Job one: Getting back on track
Even under the best-case scenario, the next President will inherit a battered and bruised economy when he takes office in January. So he'll have two very big items on his to-do list the morning after the Inaugural Ball.
First, he'll need to set up regulations that restore consumer and investor faith in the country's financial system. And second, he'll have to harness the government's power to spend and tax (or more to the point, to not tax) and pump growth back into the economy.
Let's start with financial regulation. Both Obama and McCain supported the big bailout in broad terms, and each is doing his best to show you that he's super, steamin' mad at Wall Street. Where the candidates really differ is in how they diagnose the problem.
McCain's rage seems focused on the way bankers have held up taxpayers. Obama, by contrast, talks a lot about what the financial industry has been doing to borrowers. Financial reform for the Democrat is largely a matter of consumer protection.
For example, since last autumn Obama has called for a "HOME score" for mortgages, to make it easier for you to compare the costs and features of a loan. He also wants rules to stop what he calls predatory credit-card practices, such as charging interest on top of transaction fees.
Fair or not, the new conventional wisdom in favor of regulation doesnčt play to McCain's strengths. Last spring he told the Wall Street Journal, "I am fundamentally a deregulator." On the stump, hečs talked about going after criminals whočve defrauded borrowers but not about writing new laws to regulate the mortgage business.
When the Republican has talked about new rules, he has focused on fixing the capital markets, not the retail lending market. He wants better financial disclosure from Wall Street firms and says he'd streamline the gaggle of regulators, from the SEC to the OCC to the Fed, that oversee the fractured system.
What about helping more families in danger of foreclosure? Obama wants to change bankruptcy laws so that judges can modify mortgages. He also said recently that the Treasury should "study the option" of buying individual mortgages to help people stay in their homes.
McCain until recently supported more modest interventions in the housing market, but in the second debate shifted course dramatically. He said he would order Treasury to buy up bad loans and renegotiate them. A key feature of the McCain plan is that the government would purchase the loans at full value, instead of requiring the lender to take a hit.
When it comes to stoking the economy, the Obama prescription is simple: Send cash. Now. In a short-term stimulus plan Obama outlined this past summer, he calls for sending a $1,000 tax-rebate check to every family, to be financed by a "windfall" profit tax extracted from energy companies. He'd use a few billion more to finance construction projects to avoid cutbacks in social services and to extend unemployment insurance.
This is a fairly traditional Keynesian approach to managing a slump, designed to keep consumers and businesses spending until the storm passes. A similar logic was behind the two emergency tax rebates George W. Bush approved.
McCain seems to be leaning in the opposite direction. He said recently that the last major stimulus package probably didn't work. Although he hasn't ruled the idea out, he also suggested in the first debate that he might try to get an across-the-board freeze on discretionary spending his first year in office.
His basic plan for growth is pure Reagan-era supply-side economics: Keep top tax rates low, including taxes on business, to provide incentives for enterprise and investment.
This brings us to what you really want to know...
Send feedback to Money Magazine
