There are two big issues this election season: the financial crisis and offshore oil and gas drilling. On both, voters have made very clear their dissatisfaction with the status quo and demanded that policies change. Normally, the easiest and most logical way to do that is to change the party in power in the White House — and that’s what polls indicate is about to happen. Unfortunately, such an approach will have precisely the opposite effect on these two key issues.
In the case of offshore drilling, angry constituents calling for a long-term solution to high energy prices finally forced House Democratic Speaker Nancy Pelosi to drop her opposition to ending the moratorium on offshore oil and gas drilling and onshore oil shale development. There was no further agreement on how to proceed; a measure of the disagreement is Democratic legislation that would have prohibited drilling in the areas most like to contain oil and gas. It was blocked by the knowledge that it faced a sure veto from President Bush.
In the past few weeks, Sen. McCain reversed his previous opposition to offshore drilling; adding Governor Palin to his ticket sent a clear message that a McCain administration would push to expand domestic energy resources of all kinds. Sen. Obama, on the other hand, has continued to qualify his support. If he is elected, congressional Democrats — who are certain to retain control of both Houses of Congress — will likely have an ally for any ‘go slow’ (or “no go”) approach toward the remaining regulatory and environmental obstacles that must be cleared before new offshore drilling becomes a reality.
The core problem of the financial crisis was the issuance of high-risk mortgages backed by government-linked Fannie Mae and Freddie Mac. They were taken over several months ago by the government, and last week’s legislation allows the government to purchase and then resell these risky instruments once they have been valued. What has not been determined, though, is how the mortgage market will be reformed so that this does not happen again.
Who allowed the Fan-Fred mess to happen? It’s clear that Sen. Dodd and Rep. Frank, leaders on finance and banking in the Senate and House, blocked numerous attempts at reform over the years. Unsurprisingly, both received large campaign contributions from Fannie Mae and Freddie Mac. In addition, Dodd is facing allegations of improper conduct in accepting ‘special’ mortgages from Countrywide, the largest of the sub-prime mortgage lenders who has since gone under. Dodd is not up for re-election, and Frank does not face a significant challenge, so they can be expected to lead the new Congress on this issue.
McCain didn’t shine in the recent crisis, but he has supported numerous reform proposals in the past. Obama, on the other hand, received the second-largest amount of campaign contributions from Fannie Mae and Freddie Mac, and two of Fannie Mae’s former chief executives have advised his campaign. He also advocated for sub-prime mortgage lending during his time in Chicago. Given this background, there is no reason whatsoever to expect him to pursue any fundamental reform of the mortgage markets. In this instance Obama’s experience, not his lack thereof, is the problem.
Thus, on these two key issues, finding new energy sources and fixing the mortgage mess, conventional wisdom has been stood on its head. Ironically, a McCain administration is the best alternative for any one who wants change on energy and financial policy.