states are Red or Blue tinged, though not enough for us to have any real confidence yet in a prediction. If you put a gun to our head--and we hope you won't, since that makes us very nervous--we would say Obama will end up carrying MI and PA. These states have such a strong Democratic base that, even with Obama's problems from the primaries, he ought to be able to secure them narrowly. On the other side, we now believe that McCain has a tiny edge in Virginia, despite a large number of new voter registrations that tilt strongly Democratic. Obama is not doing well enough in all of Northern Virginia to overcome strong resistance to his candidacy in more rural parts of the state, especially in the western quarter. This could change, and Obama is better organized in the Old Dominion than any Democrat since Jimmy Carter in 1976. He has the strong support of Gov. Tim Kaine (D) and Senate nominee Mark Warner (D), who is a certain winner, possibly by a wide enough margin to help Obama.

We could argue the other states either way. Obama leads most Colorado polls, but that may be an afterglow of the Democratic Convention that will fade. Similarly, Obama appears to be ahead in New Hampshire, but after the Democratic primary there in January, what fool would believe Granite State polls? All reports suggest a big pick-up in Democratic registration in Nevada, but it's too early to move this one to Obama, given McCain's Arizona address.

Notice we haven't discussed Ohio. We aren't prepared to say that other states won't make the difference this year, but it's more than possible that, for a second straight election, the Buckeye State will essentially choose the next president. There are surveys putting the state in Obama's camp, and others saying it is McCain's. No one is going to call this one until they have to do it.

Socialism US Style & Ronald Reagan

"Government is not the solution to our problem; government is the problem...It is my intention to curb the size and influence of the federal establishment."

That statement, in Ronald Reagan's inaugural address on January 20, 1981, was the opening shot in what became known as the Reagan Revolution: small government, low taxes, de-regulation, a belief that the markets know best. The revolution's spirit shone through the 2008 platform of the Republican Party, presented at its convention early in September.

"We do not support government bailouts of private institutions," it said. "Government interference in the markets exacerbates problems in the marketplace and causes the free market to take longer to correct itself. We believe in the free market as the best tool to sustained prosperity and opportunity for all."

The final bell for that philosophy may have tolled on September 16, when the government nationalized the American International Group (AIG), the world's biggest insurance company, as part of a series of interventions to prop up the U.S. financial system and housing market at a cost, so far, of around $1 trillion to cure an American financial plague that is spreading to the rest of the world.

All contrary to the dogma of the Republicans who occupied the White House for 28 of the past 40 years. But in September, pragmatism trumped ideology and the world's leading capitalist country acted much like some of the European countries American free marketeers have often derided as "nanny states."

Irony of history: As the American crisis neared a crescendo, the European Union's economic and monetary affairs commissioner, Joaquin Almunia, warned that Europe should not employ "financial socialism" by bailing out failing companies. "Socialists like me, we are against financial socialism."

At the bottom of the U.S. crisis are deadbeat mortgages masquerading as sophisticated financial instruments, mortgage-backed securities, that were insured, in theory, by so-called credit default swaps. The assumption was that housing prices would continue to rise. Trouble started when the housing bubble burst.

"The paradox is that this whole mess was created by a bunch of zealots who believed in the laissez faire ideology of free markets unbound by proper rules, regulation and supervision," said Nouriel Roubini, an economics professor at New York University and head of RGE Monitor, an economic information service. Roubini sees the United States turning into "the USSRA, the United Socialist State Republic of America."

Those leading the effort to keep the U.S. financial system afloat, above all Treasury Secretary Hank Paulson and Federal Reserve chief Ben Bernanke, have studiously avoided the word "nationalization." (After all, this is an un-American concept, the sort of thing that happens in places like Venezuela, where Hugo Chavez nationalizes companies in the name of his 21st century socialism).

"Socialism, 21st century style," was the headline on a blog by Floyd Norris, the widely-read chief financial reporter of the New York Times. Others were more subdued. "Corporate welfare" was the term used by Columbia University professor Joseph Stiglitz, winner of the 2001 Nobel Prize in economics.

AMNESIA AND "NATION OF WHINERS"

The crisis, the worst since the Great Depression, has inflicted amnesia on some of Reagan's ideological heirs. They include John McCain, the Republican presidential candidate who supported de-regulation and endlessly proclaimed himself "a proud foot soldier in the Reagan revolution" when he courted the party base in the primary contest for the nomination.

McCain's initial reaction to the unfolding crisis was a call for the establishment of a commission to find out what led to the crisis, a classic Washington insider's response. He could have started by asking Phil Gramm, until recently his economic guru and once thought a leading contender for the post of Treasury Secretary if McCain won the election.

Gramm lost his position as economic advisor to the McCain election campaign after describing the United States as "a nation of whiners" suffering from "mental recession" - not the kind of remark likely to win votes from citizens grappling with financial hardship.

Gramm was the driving force behind the two pieces of legislation at the bottom of the crisis -- the repeal, in 1999, of the 1933 Glass-Steagall Act which had created a firewall between commercial and investment banking; and the Commodities Futures Modernization Act of 2000. The way the latter passed was extraordinary: 262 pages of dense language slipped into an 11,000-page omnibus bill on the Friday before the Christmas recess.

"The act freed complex derivatives from any regulation," said Michael Greenberger, who served in the Commodities and Futures Trading commission in the late 1990s. "It set the stage for the present mess and the problem is, no one knows how many of these instruments are still out there or who holds them."

Congress this week is scheduled to discuss an unprecedented $700 billion plan, submitted by the Bush administration, to use taxpayer money to buy up a mountain of bad debt. No one knows whether this will be enough and most Americans doubt that Washington leaders will be able to solve the crisis, according to a Zogby poll taken after the plan was announced.

The survey, of likely voters in November's elections, said 83% wanted those responsible for the practices that led to the crisis to be held criminally responsible.

That's not part of the plan.

The Republicans are Responsible for the Crisis

It is oddly reassuring that the Treasury Department and Federal Reserve let Lehman Brothers fail, did not subsidize the distress sale of Merrill Lynch to Bank of America, and tried to line up loans for the American International Group, the troubled insurer, rather than making a loan themselves. Government intervention would have been seen either as a sign of extreme peril in the global financial system or of extreme weakness on the part of federal regulators.

Instead, the dizzying events on Wall Street suggest that the system may be strong enough to absorb the downfall of Lehman and Merrill — though the chaos at A.I.G. seems harder to swallow. However, the stock market’s initial reaction — a brutal drop, but not a Black Monday-style sell-off — offered a ray of hope that the disruptions may be manageable. And, more important, barring the risk of cascading failures, regulators finally seem willing to hold Wall Street accountable for its mistakes.

Lehman’s bankruptcy filing may even provide much-needed transparency to a financial system that has been hamstrung for more than a year by a lack of good information — on who owns what and who owes how much and to whom. Lehman’s creditors and other firms involved in its trades will now have to line up in bankruptcy court, detailing their positions for all to see — and learn from. That did not happen in the spring when the Fed prevented a bankruptcy filing from Bear Stearns to avoid what it said would have been a systemwide failure.

Still, the disappearance in one weekend of two icons of American capitalism has negative repercussions, for taxpayers and for the economy.

The Fed has broadened yet again its emergency-loan programs for Wall Street banks, agreeing to take risky and poor quality collateral, like junk bonds. That puts taxpayers at ever greater risk. Remember, the Federal Reserve already put the taxpayers on the hook by offering $29 billion in guarantees to quell the Bear crisis in March. This month, the Treasury Department pledged to make good if need be on trillions of dollars of obligations of Fannie Mae and Freddie Mac.

In addition to the sheer size of the government’s commitments, the weakening economy is upping the odds that taxpayers will be footing the bill for the wipeout on Wall Street. As job losses have risen inexorably this year, foreclosures hit another record high in August — 304,000 homes in some stage of default and 91,000 families losing their homes, according to RealtyTrac, an online marketer of foreclosed properties.

As long as foreclosures continue, housing prices will continue to decline and banks and other financial firms will continue to suffer losses. Continuing losses, in turn, could force more taxpayer bailouts, by reigniting fears that ongoing failures may threaten the entire financial system. Preventing foreclosures is the key to stanching the crisis, but policy makers have been unconscionably slow to address that aspect of the crisis.

It will require political will, but is not too late to try to decrease foreclosures by allowing homeowners to restructure their unaffordable mortgages in bankruptcy court. It is also not too late to stimulate the economy with intelligent government support, like aid to state and local governments, rather than campaign-year gestures like the tax rebates for virtually everyone that dominated the first stimulus package.

And it is certainly not too soon to look beyond the current crisis to the flaws and fallacies of the anti-regulatory ideology that has held Washington in its grip since the Reagan years and allowed the financial excesses that are now stressing the system to the breaking point.

Making and enforcing new rules is necessary, but that will not be enough. The nation needs a new perspective on the markets, one that acknowledges the self-destructive bent of unfettered capitalism and its ability, unchecked, to wreak havoc far beyond Wall Street.

How Democrats Created the Financial Crisis

Commentary by Kevin Hassett

The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.

Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.

But really, it isn't. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.

Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street's efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.

In the times that Fannie and Freddie couldn't make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.

The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them.

Turning Point

Take away Fannie and Freddie, or regulate them more wisely, and it's hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.

It is easy to identify the historical turning point that marked the beginning of the end.

Back in 2005, Fannie and Freddie were, after years of dominating Washington, on the ropes. They were enmeshed in accounting scandals that led to turnover at the top. At one telling moment in late 2004, captured in an article by my American Enterprise Institute colleague Peter Wallison, the Securities and Exchange Comiission's chief accountant told disgraced Fannie Mae chief Franklin Raines that Fannie's position on the relevant accounting issue was not even ``on the page'' of allowable interpretations.

Then legislative momentum emerged for an attempt to create a ``world-class regulator'' that would oversee the pair more like banks, imposing strict requirements on their ability to take excessive risks. Politicians who previously had associated themselves proudly with the two accounting miscreants were less eager to be associated with them. The time was ripe.

Greenspan's Warning

The clear gravity of the situation pushed the legislation forward. Some might say the current mess couldn't be foreseen, yet in 2005 Alan Greenspan told Congress how urgent it was for it to act in the clearest possible terms: If Fannie and Freddie ``continue to grow, continue to have the low capital that they have, continue to engage in the dynamic hedging of their portfolios, which they need to do for interest rate risk aversion, they potentially create ever-growing potential systemic risk down the road,'' he said. ``We are placing the total financial system of the future at a substantial risk.''

What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.

Different World

If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.

But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.

That such a reckless political stand could have been taken by the Democrats was obscene even then. Wallison wrote at the time: ``It is a classic case of socializing the risk while privatizing the profit. The Democrats and the few Republicans who oppose portfolio limitations could not possibly do so if their constituents understood what they were doing.''

Mounds of Materials

Now that the collapse has occurred, the roadblock built by Senate Democrats in 2005 is unforgivable. Many who opposed the bill doubtlessly did so for honorable reasons. Fannie and Freddie provided mounds of materials defending their practices. Perhaps some found their propaganda convincing.

But we now know that many of the senators who protected Fannie and Freddie, including Barack Obama, Hillary Clinton and Christopher Dodd, have received mind-boggling levels of financial support from them over the years.

Throughout his political career, Obama has gotten more than $125,000 in campaign contributions from employees and political action committees of Fannie Mae and Freddie Mac, second only to Dodd, the Senate Banking Committee chairman, who received more than $165,000.

Clinton, the 12th-ranked recipient of Fannie and Freddie PAC and employee contributions, has received more than $75,000 from the two enterprises and their employees. The private profit found its way back to the senators who killed the fix.

There has been a lot of talk about who is to blame for this crisis. A look back at the story of 2005 makes the answer pretty clear.

Oh, and there is one little footnote to the story that's worth keeping in mind while Democrats point fingers between now and Nov. 4: Senator John McCain was one of the three cosponsors of S.190, the bill that would have averted this mess.