McCain and Obama trade attacks as economic crisis worsens

While "looking forward to turning a page on this financial crisis" the McCain campaign focuses on questions about Barack Obama's past associates. Obama supporters bring up Mr McCain's role in the savings and loan banking scandal. As a crisis in confidence hits European banks, the German government steps in to guarantee all private savings accounts, while Iceland, ranked as the most developed country in the world, is on the brink of collapse.

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As financial turmoil grasps the world's attention, in the US presidential race, the McCain campaign is struggling to get back on message. "Before the bailout crisis, aides said, McCain was succeeding in focusing attention on Obama's record and character. Now, they say, he must return to those subjects," The Washington Post reported on Saturday. " 'We are looking for a very aggressive last 30 days,' said Greg Strimple, one of McCain's top advisers. 'We are looking forward to turning a page on this financial crisis and getting back to discussing Mr Obama's aggressively liberal record and how he will be too risky for Americans.' " The Times said: "John McCain heads into his second presidential debate against Barack Obama tomorrow night at a critical moment for his increasingly endangered campaign and with a new offensive against his Democratic rival's character and trustworthiness. "With only 29 days until the election, Mr McCain faces an electoral map that has shifted significantly in favour of Mr Obama in the past fortnight. It has triggered a decision to try to move the attention of voters away from the economic crisis and back on to questions about Mr Obama's past associates, with a message that the Democrat is somehow not American or patriotic enough to be President." AFP reported: "Illinois Congressman Rahm Emanuel, one of the Democratic Party's fiercest attack dogs, said McCain was playing with fire. " 'At 58, John McCain was associating with Charles Keating,' he told CNN, referring to a businessman who was jailed in the massive savings and loan crisis of the 1980s, the worst scandal of McCain's career. " 'I'm not in the business of giving political advice to John McCain. But I would watch when you're going to deal with associations,' Emanuel warned." Politico reported: "McCain officials had said early in the weekend that they plan to begin advertising after Tuesday's debate that will tie Obama to convicted money launderer Tony Rezko and former Weathermen radical William Ayers. "But Obama isn't waiting to respond. His campaign is going up Monday on national cable stations with a scathing ad saying: 'Three quarters of a million jobs lost this year. Our financial system in turmoil. And John McCain? Erratic in a crisis. Out of touch on the economy. No wonder his campaign wants to change the subject.' " The Washington Post said: "Seizing on a New York Times account Saturday of the relationship between Obama and Bill Ayers, who has confessed to domestic bombings as a member of the Vietnam-era Weather Underground, [Mr McCain's running mate, Sarah] Palin told Republican donors in Colorado that Obama 'is not a man who sees America as you and I do - as the greatest force for good in the world.' "Palin's comments came as Sen John McCain's campaign signaled a new effort to go after Obama and were a distortion of what the Times story concluded: that the two men are not close but that Obama has played down his contacts with Ayers, who remains unrepentant about his actions but has been rehabilitated in the eyes of many Chicago political and civic leaders. "The comments underscored a new determination by the McCain campaign to try to regain momentum by painting Obama as a radical out of touch with Main Street." In an analysis for The Associated Press, Douglass Daniel wrote: "Palin's words avoid repulsing voters with overt racism. But is there another subtext for creating the false image of a black presidential nominee 'palling around' with terrorists while assuring a predominantly white audience that he doesn't see their America? "In a post-Sept 11 America, terrorists are envisioned as dark-skinned radical Muslims, not the homegrown anarchists of Ayers' day 40 years ago. With Obama a relative unknown when he began his campaign, the Internet hummed with false e-mails about ties to radical Islam of a foreign-born candidate. "Whether intended or not by the McCain campaign, portraying Obama as 'not like us' is another potential appeal to racism. It suggests that the Hawaiian-born Christian is, at heart, un-American." The New York Times noted: "The turmoil on Wall Street and the weakening economy are changing the contours of the presidential campaign map, giving new force to Senator Barack Obama's ambitious strategy to make incursions into Republican territory, while leading Senator John McCain to scale back his efforts to capture Democratic states. "Mr Obama has what both sides describe as serious efforts under way in at least nine states that voted for President Bush in 2004, including some that neither side thought would be on the table this close to Election Day. In a visible sign of the breadth of Mr. Obama's aspirations, he is using North Carolina - a state that Mr Bush won by 13 percentage points in 2004, and where Mr Obama is now spending heavily on advertisements - as his base to prepare this weekend for the debate on Tuesday. "By contrast, Mr McCain is vigorously competing in just four states where Democrats won in 2004: Pennsylvania and New Hampshire, followed by Wisconsin and Minnesota. His decision last week to pull out of Michigan reflected in part the challenge that the declining economy has created for Republicans, given that they have held the White House for the last eight years." The Economist said: "As the financial crisis pushes the economy back to the top of voters' concerns, Barack Obama is starting to open up a clear lead over John McCain in the opinion polls. But among those who study economics for a living, Mr Obama's lead is much more commanding. A survey of academic economists by The Economist finds the majority - at times by overwhelming margins - believe Mr Obama has the superior economic plan, a firmer grasp of economics and will appoint better economic advisers." The Washington Post said: "With the party already struggling to generate enthusiasm for its brand, Republican strategists fear that an outpouring of public anger generated by Congress's struggle to pass a rescue package for the financial industry may contribute to a disaster at the polls for the GOP in November. " 'The crisis has affected the entire ticket,' said Jan van Lohuizen, a Republican consultant who handled the polling for President Bush's reelection campaign. 'The worse the state's economy, the greater the impact.' " Politico reported: "The possibility that Democrats will build a muscular, 60-seat Senate majority is looking increasing plausible, with new polls showing a powerful surge for the party's candidates in Minnesota, Kentucky and other states."

Confidence crisis in European banks

"The German government said on Sunday that it would guarantee all private savings accounts in the country in an effort to reinforce increasingly shaky confidence in the financial system. The announcement came as the leaders of largest European economies met over the weekend searching for a systemwide answer to a credit crisis that has required them to rescue several banks in just the past week,"

reported. "Germany's guarantee of its private savings - worth about 500 billion euros, or more than $700 billion - followed the news that a group of banks had pulled out of a deal to provide 35 billion euros, or $48.2 billion, to rescue the large German mortgage lender, Hypo Real Estate. "The Belgian government, meanwhile, scrambled Sunday to engineer a sale of the Belgian units of Fortis before the start of trading on Monday. The Netherlands effectively nationalised the Dutch operations of the bank on Friday after a joint rescue deal with Belgium and Luxembourg broke down. "In Iceland, where the government seized control of a bank last week, officials were considering more sweeping measures to stabilise finances there as well. And the board of UniCredit, which is based in Milan and also operates in Germany and much of Eastern Europe, met to consider a capital increase after being buffeted by a week of speculation about its solvency."

reported: "Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland's currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan. One of the country's three independent banks has been nationalised, another is asking customers for money, and the discredited government and officials from the central bank have been huddled behind closed doors for three days with still no sign of a plan. International banks won't send any more money and supplies of foreign currency are running out. "People talk about whether a new emergency unity government is needed and if the EU would fast-track the country to membership. On Friday the queues at the banks were huge, as people moved savings into the most secure accounts. Yesterday people were buying up supplies of olive oil and pasta after a supermarket spokesman announced on Friday night that they had no means of paying the foreign currency advances needed to import more foodstuffs. "This North Atlantic volcanic island, which is the size of Cuba, with a population of 320,000 ... is an unlikely player on the global financial stage. It is famous for its fish, geysers and for winning the UN's 2007 'best country to live in' poll. But Iceland built its extraordinary wealth on the crest of the worldwide credit boom and now the crunch is sweeping it away, bankrupting a people for whom the past eight years have been, for most of them and by their own admission, one long party.... "Iceland's cheap labour force, the Poles and Lithuanians, have left already - there's little point in sending home such a worthless currency, and the tourist season is over. Iceland is on its own."

wrote: "The Western banking system faces disintegration. Economists and policy-makers are at loggerheads over how to intervene to stop the panic that is sweeping the world and inspire sufficient trust for the key money and credit markets to reopen. "This is a crisis that has been 30 years in the making - a Gordian knot of libertarian free-market fundamentalism, unregulated globalisation, the collapse of social and political forces committed to fairness, the explosive impact of financial innovations such as 'securitisation', and sheer greed. Each has contributed to the fiasco - and all now need to be unravelled if the economy is to have a sustained recovery.... "The world of go-getting investment banks has gone forever. The danger is that we go from feast to famine; debt remains a vital element in any economy, and if we too suddenly try to live without it we will crush ourselves economically. What we are witnessing is a system failure that requires a systemic response - the creation of a new system that sponsors a fairer, more productive capitalism in its place, while maintaining high flows of credit and debt." In

, Jeffrey Garten, professor of international trade and finance at Yale wrote: "Washington recognises that the crisis has become global. Hank Paulson, Treasury secretary, has said that foreign banks operating in the US will be eligible for federal assistance and he is urging other nations to fashion their own bail-out programmes. Central banks have also been synchronising injections of funds into markets. These should be steps to a more comprehensive international response designed not just to extinguish the current fires, but to rebuild and maintain the capital markets for the longer term. "The current global institutional apparatus is woefully incapable of overseeing the financial system that is evolving. The International Monetary Fund is irrelevant to this crisis, the Group of Seven leading industrial countries lacks legitimacy in a world where China, Brazil and others are big players, and the Bank for International Settlement has no operational role. The US Federal Reserve is too besieged to act as a global central bank. "That vacuum at the centre is dangerous for everyone. The US's dependence on massive inflows of foreign capital, roughly $3bn (Ä2bn, £1.6bn) a day, will surely increase now as Uncle Sam acquires $1,000bn in new obligations from current bail-outs. For years to come, Wall Street and Washington will be unable to manage without strong co-operation from other markets.... "All of these considerations point to the eventual need for a new Global Monetary Authority. It would set the tone for capital markets in a way that would not be viscerally opposed to a strong public oversight function with rules for intervention, and would return to capital formation the goal of economic growth and development rather than trading for its own sake."