McCain Flip-Flops on AIG Bailout.

The economy really is proving to be John McCain's undoing. Yesterday, he said this:

"We cannot have the taxpayers bail out AIG or anybody else."

But hours later, he's saying this:

"The government was forced to commit $85 billion," McCain said in a statement. "These actions stem from failed regulation, reckless management and a casino culture on Wall Street that has crippled one of the most important companies in America."

Leaving Barack Obama to deliver a great knockout punch with this:

"But it sounds like he got a little carried away, because yesterday, John McCain actually said that if he's president, he'll take on the - quote - 'old boys network' in Washington. I am not making this up. This is someone who's been in Congress for 26 years - who put seven of the most powerful Washington lobbyists in charge of his campaign - and now he tells us that he's the one who will take on the old boy network.

"The old boy network? In the McCain campaign, that's called a staff meeting," Obama said.

But there's something more serious underneath all this. There is the distinct feeling that, when it comes to the economy, McCain simply doesn't know what he is talking about. Nor, apparently, does he understand the seriousness of the collapse of AIG or of it's consequences.

As became crystal clear in an interview he gave with Matt Lauer:

LAUER: So if we get to the point middle of the week as we heard in that report where AIG might have to file for bankruptcy, they're on their own?

McCAIN: Well...quote, "on their own"...we have to - we cannot have the taxpayers bail out AIG or anybody else...this is something we're gonna have to work through — there's too much corruption, there's too much access, we can fix it, I believe in America - we can have a 9/11 commission such as we had after 9/11, 'cause this is a huge crisis and we can come up with fixes and we can make sure that every American has a safer future and that is to make them know that their bank deposits are safe and insured.

That was yesterday morning in the 7 a.m. hour. Cut to twelve hours later, and the feds did the exact opposite. Why? Because of those 401Ks, because of the interdependence of the economy with AIG's vast web of interests, because, to paraphrase CNN's Ali Velshi last night, the economy could take losing an investment bank but AIG, not so much.

From this interview, there is absolutely no indication that McCain knew and appreciated this. His response was unilateral, couched in terms of taxpayers being "on the hook" rather than being vulnerable to the losses that an AIG bankruptcy would trigger. Meanwhile, yesterday's market tanked even more just contemplating the possibility of an AIG bankruptcy, hours before the buyout plan was finally announced.

This should worry Americans, for obvious reasons — not only because of what McCain clearly failed to grasp about the situation, but because he didn't seem even really to try. In the middle of the worst financial crisis in years, he was surly, wooden, and uncooperative as an interviewer asked legitimate questions — precisely when it was most important to be forthcoming.

McCain is almost painfully out of his depth here, spouting the same Reagan talking points which have served him well for the past 26 years, even as the Reagan economic plan which Republicans have always favoured - "less regulation, less regulation, less regulation" - disintegrates in front of their eyes.

McCain is never going to be at his strongest arguing against things which he has previously used to define him, and yet that is where he has found himself over the past 48 hours. Suddenly he is for regulation and, reluctantly, bailouts.

This exposes the fundamental flaw in the campaign which McCain is running. He's basically running against everything that he has always believed in. He's a Washington insider who is supposedly running against Washington insiders.

He's a staunch Republican who has voted with Bush and the previous Republican administration 90% of the time, but who now wants the electorate to vote for change by voting Republican. It's ludicrous, especially as any change that he has specified - more tax cuts, less government spending - simply represents a more extreme version of Bush's policies rather than anything that could be called change.

He must be longing for the campaign to return to the irrelevant side issues that favour him, because when this election focuses on real issues, McCain gets hammered.

Tags: AIG, McCain, Obama, US election 2008, economy