Rupert Cornwell: Wall Street meltdown rekindles Obama's fire

Out of America: After a summer in which the Republican candidate has made all the running, events are at last starting to fit the Democrats' script

Has Wall Street, that once-certain bulwark of the Republican party, just handed victory to a Democrat?

The question mark is obligatory, when the candidates' debates still lie ahead, and when Israel, Iran, Russia or Osama bin Laden might yet unleash an October surprise that scrambles every calculation. But now that America and the world have stared into the financial abyss, Barack Obama is now just as surely staring into the open door of the Oval Office.

Even in a week full of "Can this really be happening?" moments, the appearance of George Bush in the White House rose garden on Friday took some beating. A Republican President, leader of the most market-orientated country on earth, was announcing a state intervention in the economy that surely ran against his every instinct. The rescue might be enough to preserve American capitalism. Alas, it probably won't be enough to save John McCain's candidacy.

This was always going to be a virtually impossible year for Republicans. Almost never are Presidents who serve two full terms succeeded by their party's candidate. On top of that, McCain must contend with the deep unpopularity of the younger Bush, an economy that was sliding towards recession even before the stock market vaporised, and a large Democratic advantage in money and enthusiasm.

Disbelief was briefly suspended, thanks to the Russian foray into Georgia, to Sarah Palin and the unexpectedly successful Republican convention in St Paul. Not even a brassy, moose-hunting hockey mom, however, is a match for the biggest financial meltdown since the Great Depression. But if events have conspired against McCain, he himself has made a bad situation worse.

It's not that Obama has had a particularly "good" financial crisis. Financial earthquakes, like real ones, are brutal reminders of the limits of the politician's capacity to shape events. Obama is no exception. He has been a sideshow to the dramas on the trading floor, and has added nothing to the debate except some sharp partisan barbs, when the population has yearned for leadership.

At least, however, he has delayed presenting his own plan, recognising it would be a distraction alongside the all-important real rescue plan devised by Henry Paulson, the Treasury Secretary, who right now is a more important figure than even the President, let alone mere presidential candidates. Most importantly, compared with McCain, Obama has played a blinder.

It's not just that the Republican admits that economics is not his strong suit (though it isn't Obama's, either), or that his top campaign adviser, the former Hewlett Packard CEO Carly Fiorina, declared that he couldn't run a giant corporation like HP (but then again, Obama probably couldn't either). Nor is it simply that a Republican candidate was wrong-footed by a Republican administration, when McCain opposed a bail-out for the AIG insurance group, only to be obliged to contradict himself within hours as the US Treasury did precisely that.

Nor is it even that on the very day that Lehman Bros went under, McCain the "straight talker" proclaimed the economy to be fundamentally sound, dispensing the sort of transparent nonsense that even a White House not known for truth-telling has abandoned. No, with McCain, something deep down has changed.

A couple of months ago, when two candidates who had started off as outsiders emerged as the two major party nominees, the prospect was uplifting. Obama had become famous by promising a new, post-partisan brand of politics, drawing millions of new, mostly young, people into the political process.

McCain was an iconoclast, ready to put country above party. He was the man who, in his defence of the unpopular surge in Iraq, declared "I'd rather lose an election than lose a war". Accessible to the media as few national politicians are, he came across as honest and generous-spirited. Americans found him an attractive figure. For what it's worth, I did, too. As for the campaign, it would be one to relish.

How naive can one be? This McCain, and that sort of campaign, is nowhere to be seen. The problem is not that he has dropped his tradedmark freewheeling sessions with the press. At this stage of any White House race, keeping the candidate "on message" is all important. It's not even that a man of supposedly iron principle has changed his tune on tax cuts, and even torture, to win favour with the party base. There's not a politician in America who hasn't "flip-flopped" on an issue – including Obama, who this summer outraged his left-wing supporters with a U-turn on the warrantless wire-tapping of terror suspects, to prove his toughness on national security.

No, McCain has become nasty, what Americans call "mean". Up to a point, this is standard practice for Republicans, far less squeamish than Democrats about setting up residence in the political gutter. But some of his ads have been outrageous, notably one that accused Obama of seeking sex education for kindergarteners, before they were taught to read and write.

On the stump, McCain is unsmiling and sneering about his opponent. He clearly does not like Obama – and it shows. Say what you like about George Bush, he never let things get personal, against either Al Gore in 2000 or John Kerry in 2004. That was why Bush won the important vote that does not appear on the ballot paper: which candidate would you most like to have a beer with?

For a while, the rough tactics worked. The Republican attack machine seized the initiative, and Obama was on the defensive as McCain successfully sought to define him as an untested, elitist celebrity. But then came Wall Street's melt-down. After his oddly passive summer, fire returned to the Obama belly. The Russian attack on Georgia might have been a godsend for McCain, but now events are fitting perfectly into the Democratic script.

The Wall Street collapse, Obama says, is the inevitable outcome of misguided Republican policy. "Fire the whole trickle-down, on-your-own, look-the-other-way crowd in Washington who led us down this disastrous path," he roared to a crowd in New Mexico last week. "Don't just get rid of one guy. Get rid of this administration, get rid of this philosophy."

Standard stump rhetoric, maybe – but delivered with a passion lacking since those stirring early weeks of the primary season. Now his opponent's barbs, and all the wiles of the Republican attack machine, are irrelevant. It is Obama, aided by the Great Crash of 2008, who is doing the defining. The benefits are already visible in the polls, where he has recaptured the lead. And my bet is – Israel, Iran and Osama bin Laden permitting – he'll keep that lead all the way to 4 November.

The campaign week

Sunday Obama gets a boost with news that his campaign raised $66m in August, the most by a presidential candidate ever in a single month.

Monday The real world and Wall Street's woes take over from Sarah Palin, pigs, lipstick and "Troopergate". McCain blunders by saying America's economic fundamentals are in good shape.

Tuesday McCain opposes bailout for AIG – only for the White House to go ahead with it. Then his top campaign official, former Hewlett-Packard boss Carly Fiorina, says he couldn't run a large corporation.

Wednesday Both sides rush out new ads on the economy. It's plainly advantage Obama, who says the debacle is a "final verdict on a [Republican] economic philosophy that has completely failed".

Thursday McCain portrays himself as the reformist scourge of Wall Street. But polls show the economic crisis has propelled Obama back into the lead.

Friday Hackers getting into Palin's email? Who cares when the government unveils the biggest financial bailout since the 1930s? The crisis also eclipses Obama, who defers his own economic rescue plan.

Saturday Attention begins to turn to the first candidates' debate on Friday, with pundits believing McCain will need a strong performance to regain the initiative.