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Bank pains underscore weak economy

As the post-convention buzz lingering from the Democratic and Republican presidential nominations begins to subside, the shock of the financial crisis on Wall Street has refocused voters on the issue that most directly impacts their wallets.

"The press is more interested in idiotic commentary," said David Brady, associate professor of sociology, "The most salient issues to [voters] are often not the economy, despite what people think."

He added that the recent turmoil on Wall Street has restored the economy's significance to an electorate distracted by partisan wedge-issues.

Last week's events in the financial world featured a hasty arrangement by Bank of America to buy failing investment bank Merrill Lynch following the collapse of investment services firm Lehman Brothers. Troubled insurance company American International Group, Inc. subsequently received an $85 million emergency loan Tuesday. The federal government further responded Friday by introducing a $700 billion rescue plan for the U.S. financial system that will take on bad mortgages and absorb debt.

As a result, candidates scrambled to define their stances on the Wall Street turmoil and gain the trust of anxious voters. Presidential hopefuls Sens. Barack Obama and John McCain said they favored government intervention to save large financial institutions from failing.

"This crisis serves as a stark reminder of the failures of crony capitalism and an economic philosophy that sees any regulation at all as unwise and unnecessary," Obama said in a Sept. 17 statement.

Erik Wibbels, associate professor of political science, said despite voters' tendency to trust Democrats more than Republicans on economic issues, Obama will have some difficulties portraying himself as credible on the economy.

"He is going to have to really sound like he knows what he is talking about," he said. "They are [both] making it up on the fly. There is not a lot of precedent for this sort of thing."

The McCain campaign has emphasized that the fundamentals of the American economy are solid despite the recent financial panic.

"This foundation of our economy, the American worker, is strong but it has been put at risk by the greed and mismanagement of Wall Street and Washington. The top of our economy is broken," McCain said in a Sept. 16 statement.

Although bipartisan support has emerged for using government bailout plans to save financial institutions from failing, Brady said it was hypocritical for McCain to support government regulation.

"McCain has been very firmly in favor of deregulating the same industries that he has [recently] been criticizing as greedy," he said. "Trusting Wall Street to regulate itself is absurd."

The meltdown on Wall Street, however, is so unprecedented that McCain should not be criticized for shifting away from his customary ideals, said senior Matt Gray, president of Alpha Kappa Psi business fraternity.

"I don't think anyone expected this, so I don't think it's fair to quite call him a hypocrite, but I think he definitely did some re-evaluating" Gray said. He added that he plans to vote for McCain because of his conservative economic policies.

When companies as big as AIG start to fail, there are few options left besides intervention, added senior Jay Schulhof, president of the Duke Investment Club. Schulhof said that despite his strong preference for free market capitalism, he felt government intervention was sometimes necessary.

Schulhof said Obama was more willing to propose long-term solutions to the fundamental problems in the economy.

"We are going to have to raise taxes, we are probably going to have to consume less," he said. "It's not necessarily what Americans want to hear."

Schulhof, who worked for Deutsche Bank last summer, said although he agreed that both candidates do not fully understand the specific details involved in the financial crisis, new presidents can boost public morale. Schulhof referred to the hiring of head football coach David Cutcliffe as an example of how new leadership alone can produce positive results.

"We are seeing it with Duke football now," he said. "Not even that [presidents] can do something, but that they can instill a new spirit in the people."


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