Hillary's Economic Hail Mary

Hello, Hillary? Hate to wake you, but it's 3 o'clock in the morning, and we have a real crisis. It's your campaign, senator. It's Hail Mary time. You've lost the bid for a revote in Florida and, it seems, in Michigan, which means your prospects for prevailing over Barack Obama in the primary popular vote by June are vanishing fast. The Illinois senator, meanwhile, has just delivered a JFK-like speech on race in America--a savvy move that may well have stanched the hemorrhaging of his campaign over the controversial remarks made by his pastor, Jeremiah Wright. The mood could be shifting back in his direction.

So it's a moment for miracles. And there's really only one thing Hillary Clinton can do, perhaps, to pull one off. That is to play to her greatest strength--her Clintonian credibility on the economy. The economy, after all, was her husband Bill's pride and joy during his eight years in office, it is probably her own area of greatest expertise, and now it is the issue of greatest concern to voters. Not surprisingly, the Clinton campaign has spent the last several days discussing how to handle the financial crisis that KO'd Bear Stearns and has dominated the headlines this week. "We're quite concerned that more action is needed. And we're spending a lot of time with large numbers of experts on what's the best framework" for the relief plan, Gene Sperling, her chief economic adviser, told me. Those experts--led by Sperling, former Treasury secretary Robert Rubin, former House majority leader Dick Gephardt, former chairwoman of the Council of Economic Advisors Laura Tyson and former deputy secretary of the Treasury Roger Altman--came up with a new $30 billion emergency fund to help states buy foreclosed properties and provide mortgage restructuring. "There will be more in the weeks to come," Sperling said.

The markets have stabilized since the big Fed rescue, but many economists believe there's worse down the road. "This is going to end up in Congress's and the president's lap. It's not going to wait until the next administration," says Harvard's Kenneth Rogoff, the former chief economist of the International Monetary Fund. Rogoff predicts another big fallout from the devastation caused by failing subprime loans and mortgage-backed securities. "Home prices are continuing to fall. The credit markets are still stressed. This is a multi-trillion-dollar problem. It's beyond the Fed's balance sheet to handle it." Rogoff says the relative calm in the markets over the past few days is hardly reassuring. "Each time the Fed has done a dramatic move there's been a plateau," he says. "This time the markets are rightly pricing-in a giant bailout." The Clinton campaign echoed him, saying Congress's recent $168 billion stimulus package did not go far enough.

What kind of bailout will Clinton propose to satisfy the markets? Sperling won't say what else she has in mind, but he is quick to argue that she has been way ahead of the curve--as any good president needs to be on the economy. "She gave her first big talk a year ago when she said we have to start upgrading the capacity of the Federal Housing Administration" to issue more mortgages at better rates to stressed homeowners, and provide a timeout on foreclosures. Sperling adds: "It didn't hurt our case that we called for a $30 billion emergency fund [earlier] and that was the exact amount of the loan guarantee offered to JPMorgan to buy Bear Stearns."

Sperling didn't claim that Clinton's record as First Lady gave her any familiarity with financial crises (thank heaven!), but he said that her nearly eight years as a New York senator--with Wall Street as part of her bailiwick--has given her a deeper understanding of the current problem. "I encourage you to go back and look at the last year, at which candidate has been the most out in front and aggressive in recognizing the magnitude of the challenge," he says. And Hillary, like all those associated with the Clinton administration, learned at the knee of former Treasury secretary Robert Rubin, who was renowned for his deft hand in a crisis. "To me, this reinforces what Rubin told all of us in the beginning of '93, that there's no silver bullet to confidence" in the markets, says Sperling. "It's cumulative. And you build or lose over time. She believes that the lack of attention to the fiscal situation, the sense that the president was out of touch, the overly passive view toward the abundant warning signals of a housing crisis and the increased sense of risk are not a recipe that breeds confidence."

Both Clinton and Obama--whose economic adviser has called for getting control of the oil markets--want to distinguish themselves from GOP contender John McCain, who by his own admission doesn't count the economy as one of his strengths and who is taking a more laid-back approach to the current crisis. "He's not favored a major bailout so far," McCain's economic adviser, Douglas Holtz-Eakin, told me this week. "We're certainly watching it. If you are in the business of making something, like tires or Caterpillar tractors, things are tough, but you're hanging in there at the moment. If you're in the business of financing stuff, it's a disaster area. The question is, will the problems in the latter area spill over and damage the former? The researchers are looking back at whether economy has actually contracted. Most people [are] saying no."

What has unquestionably contracted is Hillary Clinton's presidential campaign. And Wall Street may have just given her an opportunity for a stimulus.