McCain And Obama's Campaign Promises Imperiled By Wall Street Rescue

After hearing about the AIG rescue on the overnight news, I saw this next story at Yahoo News written by Matthew Benjamin, which indicates that for all of campaign promises being made, that the reality of what can be done, may be quite different. The "fundamentals of our economy might be sound"???, but you better tuck a little cash under the mattress just in case!!

Here is the story:
The casualties of continuing tumult on Wall Street will include campaign promises of the next U.S. president, whether it's John McCain or Barack Obama.

The federal government has committed hundreds of billions of dollars this year to stimulate the economy, rescue failing Bear Stearns Cos. and American International Group Inc., and take over Fannie Mae and Freddie Mac. It may extend hundreds of billions more to buy distressed mortgage debt, prop up Detroit automakers and stave off recession.

Those expenses, on top of a 2009 budget deficit projected to approach $500 billion, will make it hard for Obama to find money for universal health care, clean energy and early education, or for McCain to enact $3.3 trillion in promised tax cuts over eight years.

``It's going to be a very hostile environment for major new initiatives,'' said Robert Bixby, executive director of the Concord Coalition, a non-partisan budget watchdog group. Paying for financial-industry rescue measures will be the next president's top task, he says, ``rather than some exciting new agenda, like health care for all or taxes for none.''

Last night, the Federal Reserve said the government would lend as much as $85 billion to AIG in exchange for a 79.9 percent stake in the biggest U.S. insurer by assets.
Government Rescues
Over a 24-hour period last weekend, two of Wall Street's largest investment banks disappeared, dragged down by bad bets on sketchy mortgages. Lehman Brothers Holdings Inc. filed the biggest bankruptcy in U.S. history and Merrill Lynch & Co., to avoid the same fate, agreed to a hurried acquisition by Bank of America Corp.

Earlier this year, the Fed put up $29 billion to facilitate JPMorgan Chase & Co.'s takeover of Bear Stearns, and the Treasury Department took control of Fannie Mae and Freddie Mac, which could cost taxpayers $100 billion each. Lawmakers are considering a $25 billion loan to U.S. automakers, and U.S. House Democrats want a second economic stimulus package of $50 billion for roads, bridges and infrastructure projects. House Financial Services Committee Chairman Barney Frank said Sept. 15 that turmoil in financial markets will likely force Congress and the administration to consider creating an agency to buy distressed assets from financial institutions.

Getting Expensive
``This is starting to get expensive,'' said Andrew Laperriere, managing director in Washington for International Strategy & Investment Group. Deficits in 2009 and 2010 may be ``a lot higher than people anticipate,'' he said.
New York University economist Nouriel Roubini last month predicted that hundreds of U.S. banks will fail, culminating in almost $2 trillion in credit losses.
Besides budget constraints, the crisis will keep the next president from focusing on other issues early in his tenure, when political capital is abundant and the next elections are distant, said Howard Gleckman, a senior researcher at the Tax Policy Center in Washington.

``The first 100 days is an opportunity for a president to set priorities,'' Gleckman said. ``If it turns out he's going spend them digging out from under a financial crisis that he's left with, all the other things he wanted to do get left by the wayside.''
Obama has proposed $80 billion a year in middle-class tax cuts, $18 billion a year on education programs, $15 billion annually for clean-energy investments, and $100 billion for universal health care.

Trillions of Debt
The combination of spending and tax cuts would add $3.4 trillion to the national debt by 2018, according to the Tax Policy Center. Obama's campaign says the costs will be offset by spending cuts and new revenue, and won't be shelved because of Wall Street's woes.

``The economic problems we are facing today make his entire fiscally responsible, pro-growth agenda even more critical,'' said Jason Furman, Obama's top economic adviser.
McCain's proposals would add even more new debt, $5 trillion over 10 years, the Tax Policy Center says. McCain plans to extend tax cuts passed in 2001 and 2003, cut corporate tax rates, phase out the alternative minimum tax, and double the exemption for dependents.
``The first job of the next president is to create jobs, protect people's savings, and not bail out CEOs,'' said McCain senior adviser Mark Salter. ``You don't do that by raising taxes. You do that by cutting taxes.''

Social Security
McCain also says he wants to partially privatize Social Security, long a goal of the Republican Party. Record-setting deficits will make it hard to absorb initial costs of privatization and, after the downfall of Bear Stearns, Lehman and Merrill Lynch, voters will be reluctant to take retirement money out of Social Security and entrust it to private investment accounts.
Wall Street's problems are also likely to slow the economy and shrink tax receipts, potentially adding to deficits that tighten credit for companies and consumers, economists say.
``Revenues certainly drop considerably if the economy falls into recession,'' said Jim Horney, an analyst at the Center on Budget and Policy Priorities in Washington. Government spending on programs like Medicaid increases when the economy slows.
Some budget analysts say the presidential candidates' promises are already budget-busters with doubtful prospects regardless of the cost of rescuing Wall Street.
``Both of these guys have campaign promises that cost so much more than they've got that a few more billion isn't really going to make any real difference,'' Gleckman said.
To contact the reporter on this story: Matthew Benjamin in Washington at mbenjamin2@bloomberg.net .
This should frighten all of us. I shall be back with a Hump Day Humor post to lighten things up a little as "the sky is falling"!! ;)