The current economic turmoil coincides with a Presidential election campaign. Each of the leading candidates recently made major speeches about the economic policies they would pursue were they fortunate enough (or unfortunate enough) to be handed the reins.

Barack Obama

The most recent candidate to take a stance on economic matters is Sen. Barack Obama (D-Ill.), apparently his party’s frontrunner by a nose. In a wide-ranging economic speech on Thursday, Obama called for broad regulatory reform of the financial services industry.

Obama’s plan would give the Federal Reserve supervisory authority over any financial institution that uses its discount window. The Illinois Senator wants to strengthen capital, liquidity and disclosure requirements for all financial institutions. He would also enact functional regulation — “regulate financial institutions for what they do, rather than who they are,” as he put it.

“Over the past few years, commercial banks and thrift institutions were subject to guidelines on subprime mortgages that did not apply to mortgage brokers and companies,” he said. “It makes no sense for the Fed to tighten mortgage guidelines for banks when two-thirds of subprime mortgages don’t originate from banks.”

The Illinois Senator blamed both parties for failing to bring the regulatory structure up to date. “Under Republican and Democratic Administrations, we failed to guard against practices that all too often rewarded financial manipulation instead of productivity and sound business practices,” he said. “We let the special interests put their thumbs on the economic scales. The result has been a distorted market that creates bubbles instead of steady, sustainable growth; a market that favors Wall Street over Main Street, but ends up hurting both.”

Hillary Clinton

For her part, Sen. Hillary Clinton (D-N.Y.) recently told The Wall Street Journal that she fears the country risks following the path of Japan into stagflation and economic malaise. “I don’t think we can work our way out of the problems we’re in . . . with monetary policy alone,” she warned. “I think the Japanese tried and tried and tried that.”

Clinton generally supports the mortgage-relief programs that Sen. Chris Dodd (Conn.) and Rep. Barney Frank (Mass.) are pushing on Capitol Hill. Beyond that, she also supports authorizing the FHA to purchase underwater mortgages — a plan she hopes might actually cost the government nothing, as FHA would ultimately resell the troubled mortgages into a recovering market.

In addition, the New York Senator also proposes freezing foreclosures for 90 days and blocking rate resets on variable rate subprime mortgages for five years. She urges repealing the Bush tax cuts for taxpayers making more than $250,000 a year and adopting tax rebates for working families and senior citizens.

And perhaps eyeing the upcoming Pennsylvania primary, she has endorsed the idea of a pause in negotiating new international trade agreements, along with creating a new office in the government to prosecute unfair trade practices and to make sure that all trade agreements include strong labor and environmental protections.

John McCain

The apparent heir to the Republican nomination, Sen. John McCain, takes an entirely different approach to housing and economic issues. With regard to the mortgage crisis, McCain declares, “It is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.”

McCain blames both lenders and borrowers for engaging in “rampant speculation.” Lenders were also guilty of being “complacent” and having a “false sense of security” as the mortgage market prospered, in part because lenders lowered their standards for qualifying for a home loan. Some borrowers also took unwise risks, McCain said in a recent speech on the economy, as they counted on rising home prices to bail them out of risky loans.

While the GOP candidate says he might be willing to consider carefully structured mortgage relief proposals, “any assistance must be temporary and must not reward people who were irresponsible at the expense of those who weren’t.”

In terms of immediate action, McCain called for mortgage lenders to cooperate with each other in an effort to help credit-worthy borrowers who are in temporary financial trouble. He also urged the accounting profession to make a special effort to reconsider the current mark-to-market methods for evaluating mortgages and mortgage-related securities.