The stock market tanks. Major banks and investment firms fail. The economy flirts with recession.
Who would President Barack Obama or President John McCain call?
The answer might be found in the people they call now: former Cabinet officials and corporate titans, staffers to past presidents and Congresses, economists who tamed double-digit inflation and beat back budget deficits.
Some of the candidates' economic advisers have deep ties to Wall Street — and to the wildly lucrative, lightly regulated environment that contributed to the financial crisis rooted in risky mortgage lending.
As McCain rails against greed on Wall Street and Obama casts the current problems as the legacy of Republicans' devotion to deregulation of the financial industry, both candidates are in daily contact with a broad range of economic advisers — some of whom could be in the next administration.
Team Obama is an ideologically diverse group including policy veterans such as Paul Volcker, Robert Rubin and Lawrence Summers — people who served Jimmy Carter and Bill Clinton at the Federal Reserve, Treasury Department and White House. "A very reassuring team," says Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
Team McCain is more professionally eclectic, reaching beyond Washington to Silicon Valley entrepreneurs who have run companies such as Hewlett-Packard and eBay. It trumpets low taxes and — at least until now — less regulation. "It's Reagan Republicanism," says Grover Norquist, president of the anti-tax group Americans for Tax Reform.
As the economy came to dominate the campaign agenda this week, it became clear that such advisers would play an increasingly important role in the seven weeks leading up to Election Day. The demise of Lehman Bros., the swallowing up of Merrill Lynch by Bank of America and the government's takeover of insurance giant American International Group seem to have given Obama the debate he sought to have with McCain over how the Republican administration of George W. Bush has managed the economy this decade.
Both candidates have been ducking into meetings with economic advisers. Stanford University professor John Taylor, author of a globally recognized rule that guides central banks on setting interest rates, flew to Green Bay, Wis., on Thursday to meet with McCain before a campaign stop. Today, Obama will meet with several of his economic specialists in Coral Gables, Fla.
The learning curve is large for two politicians with a combined 30 years in Congress but who have never run a major company — a point indelicately made by this week by McCain adviser Carly Fiorina, the former Hewlett-Packard chief who said none of the candidates for president or vice president was qualified to be CEO of a major company.
Don't look for all of these Democratic or Republican advisers to come to Washington in January. They're "not necessarily the cast of characters" who'll be in the next White House, says Stephen Hess, a Brookings Institution political scientist who worked in the Eisenhower and Nixon administrations. "Once Nov. 5 comes along, everything may be a different equation."
Veterans of economic wars
When Robert Reich, a University of California-Berkeley economist, showed up for an economic summit with Obama earlier this year, he was surprised by some of the company he was keeping.
"I never thought I would be sitting across a table from Paul O'Neill," says Reich, who was Clinton's Labor secretary. O'Neill was President Bush's first Treasury secretary.
The encounter encapsulated the diversity of Obama's economic team. The Illinois senator is "very, very insistent" on getting views from across a political and ideological spectrum, says Jason Furman, who directs economic policy for Obama's campaign and referees weekly conference calls to generate ideas.
Billionaire investor Warren Buffett and Jared Bernstein of the left-leaning Economic Policy Institute have been asked to provide advice to Obama. The team also includes veterans of the Clinton administration — some of whom helped write the legislation that tore down the regulatory walls between banking and investment firms — and others, such as Reich, who think that such deregulation of financial markets laid the groundwork for today's problems.
"It was a mistake," says Reich, who had left the Clinton administration by the time the president signed the legislation.
Thomas "Mack" McLarty, Clinton's former White House chief of staff, and New Jersey Gov. Jon Corzine, a former Goldman Sachs CEO who was in the Senate at the time, say abuses proliferated because the Bush administration refused to enforce protections within the law.
"The goal shouldn't be just to facilitate business, but to protect the public," says Corzine, another Wall Street veteran whom Obama has consulted.
In recent days, Obama has sought advice about the financial crisis from Summers and two other Clinton administration veterans — Rubin, who preceded Summers as Treasury secretary, and former White House economic adviser Laura D'Andrea Tyson. Obama also has spoken with Volcker, 81, an emeritus professor of economics at Princeton University who chaired the Federal Reserve under Carter and Ronald Reagan.
All are deficit hawks likely to give Obama "fiscally conservative" advice, says Leon Panetta, who was Clinton's chief of staff and budget director. Volcker and Rubin also are veterans of major financial crises: Volcker is hailed for ending the double-digit inflation of the 1970s, Rubin for preventing the Mexican government from defaulting on its debts in the 1990s.
Several of Obama's advisers have ties to companies mired in the Wall Street crisis. Tyson is on the board of Morgan Stanley, which paid her $350,830 in stock and cash in 2006, according to Securities and Exchange Commission records.
Rubin is a senior adviser to Citigroup, a company embroiled in the crisis surrounding subprime mortgages that have been given to high-risk borrowers. Rubin's compensation from Citigroup in 2005 was $17 million, according to the SEC.
Another Obama adviser, William Donaldson, is a former Republican SEC chairman who once infuriated some on Wall Street by pushing for tougher regulations on hedge funds and mutual funds. Donaldson also is on the advisory council of a firm that's been retained by a former CEO of AIG. He says he has "no role at all" in the AIG matter.
Big business at the table
McCain's economic team is a far-flung enterprise, including dozens of specialists from Wall Street, universities and conservative think tanks — most dedicated to Republican ideals of low taxes and less regulation.
"I have a big Rolodex," says Douglas Holtz-Eakin, a former Congressional Budget Office director who is McCain's domestic policy adviser. "McCain likes a broad array of views. He's not an ideological sort of guy."
The campaign's top economic advisers include Fiorina and Meg Whitman, formerly of eBay.
Democrats delight in pointing out Fiorina's dismissal by the Hewlett-Packard board, which granted her an $11 million payout, the type of going-away package McCain rails against. Fiorina notes McCain has called for shareholder approval for executive pay packages and says hers was backed by shareholders.
Many members of McCain's team are executives with strong ties to Wall Street:
• John Thain became CEO of Merrill Lynch in December, after its board ousted Stan O'Neal. Thain's $81 million pay package made him the second highest-earning CEO in the nation this year. Bloomberg News reported that Thain could make another $11 million in accelerated stock payouts in light of the sale of Merrill Lynch to Bank of America.
• During 2007, Whitman's last full year as CEO at eBay, her salary, bonuses and stock options totaled $10 million. Forbes magazine estimated her personal wealth this year at $1.3 billion. In 2001 and 2002, she was director of Goldman Sachs, one of the two remaining independent investment banks in the USA.
Holtz-Eakin says he sees no conflict about consulting Thain, who joined the McCain team before taking over Merrill Lynch. He says Thain did a great job taking the company from a "troubled place" to a "successful purchase."
Other McCain advisers include deregulation specialist Peter Wallison of the American Enterprise Institute and Taylor, the Stanford professor. Also on McCain's list is Martin Feldstein, a top economics adviser to President Reagan.
Wallison, who has backed deregulation of business and financial markets throughout a career in government and the private sector, says he and McCain have "been for regulation when it's necessary." A former White House counsel to Ronald Reagan, he says McCain favored cracking down on the excesses of mortgage giants Fannie Mae and Freddie Mac "when the Democrats were opposed to it."
The financial crisis — and the calls for increased regulation it has inspired — has seemed to catch McCain off-guard at times. This week, he said he was opposed to a government bailout of insurance giant AIG. Then, after such a bailout was announced, he said it was probably necessary. (Obama did not express an opinion on the bailout but said it was the product of "failed economic policy" by Republicans.)
Thursday, McCain unveiled a plan to create a "mortgage and financial institutions trust" that would "identify institutions that are weak and take remedies to strengthen them."