Obama warns of financial catastrophe

Updated on Sep 30, 2008 07:33 PM IST

Democratic presidential candidate Barack Obama warns of catastrophe if US lawmakers failed to act quickly on a plan to save America's collapsing financial sector.

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AP | By, Washington

Democratic presidential candidate Barack Obama warned on Tuesday of catastrophe if US lawmakers failed to act quickly on a plan to save America's collapsing financial sector, a day after the stock market chalked up a record one-day point decline when Congress rejected a $700 billion rescue effort. Obama said Congress should not start from scratch as lawmakers mulled a next move in putting together a rescue plan but should build on the bill rejected by the House of Representatives on Monday.

Obama's statement proposed one addition to the proposal: Raising the amount of federal deposit insurance for bank accounts from $100,000 to $250,000. The first-term Illinois senator said that would help small businesses and make the U.S. banking system more secure.

Republican rival John McCain, lagging in the polls, also pushed a similar proposal while urging lawmakers to pass a deal. The measure died in the House mainly at the hands of McCain's own Republicans "By the way, the first thing I'd do is say, 'Let's not call it a bailout. Let's call it a rescue.' Because it is a rescue. It's a rescue of Main Street America," McCain said on "American Morning" on CNN.

McCain said he recommended to President George W Bush on Tuesday morning that the Treasury's Exchange Stabilization Fund of $250 billion be used to shore up institutions, that the limit on federally insured deposits be raised to $250,000 and that the Treasury exercise its ability to buy up $1 trillion in mortgages. After voting down the Bush administration proposal, lawmakers poured scorn on one another then took a break for the Jewish New Year. They were expected later this week to resume negotiating a way out of the United States' worst financial crisis since the Great Depression of the 1930s.

Monday's turmoil found both Obama and McCain each trying to deflect blame to his opponent.

Obama said McCain had been opposing needed financial regulation for years.

McCain declared Obama was putting his political ambitions ahead of the good of the nation, saying the presidential contest comes down to a simple question: "Country first or Obama first?" McCain on Tuesday was meeting small business owners in Des Moines, Iowa, a Midwestern swing state where most polls show him trailing Obama. The Democratic contender was holding a rally in Reno, Nevada one of several Republican-leaning Western states where Obama is locked in a tight race with McCain. The vice presidential candidates, Democrat Joe Biden, the veteran Delaware senator, and Republican Alaska Gov. Sarah Palin, had no public campaign events scheduled as they prepared for their nationally televised debate Thursday night.

The stunning negative vote in the House of Representatives on Monday only fueled what has become an increasingly bitter race between McCain, a 26-year veteran of Congress and Vietnam prisoner of war, and Obama, a first-term Illinois senator who is seeking to make history as America's first black president.

More than two-thirds of Republicans President George W Bush's own party and 40 per cent of Democrats opposed the rescue bill. The House vote sent the Dow Jones Industrial Average into a 777-point tailspin its biggest point drop ever. "This bill failed because Barack Obama and the Democrats put politics ahead of country," McCain senior policy adviser Doug Holtz-Eakin said

McCain later added his own dig, accusing Obama and his allies of injecting "unnecessary partisanship" into the effort to steady the economy.

"Now is not the time to fix the blame, it's time to fix the problem," McCain told reporters in Iowa.

Obama said McCain's long advocacy of deregulation contributed to the crisis and that allowing his Republican rival to continue those policies as president would be a gamble the country cannot afford. McCain has "fought against commonsense regulations for decades, he's called for less regulation 20 times just this year, and he said in a recent interview that he thought deregulation has actually helped grow our economy," Obama said.

"Senator, what economy are you talking about?" he asked. Voters are consumed with the flailing US economy and McCain and Obama are pounding the issue, portraying themselves as the candidate best prepared to steer the country out of its financial morass. McCain has anointed himself the candidate who can restore financial oversight while slashing wasteful spending and cutting taxes on individuals and businesses. Obama, McCain says, would usher in an era of big government spending programs and high taxes. But McCain's record as a proponent of deregulation has worked against him and helped Obama, who has sought to tie his opponent to Bush's unpopular Republican administration.

Obama has topped McCain in the polls since the financial crisis took a sudden turn for the worse with the bankruptcy of venerable Wall Street investment bank Lehman Brothers two weeks ago. The Gallup Poll daily tracking survey on Monday showed Obama with a 50 per cent to 42 per cent lead over McCain.

McCain also has been dogged by gaffes, starting with his statement on the day that Lehman went bankrupt that the US economy was fundamentally strong.

Last Wednesday, he suspended his campaign and tried to delay his debate with Obama to get involved in the bailout effort. The measure died in the House on Monday with help from McCain's own Republicans as lawmakers worried about spending such a vast sum of taxpayer money to prop up the failing financial industry with many of them facing re-election in just five weeks.

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