The private sector added 67,000 new jobs while government employment fell by 114,000, the Bureau of Labor Statistics reports this morning. Overall, the monthly jobs report finds the unemployment rate ticking up to 9.6 percent, with 14.9 million still unemployed.

From May through August, the release points out, the jobless rate remained in the range of 9.5 to 9.7 percent.

The private sector added 67,000 new jobs while government employment fell by 114,000, the Bureau of Labor Statistics reports this morning. Overall, the monthly jobs report finds the unemployment rate ticking up to 9.6 percent, with 14.9 million still unemployed.

From May through August, the release points out, the jobless rate remained in the range of 9.5 to 9.7 percent.

by Mike Memoli

President Obama today criticized Senate Republicans for blocking a measure aimed at boosting small businesses, saying it was "directly detrimental to the economy."

In his first event at the White House since his week-long vacation, Obama also promised after meeting with his economic team that "additional measures" to jump-start a stagnant economy were being considered, though he offered no specifics.

"In the meantime there's one thing we know we should do, something that should be Congress' first order of business when it gets back," he said of the small business measure. "I ask Senate Republicans to drop the blockade. I know we're entering elections reason. But the people who sent us here expect us to work together to get things done and improve this economy."

The president's five-minute statement comes amid new fears of a so-called double-dip recession. Last week, new unemployment claims reached their highest level since November 2009, and the Commerce Department revised GDP growth in the second quarter down to a sluggish 1.6 percent.

by Michael Muskal

August is turning out to be the cruelest month, at least economically and politically, as the latest jobless numbers released Thursday offer a mixed message on the leading election issue.

First-time claims for unemployment fell for the first time, but the four-week average rose to the highest level since November 2009.

According to the Labor Department, requests for unemployment insurance dropped by 31,000 to an adjusted 473,000. The larger-than-expected drop comes after three weeks of steady increases.

But the four-week average rose to almost 487,000, the highest since late 2009. The average is designed to smooth out the sharp kinks in the labor market.

Overall, the numbers mean that the job market remains dicey as businesses stay away from serious hiring. That indicates a slowing down of the recovery, though jobs are considered to be a lagging indicator.

Continue reading at D.C. Now

Don Lee reports on the monthly jobs report:

The employment picture in the U.S. remained bleak last month as the nation's payrolls fell for a second straight month, with private-sector businesses adding a disappointingly scant number of new jobs. The jobless rate held steady at 9.5% in July, the government said Friday.

The Labor Department said that private employers added just 71,000 new net jobs in July. Meanwhile, the federal government laid off 143,000 temporary census workers, and with budget-strapped local governments also cutting back, the total number of American jobs last month fell by 131,000 from June.

What's more, Labor statisticians revised down the job figures for June, saying that total payroll jobs fell by 221,000 that month instead of 125,000 previously estimated.

The usual round of Washington spin is underway, beginning with the White House take from Christina Romer, departing chair of the Council of Economic Advisers. She highlighted a "bright spot" -- the growth in manufacturing employment for the seventh consecutive month.

"We have made substantial progress from the days when employment was declining by 750,000 a month. But, today's employment report emphasizes just how important the additional jobs measures before Congress are," Romer said, adding that there will likely be additional "bumps in the road."

Republicans pounced on another disappointing report.

by Mike Memoli

In an effort to highlight what the White House sees as one of its major success stories, President Obama is visiting two Michigan auto plants that he says are thriving in part because of significant government assistance.

"This was a hard decision. I didn't want government to get into the auto business," Obama said at a Chrysler plant in Detroit. "And the politics of it weren't good. ... But I believe that if each of us were willing to work and sacrifice in the short term, ... it could mark a new beginning for a great American industry."

The president was warmly welcomed by an audience of about 1,500 employees at the plant, which produces the Grand Cherokee. A second shift just began work there on July 19, creating 1,100 new jobs, the White House said. A year ago, Obama said, the future of the plant was "very much in doubt."

"Today this industry is growing stronger. It's creating new jobs," he said. "You are proving the naysayers wrong. All of them."

Photo Credit: AP / Carlos Osorio

by Mike Memoli

Financial reform legislation edged closer to passage this morning, after the Senate voted to end debate on one of Democrats' key legislative priorities.

The vote to invoke cloture on the measure, a sweeping overhaul of rules governing Wall Street and the financial sector, received just enough votes to end filibuster. Sixty senators, including three Republicans, supported the motion, while 38 voted against it.

"It is not a perfect bill," Sen. Chris Dodd (D-Conn.), chair of the Banking Committee, said before the vote. "But we believe we've done the best we could under the circumstances to see to it that we never have another bailout of a major financial institution at taxpayer expense."

Vote on final passage is expected this afternoon, which would allow President Obama to sign the bill into law, likely next week.

But, as Jim Puzzanghera writes this morning, Obama's signature "won't mark the end of the high-stakes battle over remaking Wall Street. It will be more like the halftime show."

by Mike Memoli

The Bureau of Labor Statistics announced this morning that total payroll employment was down 125,000 in June, reflecting the loss of 225,000 temporary census workers. The unemployment rate dipped to 9.5 percent as the private sector added 83,000 jobs. (Read more from Don Lee's story on the report here).

President Obama, speaking moments ago at Andrews Air Force Base, offered his own statistic taking a longer view: that the private sector has added 600,000 jobs this year, compared to the loss of 3.7 million jobs in the same period of 2009.

"We are headed in the right direction," he said. "But ... we're not headed there fast enough for a lot of Americans. We're not headed there fast enough for me, either."

He used the opportunity to announce projects through the Recovery Act to expand broadband access, which he said would quickly create 5,000 jobs.

Writing at the White House blog, economic adviser Christina Romer said the report showed "continued signs of gradual labor market recovery," while cautioning that "it is important not to read too much into any one monthly report, positive or negative."

Republicans have quickly pounced on the numbers, however, saying it shows the economic policies of the administration and Democrats in Congress have failed.

In two hours, the Bureau of Labor Statistics will release new unemployment figures, an increasingly important number that will be a major factor in this fall's elections. After several months of job gains, expectations seem to be that this latest report may represent a step back.

Ahead of the announcement, Don Lee writes about some other economic indicators:

The number of pending home sales plunged 30% in May from April, to the lowest level since at least 2001, an industry group reported Thursday, reflecting a larger-than-expected fallout from the expiration of the federal tax credit for home buyers.

Also released Thursday, a closely watched index of factory activity suggested that manufacturing, which has been leading the economic recovery, may be losing momentum. In other reports that were more downbeat than expected, U.S. car sales dropped in June from May's level, and first-time jobless claims increased last week from the week before.

Thursday's reports -- although only snapshots of segments of the country's vast economy -- came against a background of other discouraging news from abroad, including Europe's continuing debt troubles and signs that even China's normally fast-growing economy may be slowing down.

by Mike Memoli

Ah, summer. A season that brings to mind beaches, barbecues and maybe an afternoon at the ballpark. Well this year, the White House wants to add highway construction, home weatherization and water purification projects to the mix.

President Obama today heads to Ohio where he'll kick off what the administration is calling "Recovery Summer," in recognition of what it says is a significant ramping up of job-stimulating projects made possible through the American Recovery and Reinvestment Act passed last year.

"This summer, a lot more people are going to be working on highways, building clean water projects, weatherizing homes, and they'll be drawing paychecks that they wouldn't have otherwise drawn," Vice President Biden said Thursday during a rare appearance in the White House briefing room. "That means a lot more money, again, into the local economies."

Obama heads to Ohio -- a state he's visited seven times already, more than all but three others -- to meet with workers at the site of a road improvement project in Columbus. The White House says this is the 10,000th Recovery Act project to get underway, "the first of many significant Recovery Act milestones coming this summer."

Skeptics continue to argue that the stimulus program was high in cost with little bang for the buck, as the national unemployment rate remains just under 10 percent. Biden countered that there is no doubt things would have been worse without the program, and pointed to both GDP growth and several months of job growth as signs a real recovery is underway.

by Christi Parsons

President Obama this morning urged passage of his proposals to stimulate hiring by small businesses through tax credits and lending incentives, arguing that such measures are partly responsible for economic recovery over the past few months.

Small businesses have historically been responsible for two out of every three new jobs created in the U.S., Obama said, and so must be a critical part of the economic recovery.

"To replace the millions of jobs lost in the recession, we need to make sure small companies are able to open up, expand, and add names to their payrolls," Obama told reporters gathered in the Rose Garden.

But while Republicans in Congress agree with that idea, they don't buy the president's plans for stimulating private sector job creation. With critical mid-term elections looming this fall, GOP lawmakers are pushing instead for a reduction in federal spending to support long-term economic growth.

The president's remarks represent a renewed push within the administration to pass a key part of his economic program, at time when their public focus has been riveted on the oil spill in the Gulf of Mexico. Even as that highly visible disaster unfolds on television, administration officials are working furiously behind the scenes with Democratic leaders in Congress to promote economic recovery.

by Christi Parsons

President Obama this morning will call on Congress to pass a series of his proposals to spur hiring in the private sector, following a meeting with owners and workers of small enterprises in the Oval Office to talk about how they are weathering the recession.

Four months after Obama first proposed his plans to help small businesses grow and hire, his Small Business Lending Fund Act has passed a House committee but since bogged down amid Republicans concerns about whether it would achieve the desired goals.

The president will specifically call on the House to take up and approve that plan, along with another proposal to direct lending to small business by way of state-based programs, according to a White House official.

In remarks in the Rose Garden following the morning meeting, Obama will also ask Congress to pass proposals to eliminate capital gains taxes for small businesses and grant new tax relief for small start-up companies.

Small business access to credit plummeted during 2008 and remains severely constricted now, forcing many operations to close their doors and survivors battling for survival.

A trader with now-defunct Lehman Brothers watches the stock market plunge last September. (David Karp/AP)

by James Oliphant

For weeks, President Obama has been pushing hard on his plan to revive the nation's economy, driving the $787-billion stimulus package through Congress, following up with a plan for homeowners facing foreclosure and readying a strategy for reviving the moribund credit system.

But on one crucial piece of his overall strategy, Obama and his economic team have kept a relatively low profile: an overhaul of the federal regulatory system that sets and enforces the rules under which banks, hedge funds, stockbrokers and the rest of the nation's financial institutions must operate.

Of all the elements in Obama's strategy, regulatory reform could be the toughest -- and take the longest time to achieve.

The White House and Capitol Hill Democrats are separately developing the new framework for the sprawling and increasingly complex financial services industry, a step many experts view as essential for preventing future disasters.

Many factors contributed to the meltdown that struck Wall Street last year, to such calamities as the demise of investment bank Lehman Bros. Holdings and to the emergency bailouts that kept Citigroup and American International Group from collapsing as well.

But there is widespread agreement that an outdated regulatory system and lackluster oversight by watchdog agencies also played roles in bringing on the crisis. And in political terms, persuading Congress to pony up more money to support the financial system -- which many experts believe will be necessary -- will be nearly impossible without new safeguards.

Although many agree on the shortcomings of the current system, devising and winning agreement on a new one present a thicket of challenges, from overcoming industry opposition and defusing turf wars among federal agencies to striking a balance between protecting consumers and encouraging growth in finance and the economy as a whole.

"The challenge is going to be separating politics from policy," said Scott Talbott, the lead lobbyist for the financial services industry in Washington.

Read about the push to reform the nation's financial services industry in Monday's edition of the Los Angeles Times.

by Mark Silva

President-elect Barack Obama is upping the ante of jobs promised with the $800-billion-or-greater economic stimulus program that he is proposing.

This week in Virginia, promoting his plan with an address about the urgency of taking action in dire economic straits, he said that 3 million new jobs are possible within the next few years under the "Recovery and Reinvestment Plan'' he proposes.

Today, in his weekly radio and Internet address, the president-elect said an analysis of his proposals shows that between 3 million and 4 million jobs could be saved or created by 2010, nearly 90 percent in the private sector.

That would be a welcome number in a week in which unemployment was posted at 7.2 percent in December, with the total number of jobs lost last year - 2.6 million - the largest number since 1945. Three quarters of those jobs disappeared in the last four months.

The chair of Obama's council of economic advisers, Christina Romer, and Vice President-elect Joe Biden's chief economic adviser, Jared Bernstein, advanced the analysis on which Obama is basing his forecast. See their jobs report here.

Obama had previously said his American Recovery and Reinvestment Plan would create or save 3 million jobs, but said the new anaysis puts the prediction in a range of 3 million to 4 million.

"The jobs we create will be in businesses large and small across a wide range of industries," Obama said in his address today. "And they'll be the kind of jobs that don't just put people to work in the short term, but position our economy to lead the world in the long-term."

See the rest of this report and a transcript of the address below:

by Jim Puzzanghera

President-elect Barack Obama today asked Congress to delay next month's planned switch to all-digital broadcast television, warning that the TVs of millions of Americans could go dark because of major problems in the government's preparations.

In a letter to Congressional leaders, John Podesta, co-chairman of Obama's presidential transition team, urged that the Feb. 17 conversion date be extended. A major reason was the announcement this week by the Commerce Department that it had run out of money for a government program to provide $40 coupons for low-cost converter boxes to allow older TVs to receive the new digital signal. But Podesta also cited problems with the government's effort to educate the public about the switch and help prepare people, particularly the elderly, poor and those living in rural areas.

"With coupons unavailable, support and education insufficient, and the most vulnerable Americans exposed, I urge you to consider a change to the legislatively-mandated analog cutoff date," Podesta wrote to the chairmen and top Republicans on the Senate Commerce committee and the House Energy and Commerce committee.

Congress decided in 2005 to require all TV stations to broadcast only in digital to free up valuable airwaves. People with cable, satellite or phone company TV services will continue to get broadcast stations. But those who rely on antennas to watch TV must have either a newer set with a digital receiver or get a digital-to-analog converter box.

by Frank James

Congressional Republican leaders responded to President-elect Barack Obama's economic speech today by accepting the next president's premise that the moribund economy requires a fiscal stimulus package but expressing a lot of caution about its size, its potential impact on swelling deficits and the content of the package.

Sen. Mitch McConnell, the Senate Minority Leader, and Rep. John Boehner, the House Minority Leader, indicated that they sensed Obama is hearing them and their concerns about significantly adding to the federal deficit.

McConnell said: "It's clear to me from listening to the president, the new president, that he wants to include Republican ideas and among them, that I've laid out in the last few days, are reducing the middle-class tax rate. He -- he, the new president, today again underscored that there will be a significant tax component. It's still a little unclear as what it will look like. I think the quickest way to get money in the hands of people who can spend it would be to reduce the middle-class tax rate, which is currently at 25 percent, for example, down to 10 percent."

He also said that the help to states which Obama has proposed should come in the form of loans, not grants, since that would likely get the states to spend the money more wisely.

Both men also indicated that, feeling once burned by the $700 billion financial bailout known as the Troubled Asset Relief Program which passed through Congress last year with very few hearings, by-passing the way legislation is typically done in Congress, they were now twice cautious.

by Frank James

Don't get rid of those old analog televisions yet. The national transition to digital television was supposed to occur next month on Feb. 17. But some key members of Congress and the Obama presidential transition may engineer a delay of a few months because of problems in the transition.

There's been growing concern that the Federal Communications Commission has mishandled the roll-out in a way that could potentially leave millions of viewers with analog TVs unconnected to cable without the ability to get a signal.

The problem is a backlog in the federal program that provides coupons to the TV owners to offset the cost of converter boxes that will be needed by analog TVs to receive a signal once TV broadcasters completely change over to transmitting digital signals alone.

According to Broadcasting and Cable magazine's website:

Consumers Union (CU) late Wednesday asked the heads of the congressional committees with telecommunications oversight, as well as the current and future administrations, to consider delaying the Feb. 17, 2009 transition date.

In a letter to Rep. Markey, Rep. Henry Waxman (D-Calif.), the incoming chairman of the House Energy and Commerce Committe, and others, the CU requested that Congress consider a delay "until a plan is in place to minimize the number of consumers who will lose TV signals, particularly by fixing the flaws in the federal coupon program created to offset the cost of this transition."

by Frank James

President-elect Barack Obama is due to make a major speech on the economy today at George Mason University in Northern Virginia just outside Washington, D.C.

It is essentially a call for support of what is expected to be a huge economic stimulus package he hopes to get enacted in the first few months of his presidency. He warns that if an economic stimulus isn't passed quickly enough, it may come too late to stave off a dramatic decline not of just the economy but the nation too.

His presidential transition office has released excerpts:

I don't believe it's too late to change course, but it will be if we don't take dramatic action as soon as possible. If nothing is done, this recession could linger for years. The unemployment rate could reach double digits. Our economy could fall $1 trillion short of its full capacity, which translates into more than $12,000 in lost income for a family of four. We could lose a generation of potential and promise, as more young Americans are forced to forgo dreams of college or the chance to train for the jobs of the future. And our nation could lose the competitive edge that has served as a foundation for our strength and standing in the world.

There is no doubt that the cost of this plan will be considerable. It will certainly add to the budget deficit in the short-term. But equally certain are the consequences of doing too little or nothing at all, for that will lead to an even greater deficit of jobs, incomes, and confidence in our economy. It is true that we cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the vicious cycles that are crippling our economy - where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit.

by Frank James

President-elect Barack Obama said he expected his economic stimulus package wouldn't be near the top end of economists estimates because of growing concerns about federal deficits.

At a Washington press conference where he announced his administration's chief performance officer, Obama also waded into the Roland Burris controversy, saying he would work with him if the Senate chose to seat him.

Asked by a reporter about the size of an economic stimulus meant to jumpstart the economy, Obama indicated it would be at the top end of the range his transition officials have discussed, $775 billion, not as large as the more than $1 trillion many economists say would be necessary to provide an adequate stimulus.

We expect that it will be on the high end of our estimates, but will not -- will not be as high as some economists have recommended, because of the constraints and concerns we have about the existing deficit.

Obama's mention of deficit concerns came on the same day the Congressional Budget Office reported that this fiscal year's deficit would be a record $1.2 trillion.

by Frank James

The Congressional Budget Office's new budget outlook for the next ten years is out today and foresees a record deficit of $1.2 trillion dollars for the current fiscal year which ends Oct. 31.

An excerpt:

CBO projects that the deficit this year will total $1.2 trillion, or 8.3 percent of GDP. Enactment of an economic stimulus package would add to that deficit. In CBO's baseline, the deficit for 2010 falls to 4.9 percent of GDP, still high by historical standards.

CBO expects federal revenues to decline by $166 billion, or 6.6 percent, from the amount in 2008. The combination of the recession and sharp drops in the value of assets--most significantly in publicly traded stock--is expected to lead to sizable declines in receipts, especially from individual and corporate income taxes.

The CBO also expects the present recession to end in the calendar year's second half, making it the longest recession since the Great Depression.

By Jim Tankersley

The U.S. Chamber of Commerce will urge Congress this morning to invest heavily in so-called "clean coal" research, to expand incentives for nuclear energy and renewable fuels, and to keep its hands off domestic oil and gas drilling.

The powerful business group will host its annual "State of American Business" speech this morning in Washington, and this year, the event is focused squarely on America's top problem: how to reignite the domestic economy.

The plan Chamber officials are set to unveil includes several energy-themed pieces. And it urges caution on what is shaping up to be a top priority for the incoming Obama Administration: cracking down on carbon emissions to fight global warming.

by Frank James

President-elect Barack Obama apparently plans on including more than $300 billion in tax cuts in his expected mega stimulus bill of at least $775 billion over two years, according to news reports.

The move is meant to give the incoming Obama Administration the ability to fend off Republican charges that they are typical tax-and-spend Democrats. The tax cuts will allow Obama to better defend his right flank, as it were, from congressional Republicans who have proposed that any stimulus plan be heavily weighted towards tax cuts. See the plan proposed by House Minority Leader Rep. John Boehner last fall.

What's more, the tax reductions would redeem the president-elect's campaign promise of a middle-class tax cut.

As the Tribune's Peter Nicholas reported wrote a week ago:

President-elect Barack Obama's top advisors ... wouldn't back away from a promise to cut taxes on the middle class and raise them for the wealthiest Americans, as they made the case for a massive new stimulus package geared toward reviving the slumping economy.

According to the New York Times:

President-elect Barack Obama plans to include about $300 billion in tax cuts for workers and businesses in his economic recovery program, advisers said Sunday, as his team seeks to win over Congressional skeptics worried that he was too focused on government spending.

by Peter Nicholas

President-elect Barack Obama's top advisors say they won't back away from a promise to cut taxes on the middle class and raise them for the wealthiest Americans, as they made the case for a massive new stimulus package geared toward reviving the slumping economy.

Speaking on Sunday talk shows and in a newspaper opinion piece, Obama aides stepped up a drive to build a broad political consensus behind Obama's core economic proposals: a two-year spending package that could exceed $775 billion, coupled with tax policies weighted in favor of the middle class.

Appearing on NBC's Meet the Press, David Axelrod, a senior advisor to Obama, said, "We have to act. Every economist from left to right agrees that we have to do something big in terms of job creation, but we want to do it in a way that will leave a lasting footprint."

Obama wants lawmakers to give him a stimulus bill to sign soon after he is sworn in Jan. 20.

Writing Sunday in the Washington Post, Lawrence H. Summers, Obama's incoming director of the White House National Economic Council, said the bleak economic climate called for substantial new spending.

"Economic forecasts have been revised significantly downward over the past several months; today, many experts believe that unemployment could reach 10% by the end of next year," Summers wrote. As of November, unemployment stood at 6.7 percent.

Summers added: "In this crisis, doing too little poses a greater threat than doing too much."

See the rest of the report on Obama's plans for his promises from Tribune's Washington Bureau in the newspapers.

by Frank James

Much of the opposition to the federal bailout of the Detroit Three automakers was premised on the notion that the U.S. automakers did themselves in through decades of bad management and greedy unions.

So it will be interesting to see what adjustments, if any, the bailout's opponents make to their views in light of the wrenching news today that Toyota Motor Corp., by all accounts one of the world's best-managed auto makers, reported that it's projecting it will have its first operating loss since the Tora, Tora, Tora year of 1941 (or 1938 depending on which loss definition is used.) What's more, its chief executive sounds very anxious about next year.

An excerpt from the Associated Press:

NAGOYA, Japan (AP) -- Toyota Motor Corp. projected its first-ever operating loss since it began such reports, acknowledging Monday that its nine-year stretch of global vehicle-sales growth had stalled.

"The tough times are hitting us far faster, wider and deeper than expected," he told reporters at Toyota's Nagoya office. "This is an unprecedented crisis requiring urgent action."

by Frank James

It appears that a lot of money gets thrown at top bankers in good and bad times. Some Associated Press reporters examined the Securities and Exchange Commission filings of banks that received federal bailout money from the $700 billion Trouble Asset Relief Program.

An excerpt of what they found:

Banks that have their hands out in Washington this year were handing out multimillion-dollar rewards to their executives last year.

Some banks trimmed their executive compensation in the face of faltering performance that foreshadowed the current economic crisis, but they still granted multimillion-dollar packages. Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.

by Frank James

The Bush Administration once again comes off looking poorly in the latest installment of the New York Times series called "The Reckoning" for pouring fuel on the raging fire that was the housing bubble, then waiting to long to mount a serious and effective effort to put the fire out.

In a lengthy report, the NYT recounts how home ownership was an important piece of President Bush's "ownership society" agenda which, when mixed with his anti-regulatory ideology, created a witches' brew of too few regulators and regulations watching over too much credit sloshing through superheated financial markets.

An excerpt:

There are plenty of culprits, like lenders who peddled easy credit, consumers who took on mortgages they could not afford and Wall Street chieftains who loaded up on mortgage-backed securities without regard to the risk.

But the story of how we got here is partly one of Mr. Bush's own making, according to a review of his tenure that included interviews with dozens of current and former administration officials.

by Frank James

Paul Krugman is one of the smartest, most entertaining economists alive which explains why he may the best known too,

The New York Times columnist and Princeton University professor appeared at the National Press Club in Washington Friday, fresh on the heels of receiving his Nobel Prize. And he simultaneously scared the audience out of its wits and left them laughing and wanting more, not a bad achievement for a practitioner of the dismal science.

A few important Krugman points:

The stimulus is going to have to be extremely big to work. It takes about $200 billion of well-spent federal stimulus to drop unemployment one percentage point. He thinks unemployment could hit 10 percent before things turn around. So that argues for a $1 trillion stimulus not over two years but faster.

The problem is, President-elect Obama talks about the money going to shovel-ready infrastructure projects. But the best number Krugman has heard puts the amount of such projects that could be quickly started at something like $150 billion, far short of what's needed. That's a big problem, especially since he argues the stimulus must be done quickly.

Krugman worries about what part of the economy will kick in to take up the slack after the stimulus. That's very unclear.

Krugman believes 2010 will see improved economic conditions as the stimulus workes its way through. But 2009 scares him. And if he's scared, I'm scared too.

by Frank James

One of the best journalistic descriptions of the rescue package for the Detroit Three car makers announced by President Bush yesterday comes from American Public Radio's business and economic news program "Marketplace."

If U.S. automakers were dangling from the ledge of a fifth-story window by one hand yesterday, today they pulled both hands back onto that ledge. Uncle Sam came to the rescue not with a ladder but with an energy drink. And Detroit is still just barely hanging on.

That's a great visual. Pretty accurate too.

by Frank James

President-elect Barack Obama welcomed President Bush's decision to approve a $17.4 billion bailout for the Detroit Three automakers but warned the companies that the American people's patience was running low and urged them not to waste the grace time they've received to restructure their businesses in order to avoid bankruptcy.

In his last press conference before heading to Hawaii for the Christmas holidays, Obama also indicated that his planned economic stimulus would be massive as has been rumored.

Though he declined to name a dollar figure, the president-elect didn't deny reports that it could be as much as $1 trillion. Acknowledging that the amounts being contemplated were enough to raise the concerns of taxpayers, including himself, he said he was struck by the consensus of economists that a stimulus had to be "bold" to be effective and was the priority, given the economy's deteriorating condition.

As he spoke with reporters, Obama was accompanied by some of the last members of his cabinet to be named, House members Hilda Solis, a California Democrat, and Ray LaHood, an Illinois Republican, who were named to head the Labor and Transportation departments, respectively.

Obama also named Ron Kirk, Dallas's former mayor, to be U.S. Trade Representative and Karen Mills, a Maine venture capitalist, to head the Small Business Administration.

In discussing the auto bailout, Obama never mentioned Bush. It was a noticeable omission, especially since the president has said specifically that one of the reasons he decided to approve spending money out of the $700 billion bank rescue fund was so Obama wouldn't be greeted on his first day of office with the collapse of the auto industry.

Obama seemed intent on sending a signal to auto makers that they should not delay making any hard choices in the hope of getting better terms from his incoming administration.

And in a nod to the organized labor members in his Democratic party base, he emphasized that he wanted all of the auto makers' stakeholders -- management, labor, suppliers, creditors and bondholders -- to bear the pain of the expected restructurings. The president-elect made clear that he would find unacceptable any package of concessions that required relatively more from labor than from other stakeholders.

"I do want to emphasize to the big three automakers and their executives that the Americans -- people's patience is running out, and that they should seize on this opportunity over the next several weeks and months to come up with a plan that is sustainable," Obama said. "And that means that they're going to have to make some hard choices."

President George W. Bush pauses during a statement on the auto industry at the White House on Friday, December 19, 2008 in Washington. (AP Photo/Evan Vucci)

by Frank James

President Bush has decided to bailout the Detroit Three automakers with a $17.4 billion rescue package of bridge loans to give the struggling automakers more breathing room to restructure and to avoid a collapse that some had warned could come early next year if they received no help.

In doing so, the president rejected the idea that had been discussed in recent days of a so-called structured bankruptcy for the auto industry, at least for now.

Bush explained that even a structured bankruptcy might send the auto makers into a unstoppable death spiral because of their weakened state and likely increased consumer unwillingness to buy their products.

But the president made it clear that the bridge loans were coming with tough terms. He said the automakers needed to submit workable plans for restructuring by March 31 and that if they didn't the federal government would require its loans to be repaid immediately.

In addition, he said his administration expected all the auto industry players -- management, creditors, dealers, workers and bondholders -- to make significant concessions in order to make the rescue work.

In announcing the bailout, Bush echoed comments he made during an interview at the American Enterprise Institute yesterday when he said the perilous state of the economy argued against allowing the companies to go bankrupt, even though he remains a stalwart believer in free-market capitalism.

Speaking from the White House West Wing's Roosevelt Room this morning, he said:

"If we were to allow the free-market to take it's course now, it would almost certainly result in a disorderly bankruptcy and liquidation for the automakers. Under ordinary economic circumstances, I would say 'This is the price that failed companies must pay.' I would not favor intervening to prevent the automakers from going out of business."

"But these are not ordinary circumstances. In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action. The question is how we can best give it a chance to succeed.

by Frank James

President Bush suggested strongly that billions of dollars in help for the auto industry would be forthcoming from the White House in the near future, saying in part that he felt obliged not to leave President-elect Barack Obama an acute economic disaster like a newly collapsed auto industry after the inauguration.

"I thought about what it would be like for me to become president during this period. I believe that good policy is not to dump on him a major catastrophe on his first day of office," Bush said.

Bush made his auto-industry comments during a wide-ranging interview on friendly turf, the conservative American Enterprise Institute. The session was billed by the White House as another chance for Bush to justify an often controversial presidency and legacy as he prepares to leave office in just over a month.

The president repeatedly emphasized to his conservative audience that he still shared their faith in free-market capitalism and said that in ordinary times he would be inclined to let the economy sort out its current problems on its own.

"This is a difficult time for a free-market person," Bush said. "Under ordinary circumstance, failing entities should be allowed to fail. I have concluded these are not ordinary circumstances."

by Frank James

It is one of the paradoxes of our age, there's more news to cover than ever in Washington and many more people are reading it because of the Internet but fewer people to cover it.

The New York Times reports on the incredible shrinking news corps in Washington, a function of the advertising revenue crash in the industry which started long before the recession and has only accelerated because of it.

An excerpt:

The times may be news-rich, but newspapers are cash-poor, facing their direst financial straits since the Depression. Racing to cut costs as they lose revenue, most have decided that their future lies in local news, not national or international events. That has put a bull's-eye on expensive Washington bureaus.

Albert R. Hunt, Washington executive editor at Bloomberg News, said he was taken aback by the mood Saturday night at a dinner of the Washington press corps' Gridiron Club. "It was like being at a wake," he said. "Every time you turned around, someone was talking about their bureau being closed or downsized."

by Frank James

I recently attended a holiday party which started with a woman delivering an invocation. As the room grew silent she said, "It's the holiday season, but this year feels different than before." Murmurs of agreement could be heard. Everyone knew she was talking about the economic doldrums.

Which leads me to the Washington Post-ABC News poll being reported today which indicates that two-thirds of those surveyed said they've felt the recession's impact.

As the WaPo reports:

The deepening recession has eroded the financial standing and optimism of a broad swath of Americans, nearly two-thirds of whom say they have been hurt by the downturn and that the country has slipped into long-term economic decline.

A new Washington Post-ABC News poll also found that a rapidly increasing share of Americans -- 66 percent, up from just over half a year ago -- are worried about maintaining their standard of living. Nearly two in 10 said they or someone living in their household had lost a job in the past few months, and more than a quarter said they had their pay or hours reduced. And 15 percent said that at some point in the past year they fell behind on their rent or mortgage.

by Frank James

Federal Reserve Chairman Ben Bernanke and the rest of the central bank policymakers decided to throw the long ball down the field to the end zone when everybody thought they were just going to try and pick up the first down.

By announcing plans to keep a key-interest rate in the zero percent to one-quarter percent range, the Fed is essentially going for broke on the interest-rate front as it tries to revive the economy. Most experts had expected the Fed to lower the federal funds rate to one-half percent from one percent.

What's really interesting is that the Fed indicated that it will keep the rate at the unheard of low rate from here to eternity, if that's what it takes to get the economy growing again.

A snippet from its statement:

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

by Frank James

More concerns today about the dreaded economic possibility of deflation, the phenomenon where prices fall throughout the economy, reducing the power of companies and workers to charge what they need to in order to make ends meet.

The Labor Department reported today that consumer prices in November fell by the largest percentage, 1.7 percent, in the 61 years that records have been kept. Much of the decline was related to plunging energy prices.

Inflation is minimal. Matter of fact, according to an Associated Press story:

The 1.7 percent decline in consumer prices was larger than the 1.2 percent drop that economists had been expecting. It left inflation rising over the past 12 months by 1.1 percent, the smallest 12-month increase since June 2002. Inflation has not risen at a slower pace since a 1 percent rise in the 12 months ending in February 1965.

In other words, the last time inflation rose this slowly was before all the guns and butter spending of the late 1960s kicked in when President Lyndon B. Johnson ramped up the Vietnam War as well as social spending like Medicare and his War on Poverty.

by Frank James

One argument against giving the Detroit Three a taxpayer-funded bridge loan went something like this: taxpayers shouldn't have to pay for the failings of the the automakers. If the companies had to resort to bankruptcy to restructure, so be it.

But what that argument didn't take into account was that U.S. taxpayers are going to wind up financially helping autoworkers and employees at the companies that supply them one way or another and whether they like it or not.

The proof of that is found in a New York Times story which reports that states are running out of money to pay unemployment insurance because of all the claims being made by laid off workers. According to the NYT story, Michigan and Indiana's unemployment insurance funds have essentially run out of money.

Thirty states are at risk of having the funds that pay out unemployment benefits become insolvent over the next few months, according to the National Association of State Workforce Agencies. Funds in two states, Indiana and Michigan, have already dried up, and both states are borrowing from the federal government to make payments to the unemployed.

by Frank James

Investors who apparently lost billions of dollars in Wall Street broker Bernard Madoff's alleged $50 billion Ponzi scheme weren't the only big losers.

The Securities and Exchange Commission was staggered by the revelation, as it was once again exposed as an inadequate enforcement agency, unable to spot problems with Madoff others had observed and, ultimately, ineffective at protecting investors.

As The Wall Street Journal reported in a Dec. 13 2008 story, Madoff didn't fool everyone.

Harry Markopolos, who years ago worked for a rival firm, researched Mr. Madoff's stock-options strategy and was convinced the results likely weren't real.

Mr. Markopolos pursued his accusations over the past nine years, dealing with both the New York and Boston bureaus of the SEC, according to documents he sent to the SEC reviewed by The Wall Street Journal.

by James Oliphant and Richard Simon

Since President-elect Barack Obama laid out plans for the largest injection of federal spending into the economy since the New Deal, just about everyone has started angling for a piece of the action.

With estimates of the package, which will be considered by the new Congress starting in January, topping out at anywhere between $500 billion and $1 trillion, ailing sectors such as home builders and sellers, airlines, railroads -- and, yes, the auto industry -- view the stimulus as a means to get healthy again.

That includes the air conditioning industry, America's libraries and even catfish farmers.

All of them, and many more, have deployed lobbyists to Capitol Hill in hope of benefiting from the spending spree.

"The ever-increasing cost of the yet-to-be-seen stimulus is like chum in the water for lobbyists circling to snap up some taxpayer cash for their clients," said Steve Ellis of Taxpayers for Common Sense, a watchdog group.

The primary goal of Obama's stimulus is job creation. His plan, he says, could lead to 2.5 million new jobs by 2011 and rebuild the nation's crumbling infrastructure, make school buildings more energy-efficient, modernize hospitals and extend broadband to underserved areas.

But so far, Obama has offered little in the way of specifics or a price tag. That is an opening for industry groups with no shortage of suggestions.

"It's not very often business and government run on parallel tracks," said Jerry Howard, chief executive of the National Assn. of Home Builders. "You've got to spend money to make money."

See the rest of the story on Obama's economic stimulus and the lobbying it has stimulated in the Los Angeles Times, the Chicago Tribune, other Tribune Co. newspapers and here in the Swamp:

by Frank James

There's a lot of suspicion in Washington and throughout the nation that Senate Republicans who thwarted the auto bailout last night were operating from a range of motives, including a desire for payback against the United Auto Workers,

The UAW has been the bane of Senate Republicans, throwing resources and people at defeating Senate Republicans, including no less than Senate Minority Leader Mitch McConnell of Kentucky in his recent reelection campaign.

Senate Republicans and organized labor have also been in a pitched battle over legislation that would make it easier for unions to organize workplaces without holding elections featuring secret ballots. Republicans have said the "card check" legislation would allow union heavies to strongarm workers into joining unions against their will.

Organized labor meanwhile has said anti-labor Senate Republicans want to make it harder for unions to organize, including in southern states. Senate Republicans have made it clear that the battle over the legislation will be one of the defining issues of the next Congress.

by Frank James

One of the stumbling blocks that reportedly caused the Senate to fail to pass the auto-bailout legislation was Senate Republican demands that the United Auto Workers at the Detroit Three auto plants get their wages to parity with workers at Toyota and Honda.

But just what is the divergence between the wages paid by the Detroit Three and those paid by the foreign transplants?

It's been said often that workers at the Detroit Three make more than $70 hourly while those at the foreign transplants are somewhat north of $40 an hour.

But as the New York Times' David Leonhardt recently pointed out, this is isn't true.

Let's start with the numbers. The $73-an-hour figure comes from the car companies themselves. As part of their public relations strategy during labor negotiations, the companies put out various charts and reports explaining what they paid their workers. Wall Street analysts have done similar calculations.

The calculations show, accurately enough, that for every hour a unionized worker puts in, one of the Big Three really does spend about $73 on compensation. So the number isn't made up. But it is the combination of three very different categories.

by Frank James updated

The White House just announced it's considering using the Treasury Department's TARP program, the $700 billion rescue fund heretofore used to inject money into the financial industry, to bailout the Detroit 3 in the wake of the Senate's failure to pass legislation.

For Immediate Release

Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms. However, given the current weakened state of the U.S. economy, we will consider other options if necessary - including use of the TARP program -- to prevent a collapse of troubled automakers. A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time.

by Frank James

Now that Senate Republicans have foiled the Detroit 3 bailout in a late-night vote, any hope for a bailout falls to Treasury Secretary Henry Paulson Jr.

According to lawmakers on both sides of the aisle, the Emergency Economic Stabilization Act which created the $700 billion fund known as the Troubled Asset Relief Program, or TARP, could be used for the $14 billion bridge loan to the Detroit-based automakers.

In recent weeks, Paulson has resisted the idea of using TARP funds shouldn't be used for a Detroit rescue since it was created to provide liquidity to the financial sector.

But it may prove impossible for Paulson, and by extension President Bush, to remain purists on this as fears grow that a bankruptcy by one or more of the Detroit automakers could trigger a cascade of horribles and unintended consequences that could prove a devastating blow to an already sickly economy.

by Frank James

A sign of the times. Here's a marketing pitch from an outfit called Fedmarket.com that purports to show business people how to make money from federal contracts:

New Seminar: Win Federal Contracts in the $1.5 Trillion Federal Bailout Market

Join Richard White, Fedmarket.com founder and CEO on Thursday, January 22, 2009 and find out how your company can prosper in the federal marketplace during these turbulent times.

by Frank James

It looks like the nation may be very close to running an experiment to find out what happens when it loses one or more of its legacy automakers during the worst economic downturn since the Great Depression.

All indications are that the $14 billion rescue package drafted by the White House and congressional Democrats to save the Detroit 3 automakers will not have enough votes in the Senate since even some Democrats appear unwilling to vote for the legislation that has emerged.

And this is despite General Motors' warnings that it will burn through the last of its cash by the end of the month at which point it will be forced to file for Chapter 11 bankruptcy protection.

For the bill to have a chance at passage, it would likely need Sen. Mitch McConnell, the Senate Minority Leader, to support it or at least not to vociferously oppose it.

But he is very much opposed and has loudly stated his reasons on the Senate floor earlier today.

"Some argue that the effects of an auto industry collapse would be too acute and far-reaching for an already-struggling economy to bear. This is impossible to know. And even if we grant that these companies would fail without taxpayer help, we would still have to ask ourselves whether the proposal before us achieves the goal that everyone claims to embrace -- namely, the long-term viability of ailing car companies -- and, in my view, it does not.

by Frank James

The Federal Reserve reported today that households have lowered their debt for the first time in the five decades that such records have been kept.

The data come from the Fed's Flow of Funds report.

Here's the Associated Press's report:

WASHINGTON (AP) -- U.S. households, hit by declining home values and stock market losses, cut back on their debt levels for the first time on record.

The Fed report shows that households' net worth fell by 4.7 percent in the third quarter to $56.5 trillion, reflecting the hit Americans are taking as the value of their homes and investments decline.

by Frank James

Neel Kashkari, the Treasury official who oversees the Bush Administration's effort to inject money into the financial system, was hammered yesterday by House members over a large bonus payment to executive of AIG, an insurance company 80-percent owned by U.S. taxpayers.

Rep. Brad Sherman, a California Democrat, and Rep. Don Manzullo, an Illinois Republican, lit into Kashkari over a $3 million bonus to an AIG executive, just one of 130 AIG managers getting "retention" payments.

Sherman noted that the legislation that created the Troubled Asset Relief Program requires Treasury to set "appropriate" standards for pay and he repeatedly asked Kashkari if $3 million fit the Treasury official's idea of "appropriate."

Kashkari couldn't really answer the question. And how could he? What expertise does the federal government have at setting the pay for the executives of giant financial firms?

It's understandable why lawmakers placed limits on executive pay, especially when taxpayers have put $60 billion of their money into the company.

by Mark Silva

Many Americans, while cutting back on their holiday spending in the midst of a sour economy, expect an improvement in the economy in the year ahead, a new poll finds.

The percentage of Americans who say the country is off on the wrong track has dropped 20 points from "a dramatic 84 percent high last October,'' according to the findings of the Los Angeles Times and Bloomberg News poll.

And the numbers are "influenced by the public's overwhelmingly positive reaction to the pending presidency of Barack Obama,'' according to a poll analysis by Jill Darling.

"Even though the economic news has been relentlessly negative and nine out of 10 in the survey agreed that the economy is doing poorly, there was some hope that it may have hit bottom - fewer than one in five said they think there is worse news to come,'' Darling reports of the Times-Bloomberg survey.

The poll found public support for an Obama-styled plan to combine tax cuts with public works spending and an extension of unemployment funds despite the cost of these initiatives.

Nine in ten of those surveyed say the economy is doing poorly. This is similar to the assessment registered in a Times-Bloomberg poll taken in October.

Yet, when asked to predict what the economy might look like six months from now, four in five said they think it won't degrade any further. This includes a 45 percent plurality who believe it may not be much different next summer. Roughly twice as many say it will get better than those who say it will continue to get worse.

by Frank James

All of those waiting to see if there'll be an auto bailout vote today in the Senate can stand down.

Senate Minority Leader Mitch McConnell says there'll be no vote on the bailout today:

Here's the statement he made on the Senate floor:

"Republicans were told last night that an agreement had been reached between Congressional Democrats and the White House on an auto package.

"But let me be clear: there will be no vote on this legislation today. On a bill this critical, with so much taxpayer money at stake, we cannot rush this through without adequate review.

by Frank James

Angry lawmakers are holding a hearing this morning to grill Treasury's Interim Assistant Treasury Secretary for Financial Stability Neel Kashkari on, among other matters, why banks aren't using the billions of taxpayer dollars from the Troubled Asset Relief Program, or TARP, the way so many expected them to, to make loans to consumers and businesses.

But James Kwak at the "The Baseline Scenario" economics blog raises an interesting point. Banks are being asked to do two things simultaneously -- improve their balance sheets on one hand and shovel money out the door on the other. Small wonder they're paralyzed.

Kwak writes:

Banks need new capital to protect themselves against falling values of their existing assets. But if they use the new capital to make new loans, you defeat the purpose of the new capital, because that new capital is no longer helping support the existing assets. These are two separate and somewhat contradictory goals. Note that, according to Bloomberg ... financial institutions have taken $978 billion in writedowns - so far - and raised only $872 billion in new capital. So while politicians rail against banks that took TARP money but haven't expanded lending, the banks at least have logic on their side. I've been surprised that no one in Washington that I'm aware of has been willing to point this out."

This isn't to say that some banks aren't doing some things that lawmakers question with the money, like paying dividends or doing acquisitions with TARP money.

by Frank James

I hate any link between 1929, the start of the Great Depression, to 2008. They scare the daylights out of me with the thought that a lot of us downwardly mobile, middle-class types could be reduced to whatever the 2008 equivalent is of selling apples on street corners.

So I hated to see this paragraph in a Bloomberg News story:

The Treasury sold $27 billion of three-month bills (Monday) at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001.

Why did it have to be 1929? Why not 1959 or some other relatively benign year for the economy?

Anyway, what's truly important about this is that investors are so skittish about the global economy, they are actually paying the federal government to hold their money. That's right, they are paying the Treasury Department for the privilege of giving it their money for a while.

As the Bloomberg story goes on to explain:

If you invested $1 million in three-month bills at today's negative discount rate of 0.01 percent, for a price of 100.002556, at maturity you would receive the par value for a loss of $25.56.

by Frank James

If and when the federal government gives the Detroit Three billions of dollars in an effort keep them from collapsing, it only makes sense that federal policymakers would want to have oversight to prevent taxpayer money from being wasted.

That's particularly true after the widespread dissatisfaction with how the financial industry rescue has gone, with banks largely sitting on the $350 billion they're received to date instead of making new loans.

But here's the rub. Oversight means the federal government has to get involved in the manufacturing of cars to a degree that some are calling it nationalization since it will be the government, not the market that will be driving, so to speak, a lot of the decisions.

This remarkable situation is examined by David Sanger in the New York Times today as he lays out the potential pitfalls inherent in an auto bailout that places federal policymakers in what would normally be the role a corporate board.

The first, of course, is the one the president-elect himself highlighted. Government's record as a corporate manager is miserable, which is why the world has been on a three-decade-long privatization kick, turning national railroads, national airlines and national defense industries into private companies.

by Frank James

Looks like we could have an auto bailout deal between the White House and Congress by the end of the day.

As Jim Puzzanghera of the Tribune Washington bureau reports:

WASHINGTON - The White House said Monday morning it's "very likely" a deal will be reached today with Congress on a short-term bailout package for U.S. automakers.

Negotiations between the Bush administration and House and Senate Democratic leaders resumed Monday after a breakthrough Friday night on the source of the funding, said White House spokeswoman Dana Perino. The broad plan calls for about $15 billion to keep General Motors and Chrysler afloat until March 31. GM has told lawmakers it needs $10 billion and Chrysler has said it needed $4 billion for the period. Ford, the other of Detroit's Big Three, said it does not need any funding immediately, but said a failure by GM or Chrysler could cause it to fail as well because of numerous shared suppliers and dealers.

by Frank James

Some of the most-discussed prescriptions for curing what ails the economy include the idea of greater deficit spending to fund the massive economic stimulus program and unfreezing the credit markets.

So it's interesting that Paul Volcker, the former Federal Reserve chairman whose painful, high interest-rate policy in the early 1980s broke the back of that era's soaring inflation, will have such a prominent role in shaping President-elect Barack Obama's economic approach.

Obama named Volcker to head the President's Economic Recovery Advisory Board, a new body within the White House meant to help navigate the nation through the current economic crisis.

It's an interesting choice since the 81-year-old Volcker is well-known for advocating more greater discipline in terms of spending, something he applies to his own life as well as his public policy positions, as the Los Angeles Times's Ralph Vartabedian points out in a story.

But the idea behind the economic theory of John Maynard Keynes who created the widely accepted remedy for dealing with recessions, is for the government to spend freely during downturns to prime the economic pump.

That is the notion behind the huge fiscal stimulus program is vowing, spending that would be larger than anything since the building of the interstate highways in the 1950s.

by Frank James

Will the Detroit Three get the taxpayer-funded bailout they seek or not? That question looms over Washington as the Senate reconvenes today to consider a $15 billion bridge loan to help the industry get through the greatest economic decline in decades.

It all comes down to the Senate where the question is are there enough votes -- 60 -- to end debate and move the lifeline legislation to a vote?

As The Hill newspaper reported:

Senate Democrats might need 12 Republican votes to cut off debate because two of their own, Vice President-elect Biden and Sen. Hillary Rodham Clinton (D-N.Y.), recently named Obama's nominee for secretary of State, will probably abstain.

Sen. Richard Shelby (R-Ala.) on Sunday left open whether he and others are considering a filibuster. "I think we need to debate it," Shelby told Fox. "That's what filibuster is about."

At last week's congressional hearings on the Detroit Three's request for federal assistance, many lawmakers seemed taken with the idea of a federal oversight feature in whatever rescue package is decided on, although there was debate about how that should be structured.

It appears the prevailing idea currently would involve an oversight board comprised of presidential cabinet officials and one official who would be the key decision maker.

by Peter Nicholas and Janet Hook

President-elect Barack Obama is crafting a financial stimulus plan far more ambitious than a quick cash infusion, viewing it as a way to create jobs in a struggling economy and push the nation toward improved healthcare and roads and clean energy.

In hopes of attracting a share of the billions of dollars in stimulus money, special interests and industry representatives have been meeting with the Obama team and recasting their proposals for federal funding as engines of economic recovery.

In private discussions with Obama's transition aides, interest groups are hearing that the president-elect wants proposals that could employ people right away.

Congressional leaders say a stimulus plan could cost $400 billion to $700 billion -- figures the Obama team does not dispute. Those numbers dwarf anything the House had been considering before Obama's victory. In recent years, federal stimulus packages sometimes amounted to giving Americans checks, with a goal of stoking consumer spending.

But Obama hopes to launch a stimulus program that helps drive the agenda of his presidency: improving the nation's power grid in ways that reduce carbon emissions and cut energy costs, shoring up roads, bridges and tunnels, and computerizing medical records so that doctors have up-to-date information on patients.

For the rest of the Tribune Washington Bureau's advance look at elements of Obama's economic stimulus plan in the works, see the rest of the report appearing in weekend newspapers:

by Frank James

Economist Bernard Baumohl has some especially gloomy analysis about today's alarmingly awful jobs report.

One, the report shows job losses accelerating, especially since the financial meltdown hit during the summer. Second, the 6.7 percent unemployment rate significantly understates the true unemployment rate which, if you count unemployed workers who stopped looking for work in the past month and the underemployed you get a rate more like 12.5 percent.

An excerpt from Baumohl's assessment:

It's not enough to say that the torrent of bad news continues. With the shocking report today that payrolls shrank by a revised 1.25 million jobs IN JUST THE LAST THREE MONTHS, it is clear this economy is now deteriorating with frightening speed and ferocity. The numbers here are truly horrific --- and likely to get even worse in the coming months. Aside from the 533,000 cut in payrolls last month (most in 34 years), the Bureau of Labor Statistics revised October's numbers from a net loss of 240,000 to 320,000 and September's revision was even more dramatic, changing the initial decline in lost jobs from 284,000 to a much larger 403,000.

But here's the kicker. So far this year, the drop in payrolls have totaled 1.9 million jobs, of which 2/3rds were lost just since September. That statistic alone points to an economy in free fall.

by Frank James

The Big Three auto makers take their pleas for an auto industry bailout to the House side today and as we saw yesterday after the Senate's hearing, it's far from certain they will get the $34 billion in taxpayer-subsidized bridge loans they're seeking.

They may get some perverse help from the economy today, with the Labor Department reporting this morning that the nation lost more jobs in November, 533,000, than economists had expected, more than anytime since 1974.

The Detroit Three employ 250,000 U.S. workers. GM alone has 100,000. So the November job loss figures could perhaps ease the resistance of some lawmakers who've been dubious about the bailout.

And even after yesterday's contrite appearances by the newly humbled auto chief executives, there still were lawmakers who remained to be swayed.

As Tribune Washington reporter Jim Puzzanghera reports:

But skepticism remained high on Capitol Hill during a hearing of the Senate Banking Committee, with lawmakers questioning Detroit's commitment to becoming more competitive and worrying that the taxpayers' money would quickly be frittered away.

"In just two short weeks the price tag has jumped from . . . $25 billion to $34 billion," said Sen. Richard C. Shelby of Alabama, the Banking Committee's top Republican. "I'm interested in hearing what changed and why we should believe things will get better."

by Frank James

The economy lost 533,000 jobs in November, the most since 1974 when the nation was trapped in a worsening spiral of inflation and recession. Meanwhile the unemployment rate rising two-tenths of a percent to 6.7 percent.

Economists had expected the losses to be bad but not quite this bad.

The U.S. Labor Department said it also revised downward the September and October job-loss numbers.

This from its release:

November's drop in payroll employment followed declines of 403,000 in September and 320,000 in October, as revised. Job losses were large and widespread across the major industry sectors in November.

With these kinds of employment losses, the magnitude of consumer spending it would take to turnaround the economic slump likely won't materialize without massive federal help in the form of large stimulus packages. The government is now in the position of being the consumer of last resort.

by Frank James

It was the question the chiefs of the Big Three automakers knew was coming and they were ready. How did they get to Washington and how did they plan to return home?

They knew it was part of the penance they'd have to pay for being so disconnected to public appearances that they separately flew to Washington on their private jets in November to ask for a taxpayer bailout of their companies.

It was Sen. Richard Shelby, a Republican from Alabama, who, hours into the hearing, asked the question.

SEN. SHELBY: You flew up here before, I understand that. And you drove up here. Did you drive or did you have a driver? Did you drive a little and ride a little? And secondly, I guess, are you going to drive back? Because if you are, some of us might want to ride back with you.

SHELBY: Now wait a minute Sen. Dodd. I'll let you ask that question. The chairman wants to make light of it. But I can tell you this, are you planning to drive back? In all the press releases, I saw you drove up here.

All the auto CEOs said they drove to Washington and planned to drive back. All three, Bob Nardelli of Chrysler, Alan Mulally of Ford and GM's Rick Waggoner all split the driving duties with other drivers with Waggoner saying he planned to drive back himself tomorrow or Saturday.

It turned out to be one of the few moments of levity in a lengthy hearing that was generally fairly sobering.

by Frank James

First it was $25 billion to bailout the auto industry. Then, once the Big Three automakers submitted their plans to Congress, it was $34 billion.

Now, we've head Mark Zandi, chief economist at Moody's Economy.com, say at the Senate Banking Committee hearing that's still in progress that for a bailout to really work to save the Big Three, an effective bailout would have to be more like $75 billion to $125 billion in size.

Zandi, who's testifying today along with the auto executives, says $34 billion would only get the Big Three through the next few months. The higher range would be needed to get the companies through the next few years, especially if the automakers' annual sales come in around 10 million to 11 million vehicles compared with the 17 million units they were manufacturing annually before the bottom fell out of the auto market.

Needless to say, Zandi's numbers caught the attention of lawmakers who aren't too happy at the thought of a $34 billion bailout let alone one that, to be effective, might need to be more than twice as large.

by Frank James

The Big Three automakers are in Washington for the first of two congressional hearings this week, appearing before the Senate Finance Committee today and a House committee tomorrow.

In his opening statement Sen. Chris Dodd, chair of the committee, raised one of the most compelling reasons to help the auto industry. Call it the unintended consequences if no help is given.

Dodd uttered three words that should strike horror in the hearts of most Americans by now but probably doesn't: credit default swaps.

These are the financial weapons of mass destruction, as Warren Buffet might call them, that could wreak havoc on an already severely damaged economy.

Speculators used these swaps to place bets on the relative likelihood of some companies defaulting on their debts.

If companies default, holders of CDS on those companies have to be paid by those obliged to pay those CDS obligations.

These CDS are scattered across the financial system and many fall into the category of toxic assets. Indeed, one reason banks are hoarding cash is because they're worried about the CDS on their books as well as those held by other banks, insurers etc.

So if the Big Three default, the repercussions to an already weakened financial system could be disastrous, as Dodd pointed out.

by Frank James

Who wouldn't want one of those 4.5 percent mortgages that are now being considered as a way to revive the economy? Sign me up.

But there's evidently some disagreement about whether such mortgages would be available to those who would be refinancing, like me, or available only to those purchasing a home.

Financial-industry lobbyists want such a program to apply to both home buyers and those refinancing. No surprise there. That would create a much bigger opportunity for the industry to make money than if the program is limited to purchases.

According to an Associated Press story:

Financial industry lobbyists are urging the Treasury Department to take steps to lower mortgage rates and help stabilize the battered U.S. housing market.

"You would have the mother of all re-fi booms," said mortgage industry consultant Howard Glaser.

by Frank James

The circumstances surrounding the $700 billion have had a loosey goosey feel from the very beginning when Treasury Secretary Henry Paulson Jr. gave Congress his initial three page, few-strings-attached request for the money.

So it's no surprise that the Government Accountability Office would issue a report yesterday that indicated that Treasury oversight was not quite what it should be.

An excerpt:

Treasury has yet to address a number of critical issues, including determining how it will ensure that CPP (the Capital Purchase Program) is achieving its intended goals and monitoring compliance with limitations on executive compensation and dividend payments. Moreover, further actions are needed to formalize transition planning efforts and establish an effective management structure and an essential system of internal control...

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by Frank James

The Big Three auto makers all got their restructuring plans in to Congress and their chief executive officers are all reportedly in hybrid vehicles somewhere between Detroit and the nation's capital as they head to the first of two congressional hearings this week.

As someone who's driven from the Midwest to Washington, I hope they have a few good audiobooks. Ohio and Pennsylvania are much bigger in person than they seem from a corporate jet. Maybe they'll race each other along the Ohio Turnpike to keep things interesting. It all could be a great realty TV show: "Race to the Bottom," maybe?

But, alas, it may all be for nought since there are real questions as to whether there is enough support in Congress to give at least $25 billion in taxpayer-funded loans to the companies.

The companies' plans can be found on the GM, Chrysler and Ford websites.

As Tribune reporters Ken Bensinger and Jim Puzzanghera wrote:

Together, the Big Three U.S. automakers are asking Congress for $34 billion in low-cost government loans -- $9 billion more than the roughly $25 billion the automakers had sought just last month.

"Absent support, the company can't fund its operations," Henderson said.

by Frank James

Today's the deadline for the Big Three automakers to send their restructuring plans to Congress as they attempt to get a $25 billion taxpayer bailout they say they need to avoid insolvency.

Congress requested the plans after the chief executive officers of Ford, GM and Chrysler failed to have ready answers to the straight-forward question "what would you do with the money," when they appeared before Congress last month.

Chastened, the automakers now not only have their plans in hand but they also intend to leave behind the flying public-relations disasters known as their private jets. Flying by private jet to Washington the last time they came seeking money turned out to be not such a good idea.

Ford's CEO Alan Mulally plans to ride in a Ford hybrid all the way to Washington to make the point that he's a true penitent. The others apparently intend to fly commercial for their appearances before congressional committees later this week.

As the Associated Press reports:

GM will outline efforts to negotiate swapping some of the company's debt for equity stakes in the automaker, either shares or warrants for them, said two people briefed on the company's plan.

With eight separate brands, GM will also discuss efforts to shed brands but it would prefer to sell them instead of shutting down Pontiac, Saturn or Saab, said one of the people briefed on the plan. Killing off brands, like GM did with Oldsmobile in 2004, would require cash the company doesn't have, the person said. The people briefed on GM's preparations didn't want to be identified because the plan hadn't been completed.

by Frank James

For anyone who suspected for the past year or so that the economy was in a recession, who thought the signs were evident even before Wall Street ran off the rails in the spring and summer, you were right.

The National Bureau of Economic Research, the group that dates economic cycles, says the economy fell into recession last December.

According to the NBER:

The Business Cycle Dating Committee of the National Bureau of Economic Research met by conference call on Friday, November 28. The committee maintains a chronology of the beginning and ending dates (months and quarters) of U.S. recessions. The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.

by Mark Silva

Some "Black Friday.''

First a temporary maintenance worker died opening the doors of a Wal-Mart to a bargaining-hunting crowd of human wolves. And now two are dead at a Toys "R'' Us.

Lay a little blame at the feet of the government, for exhorting Americans to spend more money and shake off that recession gripping the nation. Lay some blame on the media, for stoking the hype surrounding one day of retailing which is, in fact, nothing more than the first of 28 shopping days left until Christmas, with cable news hawking footage of ravenous shoppers storming the doors of stores opening at 4 am.

And in Palm Desert, California, where police say an argument preceded the shooting at a Toys "R" Us, lay some blame on a gun-happy culture which encourages the resolution of simple domestic disputes with the pulling of a trigger.

""Some people got into a fight," said Glenn Splain, manager of a gym across the street from the toy tore. "One of the guys here thought it was over a toy, but it got louder and louder and then there were gunshots."

It was an innocent maintenance man, a 34-year-old temporary employee, who was opening the doors at a Wal-Mart in Long Island for bargain hunters early this morning. Police in Nassau said about 2,000 people had assembled outside the store and the first wave trampled the man opening the doors for them.

The door frame was mangled in the crush, and several other people were taken to hospitals.

"This crowd was out of control," said Nassau County police spokesman Lt. Michael Fleming, descrbing the scene as "utter chaos."

Retailers already were calling this the worst shopping season in six years. Now it's unquestionable. If this is shopping, we might be better off with a recession.

(In the photo above, Nassau County Police stand beyond the broken door of a Wal-Mart in Valley Stream, N.Y., where a ttemporary worker died after a throng of shoppers trampled him moments after the Long Island store opened. AP Photo/Ed Betz)

by Mark Silva

Candidate Barack Obama went to Philadelphia to talk about race in America, seeking "a more perfect union," at a time when it appeared that the issue could dominate a presidential campaign.

Now President-elect Obama will go to Philadelphia to talk about the economy in America, in the midst of a perfect storm of financial and manufacturing breakdowns that could dominate much of the first term of his presidency.

Most of the nation's governors will heed Obama's call for a meeting Tuesday to talk about the impact that the economic crisis is having on state budgets. Nick Shapiro, a spokesman for the Obama transition office, calls the conference at Independence Hall a chance to address "the unique challenges facing our states.''

Pennsylvania also is one of the key places where Obama cemented his electoral landslide victory, carrying a state where it once was believed that many white, blue-collar voters who didn't much care for Obama's depiction of the working class as "bitter'' about everything going on in the country might stand between him and victory.

But this will be a bipartisan meeting, hosted by Pennsylvania Gov. Ed Rendell, a Democrat, chairman of the National Governors Association, and Vermont Gov. Jim Douglas , a Republican, cochairman. Douglas says that 40 governors and governors-elect plan to attend.

The event was rather hastily put together. "It's short notice, some grumbled, but virtually everyone has cleared his or her calendar," the Associated Press quotes Douglas.

Rendell has dedicated his term as NGA chairman to advocacy for increased spending on roads, bridges, sewerage systems and mass transit - just the sort of public works that Obama hopes to make part of a two-year economic stimulus plan aimed at creating 2.5 million new jobs by 2011. That and "green" jobs..

by Frank James

The question-and-answer session following President-elect Barack Obama's press conference elicited some interesting answers from the president-in-waiting:

On voters' desire for an end to partisan ideology:

OBAMA: Well, first of all, we had, I think, a decisive win because of the extraordinary desire for change on the part of the American people. And so I don't think that there's any question that we have a mandate to move the country in a new direction and not continue the same old practices that have gotten us into the fix that we're in.

And I think what the American people want more than anything is just common-sense, smart government. They don't want ideology. They don't want bickering. They don't want sniping. They want action and they want effectiveness. And that's what Peter and Rob are going to help us provide.

When it comes to our budget, I think people don't want to continue a budget -- a(n) argument about big government or small government; they want smart government and effective government. And so what we're going to do is to work as closely as we can with the Republican Party. My chief of staff, Rahm Emanuel, has already met with both caucuses. We want their input. We want their ideas.

by Frank James

Here's President-elect Barack Obama's opening statement from today's press conference at which he announced his nomination of Peter Orszag as director of his Office of Management and Budget and Rob Nabors as the deputy director.

Obama also sent the message that he planned to search the federal budget for spending cuts to off set the additional spending needed to prop up the economy.

PRESIDENT-ELECT OBAMA: Good morning.

Before I explain why I selected these outstanding public servants, let me just say a word about the work I am asking them to undertake. As I said yesterday, the economic crisis we face demands that we invest immediately in a series of measures that will help save or create two and a half million jobs and put tax cuts in the pockets of the hard-pressed middle class. Many of those new jobs will come in areas such as energy independence, technology, and health care modernization that will strengthen our economy for the future.

by Frank James

The Federal Reserve and Treasury Department unveiled their latest plans to loosen up the mortgage and consumer credit markets.

The Fed is basically going to buy up to $600 billion in bonds and mortgage-backed securities of the government-sponsored enterprises like Fannie Mae and Freddie Mac, which are actually now government owned and operated since they were taken over in September.

That is meant to drive up the prices of the bonds and mortgage-backed securities and drive down their interest rates, which should make it easier for Fannie, Freddie and the rest to raise money at lower costs. That money in turn could used to make more mortgage loans. Here's the Fed's release which says the same thing, just in Fedspeak.

The Federal Reserve announced on Tuesday that it will initiate a program to purchase the direct obligations of housing-related government-sponsored enterprises (GSEs)--Fannie Mae, Freddie Mac, and the Federal Home Loan Banks--and mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac, and Ginnie Mae. Spreads of rates on GSE debt and on GSE-guaranteed mortgages have widened appreciably of late. This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.

Purchases of up to $100 billion in GSE direct obligations under the program will be conducted with the Federal Reserve's primary dealers through a series of competitive auctions and will begin next week. Purchases of up to $500 billion in MBS will be conducted by asset managers selected via a competitive process with a goal of beginning these purchases before year-end. Purchases of both direct obligations and MBS are expected to take place over several quarters. Further information regarding the operational details of this program will be provided after consultation with market participants.

by Frank James

According to the experts, one reason for the world's present economic travails is too much debt. The world is "deleveraging" that is, shrinking its debt levels, which has led to a decline in consumer spending which has caused the economy to stop in its tracks.

So there's irony in the steps Treasury Secretary Henry Paulson Jr. is expected to announce today to free up the frozen credit markets so that consumers can get student and auto loans.

As The Wall Street Journal reports:

Treasury Secretary Henry Paulson, seeking to ease strains in the consumer credit market, plans to announce Tuesday the formation of a program to increase the availability of auto loans, student loans and credit cards, according to people familiar with the matter.

While the initial focus will be on consumer loans, the facility could eventually be expanded to cover all manner of assets, including mortgages.

by Frank James

Is General Motors trying to do a little high-profile, dramatic damage control here following its CEO's disastrous appearance along with the CEOs of the other Big Three automakers on Capitol Hill last week?

As the Associated Press reports:

DETROIT (AP) -- General Motors Corp. said Monday it is ending its nine-year endorsement deal with golf superstar Tiger Woods as the automaker continues to cut expenses and hoard cash while trying to survive the worst sales downturn in a quarter-century.

Woods has endorsed GM products around the world and mainly has been seen in Buick commercials as the company tried to give the nameplate a more youthful image. He has carried the Buick brand on his golf bag since 2000, and his most recent promotion was to caddie for a contest winner for nine holes at Torrey Pines, where Woods won the U.S. Open this summer for his 14th career major.

by Frank James

Here's one way for a president-elect to get around some of the limits placed on him by the Constitution which makes a president-in-waiting wait until late January to officially take office: choose as your Treasury secretary a guy already elbow-deep in the financial rescues that have become a frequent part of the global economic crisis.

By choosing Timothy Geithner, president of the New York Federal reserve Bank, to be his Treasury Secretary, Obama has someone who's been at the table for the Bear Stearns, Lehman, AIG and now Citigroup emergencies. According to the Associated Press:

The Citigroup rescue came after a weekend of marathon discussions led by Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke. Timothy Geithner, president of the Federal Reserve Bank of New York, who is being tapped by President-elect Barack Obama as his Treasury chief also participated.

by Frank James

Citigroup certainly has much to be thankful for this week since it's getting new and massive federal support to keep it solvent.

The rest of us, whether we know it or not, likely also have much to be thankful for since we can assume the response to a Citibank insolvency wouldn't be good.

Federal officials last night announced they will transfuse more money, $20 billion, into the wobbly banking giant, and also even more extraordinary, serve as backstop to up to $306 billion in toxic assets.

A joint statement issued by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. said:

With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy.

We will continue to use all of our resources to preserve the strength of our banking institutions and promote the process of repair and recovery and to manage risks. The following principles guide our efforts:

Citigroup's the latest financial institution to be deemed too big to fail, which it probably true, especially when global economies are on life support.