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Wall Street runs through Las Vegas, campaigns

19 September 2008

Las Vegas Sun

LAS VEGAS, Nevada -- Sen. Barack Obama appeared at Cashman Field on Wednesday, but a more appropriate spot might have been four miles down the road on the lonely grounds of Echelon.

That partially finished multibillion-dollar Strip resort, paralyzed because the money is gone, has become a symbol of Wall Street's far-reaching impact on Las Vegas.

After a year in which Las Vegas neighborhoods suffered from the subprime mortgage meltdown, the Strip and its $32 billion building boom are also feeling the sorrows of a vanishing loan market.

Against that backdrop, the Democratic presidential nominee used his two speeches in Nevada to open a new phase of his campaign, emphasizing the economy above all. Obama wants to pin the economic woes and growing sense of financial panic on the Republican Party and its titular head, Sen. John McCain.

"What we've seen in the last few days is the final verdict on this philosophy," Obama said at Cashman Field. "It is a philosophy that has failed."

Before a crowd of 1,500 in Elko earlier in the day, the Illinois Democrat said, "I'm running for president because we simply can't afford an economic policy that benefited Wall Street instead of Main Street, and ended up devastating both."

Republicans responded sharply, using a Wednesday conference call to accuse Obama of offering nothing but "talk and taxes," while also touting McCain's record as a reformer and saying he'd clean up the Wall Street mess.

Mike Duncan, the chairman of the Republican National Committee, said Obama is an "out-of-control tax-and-spender, and that's not what's needed in these times of economic downturn."

To pay for proposals such as universal health care and a middle-class tax cut, Obama has proposed increasing taxes on families that make more than $250,000 a year, but critics contend fiscal realities will force the income floor much lower. He's also proposed increasing the capital gains tax and the tax on dividends for families with more than $250,000 in income.

McCain spent TV appearances Tuesday railing against corporate corruption and Wall Street greed and saying he'd fix Washington's regulatory agencies to properly reel in out-of-control financial institutions.

The Arizona senator has long supported business deregulation, though, and deregulation of the financial industry in particular.

McCain supported legislation written by one of his advisers, former Texas Sen. Phil Gramm, that ended a Depression-era law preventing banks, investment companies and insurers from joining. (Former President Clinton, a Democrat, signed the law.)

Ending that restriction allowed insurance companies such as AIG to engage in risky investment schemes, leading to its downfall this week, as the U.S. government essentially took over the legendary company in exchange for an $85 billion bailout. (McCain, like Obama running mate Sen. Joseph Biden, came out against the bailout before reversing course later.)

All of this is consequential to Las Vegas, which, with its dependence on New York City for both financing and customers, could be called that city's Western borough.

Here's what's happening on Wall Street and why it matters here:

Once-vaunted investment banks such as Bear Stearns and Lehman Brothers are dead, crippled by mountains of bad debt from faulty home mortgages in places such as Las Vegas.

Investors are nervous and pulling their money from the stock market — the Dow is down 7 percent this week alone.

That means no available capital for resort projects in Las Vegas.

"The ones that haven't started aren't going to, and the one that's paused is permanently paused," said UNLV economist Bill Robinson, referring to Echelon.

The financing for MGM Mirage's $9.2 billion CityCenter is secure, but there will be no more high-profile projects for years. Moreover, just getting money to renovate will be difficult, Robinson said. As a result, some Las Vegas hotels will die, he said.

Robinson pointed out another effect of Wall Street woes. His back-of-the-envelope estimate is that 100,000 jobs will be lost in New York City. "No more flying their little private jets to spend a hundred grand for a weekend here," he said.

Keith Schwer, director of UNLV's Center for Business and Economic Research, noted that all of the region's traditional economic indicators are down: hotel occupancy rates, spending, room rates, gaming revenue and taxable sales. Nevada's unemployment rate stands at 6.6 percent — and shows signs of reaching 7 percent, Schwer said.

Jennifer Duffy, an analyst for the nonpartisan Cook Political Report, said it was too soon to tell which candidate can best leverage the heightened economic uncertainty into support on Election Day.

McCain showed prescience in 2006 when he called for overhauls of Fannie Mae and Freddie Mac, the mortgage giants that collapsed and recently required a government takeover.

Obama, however, made a speech in New York in the spring calling for more robust regulation of the financial markets, saying the system had devolved into a "winner-take-all, anything goes environment that helped foster devastating dislocations in our economy."

He reiterated a message of economic populism in his Cashman Field speech, which drew 11,000 to 12,000, according to the facilities manager.

Obama spoke from a stage built over home plate and pantomimed some baseball swings before opening up on McCain, with relish.

He mocked McCain for saying he'd take on the "old boys' network" in Washington: "The old boys' network? In the McCain campaign, that's called a staff meeting."

There was more mockery for McCain, who called for a 9/11-style commission to investigate the causes of the financial meltdown: "We don't need a commission to tell us how we got into this mess. We need a president who will lead us out of this mess, and that's why I'm running."

As for short-term economic solutions, Obama called for a $50 billion emergency economic stimulus and help for homeowners who face foreclosure.

One note of irony in Obama's Nevada trip: With the stock market reeling, investors threw money into gold, with the price increasing $70 Wednesday alone to close up 9 percent at $850.50 an ounce.

The city as enriched by that development as any in the world: Obama's first stop of the day, gold-laden Elko, Nevada.

(Editor's note: This story originally placed the crowd estimate at 14,000, but the facilities manager later lowered his estimate.)

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