Senator John McCain mounted a fierce attack on the Federal Reserve today for bailing out failed financial institutions, telling it to get back to “its core business of responsibly managing our money supply and inflation”.

Speaking to a business group in Wisconsin as Henry Paulson, the US Treasury Secretary, unveiled details of a government rescue plan that would cost "hundreds of billions of dollars", the Republican presidential nominee said the Fed should “get out of the business of bailouts”.

The Fed engineered an $85 billion takeover of insurance giant AIG earlier this week, before which it pledged to prop up mortgage giants Fannie Mae and Freddie Mac to the tune of $200 billion. Today, after consulting with Ben Bernanke, chairman of the Federal Reserve, Mr Paulson urged the government to spend hundreds of billions of dollars to take toxic mortgage assets off the books of financial firms to restore financial stability. That call came hard on the heels of an earlier Treasury announcement that Treasury it would siphon up to $50 billion from the country’s Exchange Stabilization Fund for a temporary guarantee program to shore up the U.S. money market mutual fund industry.

Mr McCain’s opposition to the bailouts is a gamble as many within the financial sector – and in the public at large – view the rescues as essential to prevent a wider economic crisis.

His pledge – reiterated today – to fire Securities and Exchange Commission chairman Chris Cox, has already drawn criticism from economic commentators. The Wall Street Journal published a searing editorial today accusing him of making a “scapegoat” of Mr Cox. The “false and deeply unfair” assault on the chairman was “un-Presidential”, “populist” and “misleading”, it said. Other commentators noted that the President does not have the power to fire the SEC chair.

Mr McCain has been going all out this week to present himself as both tough and experienced in economic matters, amid evidence that Mr Obama has wiped out his post-convention bounce. Monday's unfortunate remark that "the fundamentals of the economy are strong" just as Lehman Brothers was failing further damaged his image in this area, as have his ties to the policies of George W. Bush and a statement earlier this year that "economics is not something I've understood as well as I should."

Today, he also hit Democratic rival Barack Obama for ties to Freddie Mac and Fannie Mae. The Arizona senator noted that Fannie Mae’s former CEO, Jim Johnson, once sat on Obama’s vice presidential search committee and that the Illinois senator had received large campaign contributions from both agencies. However he did not mention that several of his campaign’s senior aides and advisers lobbied on behalf of the companies as well.

“Maybe just this once he could spare us the lectures, and admit to his own poor judgment in contributing to these problems,” Mr McCain said of his opponent.

Mr McCain sketched an economic recovery plan including the establishment of a trust designed to intervene before financial institutions approach bankruptcy and warned the finance sector had forfeited the public trust. However he did not elaborate on how failing institutions would be selected for assistance or how the trust would be financed.

“People like Senator Obama have been too busy gaming the system and haven’t ever done a thing to actually challenge the system,” Mr McCain said during his address in the battleground state.

“The crisis on Wall Street started in the Washington culture of lobbying and influence peddling, and he was square in the middle of it."

A new McCain ad claimed that Mr Obama was also being advised by another former Fannie Mae chief, Franklin Raines, but Mr Raines denied he has ever helped the Illinois Democrat. Mr Johnson stepped down from the selection committee earlier this year after it was revealed he had received a low interest loan.

Mr McCain also accused Mr Obama of hypocrisy after taking campaign contributions from executives of the two mortgage giants.

According to the independent Center for Responsive Politics which tracks campaign spending, the Democratic nominee is the second highest recipient of individual and political action committee contributions from Fannie Mae and Freddie Mac employees among current lawmakers - a total of 165,000 dollars.

Mr McCain has taken 21,500 dollars in such funds, though like his rival has tapped Wall Street as a source of millions of dollars of campaign cash.

Mr Obama said this morning that his economic rescue plan would include tougher financial regulation and short-term support for taxpayer-funded bailouts only where such decisions were consistent and in the interest of long-term stability and the public good. He said his economic team would not be unveiling more details until the Treasury and Federal Reserve had had an opportunity to present their proposals in full, urging both political parties to refrain from “partisan wrangling” and work in concert to find a solution.

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