Candidates Gilmore, Warner clash on approach to bailout

WASHINGTON

There's plenty of blame to go around for the nation's financial crisis, Virginia's U.S. Senate candidates agreed last week: Democrats, Republicans, borrowers, lenders, regulators and speculators have all made serious mistakes.

But the candidates, Republican Jim Gilmore and Democrat Mark Warner, are deeply divided about how the federal government, and the Senate in particular, should fix the broken financial system.

The two former governors approach the crisis in different ways. Neither is willing to commit to a specific bailout plan, they said in interviews last week.

Warner said he's convinced major federal intervention in the financial markets is needed soon. He said he understands the frustration of taxpayers who see the $700 billion bailout being discussed on Capitol Hill as a welfare program for Wall Street moguls, and he wants plenty of safeguards for taxpayers to protect whatever federal investment is made in troubled securities.

But however justified taxpayers' anger is, Warner argued that they need to understand that the stakes are far higher than the balance sheets of Wall Street financial firms and their leaders.

"Like it or not, we're all caught up in this," he said.

If money stops flowing through the financial markets, and banks can no longer borrow from one another, millions of Americans will find teller windows closed and ATMs locked when they try to cash their paychecks and use their debit cards, he warned.

Gilmore is more skeptical about the need for quick federal action. As a senator, he said he would ask to be shown evidence that the failure of major Wall Street firms would cascade through the nation's entire economic system.

Gilmore said he not only understands voter anger at talk of a bailout, but he is angry, too.

"I object to a program that calls for transferring bad business decisions... to the individual taxpayer," he said. "I'm offended by it."

"I think we really ought to understand what's going on here, and we don't," Gilmore added.

Gilmore said that while federal intervention in the markets might be needed, Congress should first explore "free market solutions."

He said he has some ideas about what might work, however, he's not ready to discuss them in detail. Whatever is done must provide transparency, he said, so that every party to every deal understands everything that is involved.

Warner and Gilmore have very different business and economic backgrounds. Both were trained as lawyers and have become millionaires, but Warner's net worth - estimated at $200 million - is at least 10 times Gilmore's.

Warner was a cellular telephone entrepreneur before entering politics. Gilmore has practiced law, served on corporate boards and been involved in several businesses between stints in public office.

While the candidates agree that both political parties share responsibility for the nation's economic woes, they disagree on how those problems evolved.

Warner said "too many people were asleep at the switch" in Washington during the 1990s and earlier in this decade. Banks that once carefully evaluated potential borrowers and held onto their loans focused instead on making as many loans as they could, collecting loan fees and turning those loans into securities that could be sold to other investors, he said.

Meanwhile, a federal regulatory scheme born during the Great Depression let lenders operate with impunity and permitted bond firms to market mortgage-backed securities with inflated safety ratings, Warner said.

Gilmore is quick to blame elected officials who he says encouraged lax regulation. The current crisis grows out of a decision made during the Clinton administration to provide easy credit and promote home ownership for people who couldn't afford it, he argued.

Democrats "were the initiators and the drivers of that policy," Gilmore said, but too many Republicans were quick to go along.

However the current crisis is resolved, Warner and Gilmore said Congress must come up with a new regulatory scheme to ensure financial markets remain stable. After that's done, there's plenty of other work to do on the economy, they added.

To regulate finance, Warner said he wants to consider something similar to the system in place in Great Britain, where the government-created Financial Services Authority oversees financial markets, exchanges and firms. Though created by the British government, the authority is run by an independent board and financed by assessments on the firms it regulates.

Gilmore said Republicans, traditionally wary of government regulation, must rethink that stand.

"There's nothing wrong with reasonable oversight of an agency that is involved in finance," he said, particularly when the lack of oversight threatens the public interest.

Dale Eisman, (703) 913-9872, dale.eisman@pilotonline.com