I wanted to highlight three points from Obama's economic speech which marked his approach to the crisis as vastly superior to the alternatives put forth by the other presidential candidates. This speech should put any questions regarding Obama’s policy substance thoroughly to rest. While this speech will not go down in history, it was on many levels, just as important as his speech on race. Rather than seeking to make headlines by offering up gift baskets to voters, Obama synthesized much of the best thinking on possible solutions to the crisis. He set down core principles which should guide the nation’s attempts to reform financial regulation which is still based in an era before banks were allowed to open branches across state lines, much less trade trillions of dollars worth of derivatives with counterparties around the world.

In discussing the principles upon which any new regulation should be based, Obama said the focus should be on what financial institutions do, rather than what they are. The current crisis has stemmed largely from the fact that new institutions became key players in the creation of mortgage credit with no regulatory oversight. He acknowledged that for the most part, the US banking system is already highly regulated and the vast majority of these institutions have acted responsibly. This is a reassuring tone for most of the nation’s 8500 banks, only a handful of which are the size of BoA’s, Citibanks and JP Morgans. These banks support the real economy of this country and often lack the resources to remain viable when forced to comply with punitive or excessive regulation targeted at the actions of others. A great example is how US banks are so frequently asked to play police force by federal authorities – for instance to bear the costs of trying to enforce a misguided ban on internet gambling passed by the last moralistic republican Congress. Banks file thousands of reports on transactions each day – like those that led to the fall of Elliot Spitzer and comply with many levels of regulation. They do this in return for the system of deposit insurance which provides them with greater stability by guaranteeing the deposits of their customers. These banks, while not perfect and not always concerned with the consumers best interest, are not to blame for this crisis. Obama engaged with the problem at the very center of this current crisis – the intersection of regulated and unregulated financial institutions – rather than proposing feel-good solutions which will only create further problems.

In contrast, Clinton’s proposed 5-year rate-freeze is populist nonsense and would be a total disaster. Forcibly rewriting contracts in such a way is a case where the cure would kill the patient – it may indeed make for a better outcome in the long run, but the pain getting to that point would be catastrophic. Such a policy would lead to an unimaginable contraction of mortgage credit which would cause house prices to collapse completely and bring down the current financial system with them. The good news is that after going through a new great depression, we would get to start again from scratch and think twice about the excessive level of subsidy which has brought the cost of housing to unaffordable levels which are out of alignment with historical norms. This was a primary factor in the proliferation of exotic mortgages which allowed people to buy into the dream of homeownership, a cornerstone of the Bush presidency. Republicans and Democrats alike have shown an inability not to interfere with the functioning of the housing market and have pursued distorting policies providing excessive levels of subsidy for homeownership driven by an expansion of credit. These policies are just as responsible for the crisis as unregulated financial institutions. McCain calls this “not interfering with the functioning of the free market”. Unfortunately for McCain’s ideological tic of a response, the reality is that US real estate is already partially nationalized through Fannie and Freddie so a little bit more won’t hurt at this point. Yes, if you have a mortgage it’s very likely that your house is owned by both that bank and the federal government agencies disguised as independent companies. Finally, Obama’s focus on Rep. Frank, Chairman of the House Financial Services and one of the most respected and intelligent members of congress, as a key player in any solution to the current crisis is worth noting. Barney is perhaps the key player in any reform of financial regulation. He commands respect from those who work with him on both sides of the aisle, is incredibly engaged with the relevant issues and despite sometimes displaying an abrasive personality, he has a track record of working closely with stakeholders to develop good public policy. He works to protect consumers while allowing financial institutions to remain competitive in the domestic markets and internationally. By contrast, Clinton put her faith in former Fed Chairman Alan Greenspan, whose legacy is now being rewritten by the current financial crisis and whose policies as Fed Chairman are now widely regarded to have been a major contributing factor to our current problems.

The economic proposals of both Clinton and McCain show that both are completely out of touch with the reality of this crisis. Clinton’s focus on the minutiae of policy shows a tendency to micromanage that may work in a Senate committee, but would be a serious handicap as president. Further, her focus on the concrete details is calculated to hide ill-considered policies, born out of triangulation – keep in mind she already had one disastrous try at reforming health-care where she proved to be something like Barney Frank’s opposite. McCain shows the symptoms of that rare form of tourette’s syndrome contracted by most Republican presidential candidates which allows them to communicate with the unthinking automatons of the “free market” faith. Obama, on the other hand, shows a level of leadership and intelligent engagement that the other candidates simply do not match. To me, the closest parallel to Barack Obama is Tony Blair as New Labour came to power in 1997 – both are modernizing figures, driving his party out of the past and towards its future – with much kicking and screaming. His concerns about inequality allow him to pursue redistributive policies in an attempt to rectify that injustice but he ultimately recognizes the vital importance of business, finance and trade to our country’s standing in the world.