The financial crisis has ended the Palin circus but the Democratic candidate must buck up his ideas to exploit McCain's weakpoint

The basic identities of America's two political parties have been in place for at least 40 years and, on core economic questions, for 70, since Franklin Roosevelt's time. Whatever so-called "low-information voters" do or don't know about politics, they know that the Democrats are the party of working people, and the Republicans are the party of the rich.

It doesn't end up being as positive for the Democrats as that formulation makes it sound. Since the 1980s, Republicans have been successful in shifting public opinion among America's middle-class more towards the view that their economic fate is tied up with rich people's. In addition, a weak union movement - just one in 14 private-sector workers is a union member today - means that class consciousness exists only on the margins.

But these basic identities do still mean that, when a scandal breaks out involving oblivious gluttony on the part of elements within the financial over-class, Americans will place more blame on the GOP, and the Democrats will benefit. Especially when it happened on the watch of a Republican administration that is deeply unpopular.

So, it made sense that the initial phase of public reaction to the past week's Wall Street scandal would have worked to the political benefit of Barack Obama. The Democratic nominee would have benefited no matter who it was - Obama, Hillary Clinton, Dennis Kucinich, my cat for that matter. A week ago today, John McCain had a small lead in the polls. Now, Obama does. The numbers are back to being essentially where they were before the conventions, with Obama sitting on a wobbly margin of three or so points.

McCain helped Obama's position with an initial response to last week's economic crisis that seemed to be delivered from a different planet. On Monday, with headlines blaring and the markets reeling, he insisted yet again - as he has several times in recent months - that the "fundamentals" of the economy were still "strong". No doubt that wasn't very reassuring to the average Ohioan or Michigander.

McCain continued to flounder for most of the week. He employed ferociously populist anti-Wall Street rhetoric, attacking the "greed" and "recklessness" of the executives who netted, in many cases, eight-figure incomes while gambling away the mortgages of $40,000-a-year earners. But - those age-old identities again - it just wasn't persuasive coming from a multimillionaire Republican. His legislative record tilts strongly toward supporting deregulation and, over the past year, as he has kissed up to his party's rightwing, he has sought to downplay the portions of his record that did endorse regulation.

Perhaps worst of all, he also proposed a commission to study the problem - at a moment when the Dow, before rallying later in the week, was losing about 900 points, or nearly 10% of its value.

In the face of this, Obama could have spent the week windsurfing with John Kerry and still come out fairly well. What he did instead, along with his running mate Joe Biden, is turn his campaign sharply negative against McCain - important to note: not against Sarah Palin, but against John McCain - for being out of touch and merely the newest representative of a failed governing philosophy.

"I certainly don't fault Senator McCain for these problems," Obama said in his initial statement on Monday, "but I do fault the economic philosophy he subscribes to." He pressed the point much harder as the week went on.

Biden, whether importantly or not remains to be seen, emerged from the relative shadows and gave incendiary speeches throughout the week, denouncing the Republican philosophy and McCain personally. He denounced the Bush tax cuts and McCain's new-found embrace of them, citing McCain's own description from long ago of Bush's decision to prosecute two wars while handing out immense tax cuts to the wealthy at the same time ("immoral" was the word McCain used).

The Democrats were responding to a rising chorus of discontent within their own ranks - which probably reached a climax midweek sometime - that they were just standing around taking punches and letting McCain and Palin set the agenda completely.

Nothing, and I mean nothing, sends American liberals to the cliff's edge, the whiskey bottle or the shrink's couch like the perception that their team isn't returning fire. The belief among liberals is widely held, and I suppose I hold it myself, that both Al Gore and Kerry would have won (Gore of course did win, but let's not get into that) if they'd understood that they were in a no-rules campaign and not a college debating match and behaved accordingly.

The fetid aroma of passivity that began to emanate from Obama-Biden, particularly after the Palin coronation, had partisan Democrats screaming for their candidates to do something. And they did: a study came out earlier in the week showing that Obama's television advertising campaign had become markedly more negative than McCain's.

And speaking of McCain's running mate, another effect of the crisis is that it seems to have ended, finally, the Palin-mania phase of the race.

It's as if God watched the circus and read all the absurd and excessive coverage of pigs and lipstick and said, "All right, I'm going to do something to make these people talk about the economy whether they want to or not."

So, that was phase one of the political fallout of the Wall Street scandal. But yesterday marked the beginning of phase two.

In this phase, the shouts and histrionics will abate somewhat. Each day gives McCain - and the Bush administration - opportunities to regain some purchase on events and appear in control. The administration and the Federal Reserve Bank were preparing a massive bailout yesterday (one in which the taxpayers would, in essence, buy billions of dollars in banks' bad loans). McCain gave an economic speech in the crucial state of Wisconsin, where he trails by a few points, denouncing Obama's plan to raise taxes on the middle class (a plan that does not exist, but that's never stopped McCain from saying it repeatedly).

What was important politically in the first phase was demonstrating credible outrage at the fat-cats and empathy with the regular folks. In phase two, actual, clear-cut and persuasively packaged proposals will be more important. This is why McCain, in his speech, endorsed various forms of oversight he hadn't given much thought to before, and why Obama spent part of yesterday huddled with establishment seal-of-approval economic advisers such as Paul Volcker and Robert Rubin.

Simply because he's a member of George Bush's political party, McCain has the bigger challenge over the next few days. With 81% of Americans believing the country is "seriously" on the wrong track, McCain has to explain why he'll be so different even though he's voted with Bush 90% of the time.

Obama has always had more trouble with packaging. He has, if anything, too many policy proposals. He finds it hard to pare them down to three or four compelling points and present them in crisp, short sentences. In US presidential politics, the packaging is more important than the thinking. And next Friday brings the first of the three important presidential debates.

This would be a good time for Obama to call in David Mamet to come look over his sentences. The election's outcome could possibly be decided between now and next Friday night. Obama can rely on those age-old perceptions of the two parties, but only if he also reinforces them.