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.

by Mark Silva

President-elect Barack Obama had maintained that there is "only one president at a time.'' But in these times, it's probably time for a second president to deliver a second opinion about a direly needed economic recovery.

And Obama is delivering that with the rollout of a high-octaine team of economic advisers whom the president-elect will assign to draft a recovery plan ready for action when a new Congress convenes in January and when he is sworn in as president on Jan. 20.

During the campaign, Obama spoke of a $175-billion one-year stimulus plan for economic recovery. Now he is talking about a two-year plan, with aides suggesting its cost could run upwards of $700 billion.

Obama's goal is to create 2.5 million new jobs by January 2011, and the team he is announcing today will become the architects of that job-creating venture, including plans for building not only bridges and roads but also new sources of alternative energy.

With gasoline prices at a three-year-low, it's time to think about averting the next energy crisis. And with the stock market at an even lower low, it's time to think about rebuilding that economy that was the envy of the world.

It just may take two presidents to tango on this one.

by Frank James

There's been some thinking since Election Day that President-elect Barack Obama would want to emulate President Franklin D. Roosevelt in terms of staying out of the way until he was officially in office.

Roosevelt famously rejected the entreaties of President Herbert Hoover to help deal with the Depression. FDR didn't want his policies to be tainted by an association with his increasingly unpopular predecessor.

But the world Obama must deal with is much different than the one Roosevelt faced. It's much more connected with information and money moving far faster because of technology than was possible in Roosevelt's time.

So, as I wrote yesterday, Obama has clearly decided to seize the bully pulpit aspect of the presidency since President Bush's influence has waned to such a degree that it seems like the current Oval Office occupant has already mentally packed up his presidency and is just waiting for the movers to show up.

Peter Wallsten of Tribune's Washington Bureau has a story that elaborates on this theme.

"There's no question that Bush is still president, but people are looking for signs to see what's going to happen going forward," said an Obama aide who, like others, requested anonymity when discussing deliberations inside the transition. "We're going to attempt to do that in this period."

New York Federal Reserve President Tim Geithner gestures as he makes a point to Federal Reserve Chair Ben Bernanke on Oct. 15, 2008. (AP Photo/Mark Lennihan)

by Frank James

The Wall Street Journal is reporting that President-elect Barack Obama has chosen his Treasury Secretary and it's not Lawrence Summers but Timothy Geithner.

Geithner is president of the New York Federal Reserve Bank so he's well known by Wall Street. He also was an integral part of the federal rescue activities on behalf of Bear Stearns and AIG.

Summers, who served as Treasury Secretary in the Clinton Administration and was Harvard University's president, was thought to be the frontrunner but there were reports women's groups were against him because of some insensitive comments he made that resulted in him being ousted from the top Harvard office.

Here's an excerpt from the Journal's very short story:

New York Federal Reserve Bank President Timothy J. Geithner is to be nominated as President-elect Barack Obama's Treasury secretary, according to a person close to the transition process.

The Federal Bureau of Investigation began calling Geithner confidants this week, starting a vetting process of getting the economist and Fed veteran in place almost as soon as Mr. Obama is inaugurated the 44th president.

by Frank James

General Motors is getting rid of some of its corporate jets after they became a symbol of the auto industry chief executives' cluelessness and hubris in their effort to get Congress to give their companies a $25 billion bailout, according to ABCNews.

An excerpt of ABCNews' report:

General Motors said today that it is putting two of its five corporate jets out of service because the planes are not being used enough. The top three executives at GM, however, will continue to use the private luxurious jets for all of their business and personal travel, despite a flurry of criticism over the perk following an ABC News report this week.

GM leased a fleet of seven planes at the beginning of this year, according to a company spokesperson. Two of the planes were dropped from the fleet in September and two more will be dropped by the end of the year.

by Frank James

Put this one in the too little, too late file. As the Associated Press reports:

WASHINGTON -- Mortgage finance companies Fannie Mae and Freddie Mac are suspending foreclosures for about 16,000 households during the holiday season.

Fannie Mae said about 10,000 households would be affected, and Freddie Mac said the changes would affect about 6,000 borrowers who are facing foreclosure.

When the economy is in part being pulled down by an estimated three million foreclosures, a temporary suspension of foreclosures for 16,000 homeowners just underscores how impotent so many of the federal actions have been to date.

by Frank James

Don't read this if you're in a blue mood because it won't help lift your spirits.

Nouriel Roubini, a professor at New York University's Stern Business School gives 20 reasons why consumers aren't spending. Really, it's no mystery. Boiled down, we don't have any money. To elaborate further: we have too much debt, not enough savings and are losing our jobs.

While most others were still at the economic punch bowl of cheap money and easy credit, Roubini warned years ago that the economy was heading toward the cliff, so he's worth listening to now. But it's not easy listening, that's for sure.

An excerpt from his a piece he has on the Forbes website:

This week's news about October retail sales (-2.8% relative to the previous month and now down in real terms for five months in a row) confirm that the U.S. has entered its most severe consumer-led recession in decades. At this rate of free fall in consumption, real gross domestic product growth could be a whopping 5% negative or even worse in the fourth quarter of 2008. And this is not a temporary phenomenon: Almost all of the fundamentals driving consumption are heading south on a persistent and structural basis.

by Frank James

Have the federal bailouts been biased towards white-collar and against blue-collar workers?

That question was starkly raised by Rep. Barney Frank, chair of the House Financial Services Committee, which yesterday heard the chief executives of the Big Three automakers beseech Congress for $25 billion in taxpayer-funded loans.

Frank, the committee's chair, said:

I have been struck, not happily, in the time that we've been discussing this, at what frankly seems to me an inherent cultural bias. There's a double standard here. Aid to blue-collar employees is being judged by a standard different than white-collar employees.

Ford Chief Executive Officer Alan Mulally arrives on Capitol Hill on Wednesday, Nov. 19, 2008, in a new Ford Fusion Hybrid, (AP Photo/Gerald Herbert)

by Frank James

It was kind of a cheap shot but still an effective moment that made the point the lawmaker was seeking.

Rep. Brad Sherman, a California Democrat on the House Financial Services Committee asked at today's hearing on a potential bailout for the struggling U.S. auto industry asked the Big Three's chief executive officers which of them had flown by private jet into Washington for the hearing. All three raised their hands.

Then he asked which would be heading home commercially. None of the three raised his hand.

It definitely didn't match the image of cash-strapped companies in desperate need of a taxpayer-financed bailout that the auto industry officials were trying to get across.

Not that there wasn't some thought given ahead of time to image. Alan Mulally, Ford's CEO made sure to arrive at Capitol Hill today in a Ford Fusion hybrid.

by Frank James

The White House is trying to shift blame to congressional Democrats if the auto industry doesn't get the financial bailout it's seeking, saying Democrats appear unwilling to loosen restrictions on $25 billion that's already been approved to help the industry retool to make their vehicles more fuel efficient.

White House spokeswoman Dana Perino, reflected that view in an exchange with a reporter today:

PERINO: Well, Senator Reid (the Senate majority leader) appeared to foreshadow this morning that the Congress will fail to address this issue before they leave. And I'd like to just make a few points clear on that. One, there is legislation that's being introduced by Senators Bond and Voinovich that the administration supports. That proposal would redirect existing funds already appropriated for the auto industry, rather than spending an additional $25 billion on top of the $25 billion we already support using, as we've said over the last few days.

That proposal of theirs would not rob the Treasury program of much needed funds to help save and strengthen the financial system. The purpose of the $700 billion was clearly intended for financial institutions, and we wanted to keep that whole.

University of Maryland professor Peter Morici at a Senate hearing on the proposed auto industry bailout, Tuesday, Nov. 18, 2008. (AP Photo/Manuel Balce Ceneta)

by Frank James

It's doubtful Peter Morici will be receiving any awards any time soon from the United Auto Workers.

Morici, an international business professor at the University of Maryland was, as he noted, the only witness testifying against the Senate Banking Committee's hearing on bailing out the U.S. auto industry; the chief executives of Detroit's Big Three sat to his right.

But Morici made such a strong case against a bailout, he really didn't need any help. He was a one-man wrecking crew.

The nub of Morici's argument was that $25 billion isn't going to change the numeorus structural problems the industry has from higher costs due to its union contracts to the fact that cars are so well made now consumers can keep them longer. Add to that the foreign currency and trade issues that give foreign producers a price advantage and it's clear, at least to Morici, that $25 billion isn't the right medicine for the ailing industry.

Morici's remarks are worth reading because if he's diagnosing the situation correctly, than he presents President-elect Barack Obama and congressional Democrats who received strong backing from the UAW and organized labor generally with a real dilemma: The UAW desperately wants the bailout.

But a bailout to the tune of tens of billions of dollars may just be throwing good money after bad.

MR. MORICI: My name is Peter Morici. I'm an economist and professor at the University of Maryland. I'm the sole panelist here to speak against the bailout. I guess three CEOs and a president of a labor union, one Terrapin (the school's turtle mascot) -- I think it's a pretty fair matchup actually. I feel sort of like the mouse that stowed away on the Titanic.

The gradual erosion of the market shares, of the Detroit Three, over the last several decades, stems from higher labor costs, having origins in wages, benefits, work rules, poor management decisions and less than fully supportive government policies.

by Frank James

The good news is the economic slowdown caused prices in October to fall by the largest monthly percentage ever recorded. Consumers should be pretty pleased, right?

Not necessarily. Because the bad news is this could signal even more pressure on already strapped companies which will find their revenues falling, which likely means more layoffs and perhaps even less spending by cash-strapped consumers.

As the Associated Press reports:

The Consumer Price Index, the country's most closely watched inflation gauge, dropped 1 percent in October, the biggest monthly decline on records dating back to 1947, the government reported Wednesday. Over the past year, though, consumer prices are up 3.7 percent, which is faster than wage growth over the same period, putting a squeeze on household budgets.

Even with the monthly price reprieve, consumers are in no mood to go on a shopping spree. They have been cutting back sharply on spending because of the strains from job losses, shrinking nest eggs and falling home prices.

by Mark Silva

Americans appear fairly divided over the prospect of bailing the nation's automakers out of a financial jam that could force at least one into bankruptcy.

And, much like the debate playing out in Washington this week with a lame-duck session of Congress unlikely to extend a hand to Detroit, Democrats appear more favorably inclined toward a bailout than Republicans are. The Gallup Poll has found that 60 percent of Democrats surveyed favor a bailout and 65 percent of Republicans oppose it.

Overall, 49 percent oppose federal financial assistance for the automakers, and 47 percent support it - a little different than that 55 percent level of support that pollster Peter Hart found in a survey sponsored by, um, General Motors.

The vast majority of those who oppose help - 79 percent - say they would oppose aid even if one of the Big Three automakers were certain to fail without it. That's 39 percent of all people surveyed.

Yet 18 percent of all surveyed would favor assistance under such dire circumtances - or 9 percent of all surveyed - putting the overall level of potential support at 56 percent - which places public sentiment a lot closer to what Hart found in his survey. Depends on how we ask these questions, it seems.

The Gallup survey of 1,009 adults was conducted Nov. 13-16, and has a possible margin of error of plus or minus three percentage points.

by Frank James

Treasury Secretary Henry Paulson Jr. is likely to feel pretty beat up by the time the just-convened House Financial Services Committee meeting ends today.

Some lawmakers are upset that the Paulson changed the thrust of the $700 billion bailout program from what he told Congress he wanted the money for. Instead of buying toxic assets from financial institutions, last week Paulson said that idea was dead and that he favored injecting money into financial institutions directly.

Many lawmakers are also frustrated with Paulson because they feel the Treasury Department isn't doing enough to end the nation's home-foreclosure epidemic.

So it's no coincidence that Paulson is mounting something of a public-relations campaign. The Washington Post has the first part of a story based on an interview with Paulson whose essential theme is that he came to Washington believing that free-markets were self-correcting only to come to believe in the importance of regulators.

The message he appears to be sending the Democratic-controlled Congress is "I'm on your side."

An excerpt:

When he arrived in Washington as one of Wall Street's most successful bankers, he was skeptical of government meddling. But as a regulator facing the worst financial crisis in nearly a century, he engineered a series of massive federal intrusions into the markets while persuading reluctant bank executives and influential politicians to fall in behind him.

by Mark Silva

As lawmakers debate a new federal loan for the ailing auto industry this week, a bailout that appears to lack the support necessary in the Senate, Democrats insist that a stumbling economy can not afford to lose an industry that accounts for one in 10 of all jobs.

"The House is ready to do it,'' said Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, in a debate on CBS News' Face the Nation today. The auto industry, he said, should get "some short-term bridge help, so they can dig themselves out of a hole .''

Among the opponents: Sen. Richard Shelby (R-Ala.), ranking Republican on the Senate Banking Committee.: "I think this is the wrong road to go down right now,'' he said in a debate with Frank on the Sunday morning show.

"There is no endgame here,'' Shelby said. "We've got failing automobile manufacturers... got a bad model, got bad management, no innovation... Now we're talking about putting another 25 (billion) into a system, a model that's not going to work.

"It's like a dinosaur, in a way,'' he said of the industry, and unless it changes, it's "inevitably going to go down anyway, with or without the help of the government.'' The way it's run today, he said, General Motors "is going down to oblivion.''

Frank: "It might be one thing to tolerate a bankruptcy if we had a lot of jobs out there... There are suppliers out there who are owed money... There are a whole range of people who didn't make bad decisions.... The question is, how much pain do you inflict on an already weakened economy by blithely saying, 'OK, let them go into Chapter 11?'''

"Why are they going to the government? '' Shelby asked. "Because there's not a bank out there that will loan them a dollar.''

There's little lending on any front today, Frank countered. "The question is, how much pain can the rest of the economy take?''

by Mark Silva

The leaders of the world's industrial powers have concluded a hasty summit on a global economic crisis with a commitment to strengthen regulation of financial markets, bolster international monetary funds and avert any new trade barriers in the face of a spreading worldwide recession.

Yet President Bush, who convened this summit of nearly two-dozen nations near the end of his term, conceded today that their words are only the start of an ongoing global dialog.

"All this is an important first step,'' Bush said at the close of the conference. "It makes sense to come out of here with a firm action plan, which we have,'' he said, but "a meeting is not going to solve the world's problems... A meeting will start a process so that we can say over time that we will have a regulatory process in place that will help us avoid this from happening in the future.''

This extraordinary summit for the leaders of the United States and 20 other industrial nations was prompted by a global economic crisis that has spanned from India to Western Europe, from St. Louis to St. Petersburg and from Boston to Beijing.

The leaders have agreed to reform and modernize institutions such as the World Bank and International Monetary Fund and take "a fresh look at rules that govern market manipulation and fraud.''

They have agreed to "take whatever further actions are necessary to stabilize the financial system,'' according to the White House. They have agreed to continue providing liquidity to help free frozen credit markets and ensure that the IMF, World Bank and other development banks have sufficient funds to help developing countries affected by the crisis.

(Bush at close of summit, photo by Mandel Ngan/AFP/Getty Images)

by Mark Silva

It's foggy this morning at Foggy Bottom, where an international press corps has assembled at the State Department for a summit of international leaders -- presidents and prime ministers of some 20 nations and organizations - focusing on a global economic crisis that spans from China to Western Europe.

President Bush convened this Summit on Financial Markets and the World Economy, staged at the National Building Museum across town, and welcomed fellow leaders there this morning after an opening dinner last night in the State dining room of the White House. The summit is expected to wrap up with a statement of mutual understanding mid-afternoon.

"I am pleased that we're discussing a way forward, to make sure that such a crisis is unlikely to occur again,'' said Bush, calling on leaders to resist the temptation to tamp down on free trade among the nations.

"One of the dangers of such a crisis as this is that people will start implementing protectionist policies,'' Bush said in a brief public statement at the National Building Museum this morning. "We had a good frank discussion last night and I look forward to the discussions today. ''

"Frank discussions:'' Legendary diplomatic code-word around the White House for talks that may not be going so well behind the curtains.

by Frank James

While it's unclear what the rest of the world will get out of the financial summit taking place in Washington this weekend (a large global stimulus we hope) at least the national leaders participating in the summit will get some very good meals to fuel their discussions.

Here's the menu for tonight's White House dinner:

------------------------------
THE WHITE HOUSE

Chandon Étoile Rosé

by Frank James

Sheila Bair, chairman of the Federal Deposit Insurance Corp. has been a strong advocate within the Bush Administration for much more aggressive action to stop foreclosures since that is the part of the financial calamity that keeps spreading like gangrene and pumping toxins throughout the rest of the system.

Other officials in the Bush Administration, like Treasury Secretary Henry Paulson, have reportedly rebuffed her, believing that a focus on large financial institutions is more efficient.

But Bair and the FDIC have persisted. Today, the FDIC unveiled a proposal meant to prevent 1.5 million foreclosures which it estimates would cost around $24.4 billion. The program would be for delinquent mortgage loans not held or guaranteed by Fannie Mae or Freddie Mac, the government-sponsored enterprises, or GSEs.

An FDIC chart that shows the agency's belief that its new proposal could prevent 1.4 million house foreclosures.

by Frank James

The list of entities who want a piece of the $700 billion bailout fund just keeps grows larger.

Cities have now joined auto makers and banks in reaching out to the Treasury Department for financial assistance from the Troubled Assets Relief Program (TARP) fund.

It's another sign of how much financial stress exists across the nation, in both the private and public sectors. It also would seem to suggest that what's needed at this stage is something far bolder in the way of fiscal stimulus since severe austerity measures in the form of job cuts by cities and states will only add to downward pressure on the overall economy delaying any recovery.

by Mark Silva

While Congress may be reluctant to bail out the ailing American auto industry, most Americans support the idea of a federal loan to the automakers, a poll shows.

Fifty-five percent of those surveyed this week said the government should offer loans to the auto industry, according the survey run by pollster Peter Hart.

Now here's the disclosure: Hart is a reputable pollster, and well-known on the political front. But the client for the survey run by Peter D. Hart Resarch Associates on this issue was commissioned by General Motors. GM, Hart insists, had "no input or review of the design, methodology, content or interpretation of the survey.''

The pollster suggests that fear of a looming economic catastrophe is what motivates most Americans supporting the idea of a federal bailout, with 60 percent sayiing a collapse of the auto industry would augur a depression. At best, 84 percent say it would harm the U.S. economy.

The poll of 804 adults conducted Nov. 11-12 has a possible margin of error of plus or minus 3.5 percentage points. And a possible political incredibility factor, based solely on the sponsor, and not the pollster, of about 50-50. See the poll: Hart poll

by Mark Silva

This is the line that jumps out of the agenda for the Summit on Financial Markets and the World Economy that President Bush is convening:

3:05 pm (EST) Saturday: "President Bush makes a statement...''

"Interpretation will be provided.''

That's not Texan to English, however.

That's English to Arabic and Chinese and French and German and Japanese and Russian and much more for the leaders of the G-20 nations assemlbing in the State Dining Room of the White House tonight for a summit dinner and then attending meetings Saturday morning at the National Bulding Museum.

It will be the first of many such talks about the global economic crisis -- with 15 nations in Europe already recording the official recession-defining two quarters of declining growth and the United States solidly in its first quarter of decline. But it will be the last chance for Bush to preside over such an assembly.

President-elect Barack Obama is sending his own representatives to the summit to report back.

With their own interpretation of events.

by Frank James

Layoffs are being announced in the tens of thousands. Foreclosures have hit record levels. Billions of dollars of home equity have been wiped out for millions of Americans. Credit is difficult to get. Incomes are static.

Mix that witches brew of economic misery and you'd expect to see consumer spending drop. And that's exactly what's happening except even more so than the experts expected.

Here's an excerpt of an Associated Press report:

WASHINGTON (AP) _ Retail sales plunged by the largest amount on record in October as the financial crisis and the slumping economy caused consumers to sharply cut back on their spending.

The Commerce Department said Friday that retail sales fell by 2.8 percent last month, surpassing the old mark of a 2.65 percent drop in November 2001 in the wake of the terrorist attacks that year.

by Frank James, updated at 3:25 pm ET

As Congressional Democrats try to come up with a financial package for the U.S. auto industry, Washington policy makers and Americans generally are torn on whether the auto makers should get a bailout or be allowed to go bankrupt.

The question has particular urgency for GM which is facing a cash crunch that could lead it to bankruptcy court in a matter of weeks, according to GM's chief executive Rick Wagoner.

The reason it's such a difficult debate is because there are powerful arguments on both sides.

Those who favor taxpayer money being used to infuse cash into the car makers argue that the collapse of U.S. auto industry would have a huge knock-on affect on an already weakened economy, harming suppliers and communities across the entire country.

by Frank James

More bad economic news today on the unemployment front. Jobless claims climbed to the highest level in seven years last month.

What's truly unnerving is that the numbers are coming in even worse than economists and other analysts expected.

These are forecasters whose models presumably don't contain a lot of overly optimistic assumptions at this point. And yet the economy is still yielding results that are uglier than already gloomy expectations.

As the Associated Press reported:

WASHINGTON (AP) _ Applications for unemployment benefits soared to the highest level since just after the Sept. 11, 2001, terrorist attacks while the trade deficit shrank more than expected as demand for imports plunged, further evidence of the struggling U.S. economy.

by Mark Silva

President Bush, who will convene a summit of world leaders on the economic crisis with a dinner at the White House on Friday and meetings on Saturday, will spell out his goals today in an address to the Manhattan Institute at Federal Hall in New York.

"This crisis did not develop overnight, and it will not be solved overnight,'' Bush plans to say, calling for reforms in international banking and a continuing commitment to free trade. "But our actions are having an impact. Credit markets are beginning to thaw. Businesses are gaining access to essential short-term financing. And a measure of stability is returning to financial systems around the world.

"There are many reasons for confidence, and one of the greatest is the spirit of New York City,'' Bush plans to say, according to remarks released by the White House. "This is a city whose skyline has offered immigrants their first glimpse of freedom, and where people rallied when that freedom came under attack. This is a city whose capital markets have attracted investment from around the world, and financed the dreams of entrepreneurs from across our Nation. And this city will always be the financial capital of the world.

"The world economy today is more interconnected than ever before,'' he will say. "Prosperity and progress now reach further than at any point in history. Unfortunately, as we have seen in recent months, financial turmoil anywhere in the world can affect economies everywhere in the world.''

With concerted effort by the world's leading nations, the president plan to say, the global economy "can rebound quickly.''

Treasury Secretary Henry Paulson speaks during a news conference at the Treasury Department in Washington, Nov. 12, 2008. (AP Photo/Susan Walsh)

by Frank James

It took Treasury Secretary Henry Paulson awhile to acknowledge what many experts said from the beginning, that it was a bad idea to use taxpayer money to purchase toxic assets from financial institutions. That the better idea was to inject capital into banks directly while receiving an ownership stake in return. But that's what he essentially did today.

His comments came in a press conference he had this morning to update the nation on the $700 billion Troubled Assets Relief Program, known as TARP, one of the best acronyms Washington has invented in a long time.

Paulson said:

Over these past weeks we have continued -- continued to examine the relative benefits of purchasing illiquid mortgage-related assets. Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role relative to other potential uses of TARP resources in helping to strengthen our financial system and support lending.

by Frank James

We actually may have more than one president at a time, despite what President-elect Obama and his aides have persistently said since Election Day.

That's the only way to interpret some reporting that indicates Obama's transition is fully engaged in drafting a rescue plan for the Big Three automakers.

As The Wall Street Journal reports, Obama and his aides, like congressional Democrats, are working on ways to use taxpayer money to prop up U.S. auto manufacturers.

Mr. Obama, after some initial hesitation to become publicly involved, is pressing the Bush administration to immediately free up funding through the Treasury, the Energy Department and the Federal Reserve. It is also studying other options, including installing new board members at car companies that receive assistance to ensure compliance with the strings attached to a bailout, including the adoption of a more advanced, fuel-efficient product line.

by Frank James

A lot of experts have argued that the financial crisis and the larger economic woes the nation is encountering will only be reversed when the unending cascade of home foreclosures is finally stopped.

So the Treasury Department, along with the federal agency that now oversees Fannie Mae and Freddie Mac, have announced a new program to speed up loan modifications for strapped homeowners facing foreclosure whose loans are either in the housing giants' portfolios or guaranteed by Fannie or Freddie.

James Lockhart, director of the Federal Home Finance Agency which took control of Fannie and Freddie a few months ago, said this at the announcement:

Today we are announcing a major program designed to greatly reduce preventable foreclosures with a simplified, streamlined loan modification program to get struggling homeowners into mortgages that they can afford. It is an achievable goal if homeowners, banks, mortgage servicers, investors, Fannie Mae and Freddie Mac all work together.

Workers leave the General Motors Powertrain facility in Warren, Mich., Friday, Nov. 7, 2008. (AP Photo/Paul Sancya)

by Frank James

Rick Wagoner, General Motors' chief executive, was on CNBC Friday where he was asked why shouldn't the company be allowed to go bankrupt. He essentially said it was too big to be allowed to fail because of the tremors such a failure would set off throughout the economy

Because that would lead to a greater economic calamity, was his answer.

"I've seen pundits write this stuff (about bankruptcy) but you can't sell cars to people under that circumstance. I think it would be a devastating impact.

I read the pundits too. I suspect these were some of the same guys who said 'Let Lehman go' and you see the impact that had. I think this is a pivotal issue for the U.S. The fact is that the problems in the auto sector are a direct consequence of the credit crisis."

Wagoner's message to Washington policymakers is twofold. First, the freezing of the credit markets has been linked to Washington's failure to keep Lehman Brothers afloat because Lehman's failure led to the collapse of the commercial paper market, the short-term loans companies use to fund their operations. Second, if GM is allowed to fail, that could have unintended consequences of a huge magnitude, just like Lehman.

By Jim Tankersley

Forget "hope" and "change" and "yes we can." The word that will matter most, when Barack Obama assumes the Oval Office, is "doable."

Teary-eyed jubilation is giving way to clear-eyed realism. As his campaign rhetoric runs into governing reality, Obama will have to contend with a set of political and practical restrictions that are perhaps more daunting than any faced by an incoming president since Franklin Roosevelt took over amid the Great Depression. And he will have to tailor his early policy agenda accordingly.

Obama is set to inherit a plunging economy, ongoing wars and a massive federal deficit coupled with a long national wish list. His party owns large House and Senate majorities, but the numbers hide major disagreements over priorities. He will be pulled by core Democratic groups who have waited years to advance their interests, by the weight of his campaign promises and by the expectations of a beleaguered electorate.

So what can he do? With those constraints and history in mind, politicians and policy experts suggest several domestic and foreign initiatives, costing relatively modest amounts by today's spending standards, many of them tinged in green. Read on for their full list, from today's Chicago Tribune.

by Frank James

This morning's employment report has clearly shaken economic analysts, many of whom are saying that the economy needs another fiscal stimulus sooner rather than later.

There's a lot of thinking today that instead of shoveling money to consumers as was done during the first round, what would benefit the economy more is spending on infrastructure that would not only provide jobs but improve the nation's roads, schools and bridges. Pumping money into state governments is also being pushed as a way to prop up the overall economy.

Economists suggestions for the size of a new stimulus package start at about $300 billion.

Here's an excerpt from Bernard Baumohl of the Economic Outlook Group:

Despite numerous government injections of financial adrenalin into the economy, it remains unresponsive. That's the quick conclusion one draws from the October jobs report. Clearly President-elect Barack Obama is inheriting the worst set of economic conditions since Franklin Roosevelt....

... The severity of the global credit crises, housing depression, and collapse in confidence is of a scale that the free market cannot cure on its own. The invisible hand in this instance is high up in the air signaling help. We may have no choice but to re-learn economics and policymaking at this point. Our contention is that only a massive government stimulus package on the order of $300 billion to $500 billion will be needed to jolt the economy out of its coma.

by Frank James

The economic picture appears to be getting gloomier and quickly. The economy lost nearly a quarter million jobs in October, more than analysts had expected.

The Associated Press has the details:

WASHINGTON (AP) -- The nation's unemployment rate bolted to a 14-year high of 6.5 percent in October as another 240,000 jobs were cut, the government said Friday. It was stark proof the economy is almost certainly in a recession.

Employers got rid of 240,000 jobs in October, marking the 10th straight month of payroll reductions.

by William Neikirk

They don't know each other, but Kay Flanery and Mary Ann Bell share something in common. They both saw their savings plunge during the stock market meltdown. Now, they both say they will have to work longer before retiring.

Flanery, of St. Louis, a 54-year accountant and single mother, saw her 401K savings account sink by about 30 percent percent or asmuch as $75,000 during the meltdown. Bell, 61, a high school teacher in Arlington, Va., said she lost roughly 20percent in her savings. In the crash.

Flanery had looked forward to lessening her work load and traveling before retiring in five years or so. "Now I will have to wait until the market recovers," she said. Bell said she likely will delay retirement for at least a year as will many of her colleagues.

They are like many older people who watched in horror as the carnage on Wall Street shrank their nest-eggs. Even before the recent crisis, one in five older Americans had been putting off retirement. Now that figure is undoubtedly higher, say experts.

(See the story surviving an economic crisis in Sunday's Tribune and an expanded account here in the Swamp:)

by Frank James

Consumer spending is about 70 percent of the economy, definitely the dog that waves the tail.

So when it falls substantially, as it did in September, the economy is in a hole it can't crawl out of until consumers start spending again. Which they won't so long as corporations keep announcing large layoffs and house prices keep falling. Which just feeds the whole cycle all over again.

The Commerce Department reported this morning that consumer spending fell by an inflation adjusted 0.4 percent in September.

by Frank James

This goes into tell the tell-us-something-we-don't-know category. The Commerce Depart. reported this morning that the economy was really, really bad in the third quarter, contracting by three-tenths of a percent.

The number is an early estimate so there's the possibility it could be revised in either direction. But if it is accurate, it would suggest the possibility that we entered a recession earlier this year. A recession is officially considered two consecutive quarters of negative real Gross Domestic Product growth.

by Frank James

Virtually no one expects that the Federal Reserve's half-a-percentage-point of the rate banks charge each other for overnight loans to one percent will do much of anything.

Still, since the financial markets were expecting the cut, and the economy is so afflicted, the Fed had to act, so it did. Otherwise, it would have sent the completely wrong signal. It was a "just don't stand there, do something" moment.

Of course, the Fed has done a lot already, including helping to engineer Wall Street rescues and pumping dollars into the economy at a furious rate for the better part of a year. Surely no one could accuse the Fed of not doing enough.

Nonetheless, I heard a Harvard economist, Kenneth Rogoff, on the public radio program "Marketplace" say the Fed may very well take the rate down to zero before it's all over.

by Frank James

Running for president means making many promises you can't keep, plain and simple. Further, it means making pledges you know or should know you can't follow through on and that many voters suspect you can't live up to.

Yet, every four years, presidential nominees tell voters, with some variations of course, what they think citizens want to hear -- that they'll cut taxes while increasing spending for programs deemed popular with one or another sought-after demographic of voters while decreasing it on others.

It's a strange courting ritual between voters and candidates. It's essentially bogus but no one has yet figured a way out of it.

So it's no surprise we're seeing both Sen. Barack Obama's and Sen. John McCain's campaigns offer fiscal proposals that don't add up to sound fiscal policy for the long term.

by Frank James

Sen. John McCain has gone after Sen. Barack Obama for the Democratic nominee's use of the words "spread the wealth" when the senator from Illinois explained his tax plan to Joe "the Plumber" Wurzelbacher.

I just happened to be reading over the weekend an interesting New York Times Magazine piece by writer David Leonhardt from August on Obama's economic philosophy and came across the phrase "spreading the wealth," a usage which predated Obama's Joe-the-Plumber encounter.

Obama is quoted using the words in the article. Instead they were used by a NYT magazine editor who wrote a subhead that appeared over part five of the article, a lengthy passage describing a key piece of Obama's plan, the idea that he wants to use the tax code to reverse some of the growing income inequality that has become more pronounced in the last decade which has seen the rich get richer as the middle class and the poor have seen their incomes stagnate.

by William Neikirk

Alan Greenspan is my hero today. He had the guts to admit he was wrong. You rarely hear this in Washington. Here, taking responsibility is considered something that one does not do.

The former Federal Reserve chief conceded that the crisis developing from too much debt in the sub-prime mortgage market left him with "shocked disbelief." He basically said he miscalculated.

Surely his reputation is now in tatters. One cannot help but have some pity for him, for he is a very serious man with great principle.

Yet, one would be truly justified in feeling deep anger because he was the man who set himself up as an expert in control and his own ideology poisoned his judgment. And he has to shoulder a healthy amount of blame for the deep recession now unfolding.

But to me, it was a heroic thing for him to do and very useful. Now, the public has it from the "maestro" himself that overly light regulation causes capitalism to go too far and cause systemic risk. Now we can move on.

Now, every time an ideological advocate of self-regulation in markets insists that this model should continue, most people will respond, "Yeah, that's what Alan Greenspan thought, too."

by Frank James

Alan Greenspan, the former Federal Reserve chairman, told Congress today his belief of 40 years, that banks and other financial institutions would only act in their self interest and never do anything so aggressively stupid as to make loans to people who couldn't repay them or take on other sizable risks that could sink them was, er, flawed.

Rep. Heny Waxman, chairman of the House Oversight and Government Affairs Committee, pulled a Tim Russert on Greenspan, at a hearing today, reading quotes Greenspan had made in the past knocking regulation which today probably had the former central banker flinching inside.

WAXMAN: The question I have for you is, you had an ideology. You had a belief that free competitive and this is your statement, 'I do have an ideology that free, competitive markets are by far the unrivaled way to organize economies. We tried rewgulation. None meaningfully worked.' That was your quote. You had the authority to prevent irresponsible lending practices that led to the subprime mortgage crisis. You were advised to do so by many others. And now the whole economy is paying the price. Do you feel that your ideology pushed you to make decisions that you wish you had not made?

GREENSPAN: Well remember that what an ideology is is a conceptual framework with the way people deal with reality. Everyone has one. To exist, you need an ideology. The question is whether it is accurate or not. And what I'm saying to you is yes, I've found a flaw, I don't know how significant or permanent it is, but I've been very distressed by that fact...

by Christi Parsons and Frank James

RICHMOND, VA -- At his press conference in Richmond today, Sen. Barack Obama hit two interesting points: he answered the Joe Biden question about whether the world would test him if he were president, and he spoke to the economic points Sen. John McCain is raising in New Hampshire today.

"Sometimes Joe engages in rhetorical flourishes," Obama said of his vice presidential running mate. "But his core point was that the next administration is going to be tested, regardless of who it is. The next administration is going to inherit a whole host of really big problems... The president is going to be tested... the question is whether the next president will meet that test."

by James Oliphant

As the credit crunch has struck markets worldwide, one lingering question has been how the turmoil will affect China's burgeoning economy. Tuesday evening in New York, Treasury Secretary Henry Paulson spoke about China's economic health and addressed its relationship with the United States in a speech to the National Committee on U.S.-China Relations.

It's clear that from Paulson's perspective, the strength of the Chinese economy can serve as a buffer against the chaos in the American and European markets.

"While some see China as a threat that must be countered or contained, I believe that the only path to success with China is through engagement," Paulson said. "We must recognize that China's growth is an opportunity for U.S. companies and consumers, for our producers, exporters and investors. A stable, prosperous and peaceful China is in the best interest of the Chinese people, the American people and the rest of the world."

The full transcript of Paulson's remarks can be found after the jump.

by Frank James

So many critics have spent the last week or so demolishing the McCain-Palin line of attack that Sen. Barack Obama wants to give "welfare" in the form of tax credits to people who don't pay income taxes, you would think the Republican ticket would've given up on that one and moved on to another attack line.

You would be wrong.

by Mark Silva

The White House, which pushed Congress earlier this year to enact an "economic stimulus,'' placing tax "rebates'' in the pockets of millions of Americans, says it's open to congressional talk of a second stimulus

"I think we just need to wait and see,'' White House Press Secretary Dana Perino said today, en route to Louisiana with President Bush to talk about what the government already is doing to try to revive the economy. "We're open to ideas and we'll take a look at what comes our way.''

Earlier this year, before the financial meltdown that has seized the financial markets, and before anyone around the White House was even willing to talk about any chance of a recession, the president called the tax rebates a "booster shot.''

"When the money reaches the American people, we expect they will use it to increase consumer spending and that will spur job creation as well,'' Bush said in March, before hundreds of thousands of jobs were lost this year. "My message to the American people is this: I know this is a difficult time for the economy,'' he said then, "but we recognized the problem early and provided the economy with a booster shot.''

"We're continuing to have conversations with members of Congress and we're open to ideas that they would put forward that would -- both Democrats and Republicans alike -- that would stimulate the economy and help us pull out of this downturn faster,'' she said.

"We'd like to see the details of what would be proposed, because there are several programs that have been recommended that are coming in a cloak of being stimulative, and we don't think that those would actually stimulate the economy,'' the White House spokeswoman added. "So anything that we would do, we would have to take a careful look at, and I'm sure the Fed Chairman would want to make sure that those elements of a program would actually stimulate the economy and meet that test...

"Obviously, we were open to a stimulus package last January and one of the things that we agreed with (House Speaker) Nancy Pelosi on was that the program needed to be targeted, temporary, and timely,'' she said. "We do think that it will have the effect of helping prevent what could have been even a worse downturn in our economy.''

Does Bush, for his part, believe a second booster shot is needed?

"I haven't spoken to him about that in particular,'' he said. "I think what he would look to is -- all of his advisors... to advise him best as to whether or not they think, collectively, that there is a need for a stimulus package right now.

"So we'll remain open to the idea and then we'll just have to see when Congress gets back, if they decide to move forward, what sort of package they want to draft into legislation -- whether it be principles or actual legislation -- and then see if it actually would stimulate the economy.''

by Frank James

Federal Reserve Chairman Ben Bernanke backed the idea of a second economic stimulus package when he testified before the House Budget Committee this morning.

Bernanke didn't give many specifics, including how large such a stimulus there should be. But his support gives congressional Democrats's efforts at a second stimulus package a bigger boost at a time when President Bush hasn't sounded very enthusiastic about one and Senate Republicans torpedoed a second package the House passed at the start of October.

by James Oliphant

President Bush called a Cabinet meeting Wednesday to detail his administration's recent actions to deal with the global credit crisis.

In remarks before the meeting, the president took pains to ease fears among some Americans that the government is becoming overly involved in regulating the economy, saying that these are "extraordinary circumstances."

"As I said yesterday, it's very important for the American people to know that the program is designed to preserve free enterprise, not replace free enterprise," Bush said. "Decisions we took to enhance liquidity and make sure our financial instruments are strong is a temporary decision. For example, the equity purchases in the banks is designed so that these shares will eventually be sold back to the government."

"Secondly, the program is limited. In other words, the government will buy only a certain number of shares in individual banks," he said. "These banks will be privately controlled. The liquidity measures being taken are structured such that the government will be a passive investor. In other words, there won't be government officials sitting on the board of private companies."

The president is traveling to Michigan later today to meet with small business owners and community bankers to discuss how they have been impacted by the credit crunch. But Bush may not like what he hears from smaller banks, if reports today are to be believed. Some banks believe their risk-embracing competitors have been saved from their bad judgment.

Arsenal's Cesc Fabregas, at center, looks on as Hull City's Paul McShane, second from left, scores an own goal during their English Premier League soccer match at Arsenal's Emirates stadium in London, Saturday, Sept. 27, 2008. Hull City won the match 2-1. (AP Photo/Alastair Grant)

by Frank James

William Black, associate professor of economics and law at the University of Missouri, was testifying yesterday before the Senate Agricultural Committee (it has oversight of commodities trading) about the role financial derivatives played in the present Wall Street meltdown and offered an apt soccer metaphor which, at first, went over the head, so to speak, of the panel's chairman, Sen. Tom Harkin, an Iowa Democrat.

BLACK: ... In soccer, we would call this the greatest own goal in the history of the world, right, in terms of the deregulation, the desupervision

BLACK: -- own goals, it's a term when you score against yourself. You kick it in your own goal instead of the other team's goal. It's -- soccer is our family passion, sorry.

Own goal. Another way of saying you shot yourself in the foot. That sounds about right.

by James Oliphant

The Treasury Department Tuesday announced that it has selected Bank of New York Mellon to implement the administration's "rescue plan" to bolster distressed financial institutions.

The department hired the New York City-based firm Monday and work began immediately to help with "custodial, accounting, auction management and other infrastructure services needed to administer the complex portfolio of troubled assets the Department will purchase."

Key among these responsibilities will be the thorny issue of pricing. Federal officials have said they want to encourage financial institutions to dispose of the securities so that they can get them off their books, but they don't want the government to purchase them at bargain-basement rates. (Treasury is also hoping to get some money out of flipping them, something much harder to do if the assets are bought for a song.)

The asset-purchase aspect of the plan, called TARP by those acronym-loving folks in Washington, has receded into the background in recent days after Treasury announced plans to take a $250 billion chunk of the $700 billion federal bailout kitty and use it to buy ownership stakes in leading banks in order to stimulate lending.

Treasury officials said Tuesday that the $500 billion remaining will be enough to carry out the asset-purchase aspect of the plan. (If that's true, why didn't the government ask for that amount in the first place?)

According to the department, the Bank of New York Mellon Corporation is a global financial services company focused on helping clients manage and service their financial assets, operating in 34 countries and serving more than 100 markets. The company is a leading provider of financial services for institutions, corporations and high net-worth individuals, providing superior asset management and wealth management, asset servicing, issuer services, clearing services and treasury services through a worldwide client-focused team. It has more than $23 trillion in assets under custody and administration, more than $1.1 trillion in assets under management and services $12 trillion in outstanding debt.

It has a three-year contract to manage TARP. Treasury would not disclose the monthly fee being paid to the bank.

by Frank James

In digging out of their part of the global financial hole, the British may have an advantage over the U.S. in that they have a prime minister who, prior to his current job, was the Chancellor of the Exchequer, the equivalent of our Treasury secretary.

Gordon Brown is so confident of his understanding in areas of economics and financial markets that he actually is having press conferences like one he had yesterday, to discuss his nation's partial nationalization of British banks.

Compare that with what we've seen this morning in the Washington. President Bush stepped out of the White House to read a short speech about his administration's plan to inject capital in exchange for ownership stakes in U.S. banks, then popped back in the White House, prarie dog like, without taking questions.

Over at the Treasury building, Treasury Secretary Henry Paulson Jr., Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairwoman Sheila Bair, emerged from a door in the Cash Room, read their statements, then marched back through the door, also without taking questions.

We assume they did this in part because they didn't want to say anything during an unscripted question and answer session which might spook the financial markets.

But we also assume they didn't want to take questions because it, frankly, could've been a little embarrassing for them. They are conservative Republicans whose philosophy has been that free markets are self-correcting and Big Government can only get in the way. They might've been asked to explain why they've all of a sudden become Franklin Roosevelt-style New Dealers, at least when it comes to the financial markets.

Another potential embarrassment was that the very plan that they were unveiling, they were opposed to a few weeks ago. They might've had to answer why didn't they see the light sooner, possibly sparing the financial markets several tumultuous days in which investors lost trillions of dollars.

by Jill Zuckman

TOLEDO, Ohio--Sens. Barack Obama and John McCain battled long-distance over the economy Monday as Obama offered new proposals to aid middle-class voters, including a moratorium on mortgage foreclosures, while McCain presented himself as a fighter with a plan to restore the nation's finances to good health.

In advance of Wednesday's final presidential debate, McCain suggested that the nation's problems are too complex for Obama's relative inexperience, while Obama portrayed his opponent as more concerned with politics than with shoring up the workforce with new jobs.

Obama proposed allowing penalty-free withdrawals of up to $10,000 from retirement IRAs and 401(k)s through 2009, as well as giving $3,000 tax credits to businesses that create new jobs over the next two years. He also proposed a 90-day moratorium on foreclosures for people trying to pay their mortgages and a way to lend money to struggling state and local governments.

"I won't pretend this will be easy," Obama told several thousand voters in this economically hard-hit region. " George Bush has dug a deep hole for us. It's going to take a while for us to dig our way out."

McCain, on the other hand, criticized Obama for planning to raise taxes, comparing him to Herbert Hoover, who presided over the Great Depression. McCain also reiterated his plans to buy up bad mortgages and refinance them so home values don't plummet, allow retirees to keep their money in retirement accounts longer in order to rebuild their savings, and cut taxes to spur competition and new jobs.

"If I'm elected president, I won't spend nearly a trillion dollars more of your money, on top of the $700 billion we just gave the treasury secretary, as Sen. Obama proposes," McCain said. "Because he can't do that without raising your taxes or digging us further into debt."

by Frank James

It took the Bush Administration longer than many experts believe it should have taken to get there, but today's big news is that the administration has finally arrived at the point many economists weeks ago urged it to get to: direct injections of cash into the banking system and in turn taking ownership stakes in some of the nation's largest banks.

The administration had to twist some bankers' arms to arrive at this point, since there were top banking executives who didn't want the federal government taking ownership in their institutions.

But banks aren't exactly in the strongest negotiating position right now. Nine of the nation's largest banks were told they didn't have a choice.

Here's an excerpt from the story from the Chicago Tribune:

WASHINGTON -- Initiating what amounts to the partial nationalization of the U.S. banking system, the Bush administration Tuesday will announce plans to sink $250 billion into nine large U.S. banking companies and possibly some smaller ones, a congressional source said.

Financial stocks led the way, but the broader S&P 500 and the technology-laden Nasdaq both jumped more than 11.5 percent, powered by a late-afternoon buying binge.

We'll be hearing more about the Bush Administration's plans today with President Bush, Treasury Secretary Henry Paulson Jr. and Federal Reserve Chairman Ben Bernanke taking to the cameras and microphones to explain what they're doing.

Assistant Treasury Secretary Neel Kashkari speaks to the Institute of International Bankers Monday. (AP/Haraz N. Ghanbari)

by James Oliphant

Neel Kashkari has a critical job that didn't even exist a few weeks ago. He's the "assistant secretary for financial security" at the Treasury Department. Basically, he's the bailout czar, the man charged with executing the Bush administration's plan to spend $700 billion to buy up so-called "toxic" mortgage-based securities from Wall Street firms in a bid to restore their financial health.

Kashkari delivered a speech in Washington Monday morning in which he gave the first update of where the plan stands, 10 days after President Bush signed the measure into law. The speech came as the Bush administration is becoming increasingly focused on taking equity positions in banks to stimulate lending, rather than relying on the asset-purchase plan. Treasury Secretary Henry Paulson is meeting with representatives of the nation's leading banks Monday afternoon.

Kashkari said the government would seeking participation from "healthy institutions"-- as opposed to simply bailing out troubled lenders--in a bid to encourage firms to raise private capital to work along side public money.

The stock market rebounded in major fashion Monday in the wake of series of steps taken by European countries to stabilize the international financial sector, as well as talk of the new Treasury Department initiative.

"[W]e have accomplished a great deal in just 10 days," Kashkari, a former Goldman Sachs executive, said Monday. "But our work is only beginning. A program as large and complex as this would normally take months -- or even years -- to establish. We don't have months or years. Hence, we are moving to implement the (Troubled Assets Relief Plan) as quickly as possible while working to ensure high quality execution.

"Our goal is to use the multiple tools enabled by the TARP to attack the capital and troubled asset problem from multiple directions, so American families and businesses can get the credit they need. We will complete the design of these tools and deploy them as soon as they are ready. This is Secretary Paulson's highest priority and we are working around the clock to make it happen. We are committed to helping homeowners and to using the taxpayers' money efficiently."

The text of Kashkari's speech can be found after the jump.

by Frank James

There's been a concerted effort by some to blame the global financial meltdown on lower-income people who got into houses they couldn't afford.

The argument takes different forms. The Community Reinvestment Act or CRA forced banks to make loans to the unqualified minority borrowers. Acorn, the community organizing group, strong-armed financial institutions to make the loans. Democrats allowed their political allies at mortgage giants Fannie Mae and Freddie Mac to run amok and encourage home loans to buyers who couldn't repay.

Sen. John McCain has used that last argument to try and gain traction against Sen. Barack Obama. It doesn't appear to be working. Congressional Republicans have resorted to it too. Maybe it will work better for them but I doubt it.

These explanations are lame. The CRA didn't cause the near collapse of the world's financial order. Nor did lower-income people. Or Fannie or Freddie.

That's not to say that loans weren't given to millions of people who couldn't afford them. They were. But that was only part of the problem, and often a symptom at that, not the cause.

The main causes of the crisis now engulfing us were a tremendous amount of global investment capital -- hot money in constant search for new investments -- low interest rates and a tremendous explosion in global debt levels.

One of my favorite economists of late, Nouriel Roubini of New York University's Stern School of Business puts it this way in a recent blog post:

The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity we're (sic) excessive leveraging and bubbles were not limited to housing in the US but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real (estate?) sector and financial sector deleveraging since the Great Depression.

It may be satisfying on some level to blame lower-income people, especially minorities, for tanking the global economy. Being human apparently means liking to find scapegoats, the more powerless the better.

But focusing on red herrings won't get us any closer to solving the current crisis.

Paul Krugman. (Photo by HO/AFP/Getty Images)

by Frank James

All those Paul Krugman haters out there have one more reason this morning. He's won a Nobel Prize in Economics.

According to the Nobelprize.org site, Krugman, who is better known as a New York Times op-ed columnist than a trail-blazing economist won for "for his analysis of trade patterns and location of economic activity."

Krugman, a Princeton University economics professor, has been one of the Bush Administration's most persistent liberal critics. He's certainly one of the smartest. And one of the most consistently interesting. He's also a rarity these days, a liberal who doesn't shy away from that word.

Congratulations to Krugman. Now that he's won the Nobel, we'd all appreciate it if he would get back to work and brainstorm a way out of the global financial meltdown.

by William Neikirk

A major economic stimulus package, including funds to rebuild the nation's infrastructure, is shaping up as one of the top ideas for responding to the worst financial crisis since the 1930s.

Asked to name key measures that would enable the U.S. to get out of the current distress, several analysts cited the need for a big government spending program that might include tax rebates, even if such a plan could drive the budget deficit over $1 trillion.

"Desperate times call for desperate measures," said Jared Bernstein, senior economist at the Economic Policy Institute in Washington. Others said the economic damage inflicted by a deep recession could lead to tremendous human cost and push the deficit higher anyway. It is a time to be bold, counseled Brookings Institution economist Barry Bosworth.

"This is the time for the federal government to 'revenue-share' big time with state and local governments, which are concer ned about laying off teachers, policemen and others," said David Kotz, economics professor at the University of Massachusetts, echoing others. Providing more funds for unemployment insurance should be part of the package, he said.

Extricating the country from a severe credit crisis will require a series of unprecedented steps, many of which are already being taken as the stock market swoons, the analysts said. In addition to the spending package, here are other ideas:

by Frank James

The pressure is only increasing on federal policymakers grappling with the financial and economic slide.

The Dow Jones Industrial Average closed below 9,000, 680 points down this afternoon, signaling that the financial panic continues.

Part of the drop was due to General Motors being placed under review by Standard & Poor's due to concerns that the company might be unable to finance itself because of the credit freeze and general weakness in auto sales. GM is now trading at less than $5 a share.

Added to this is the growing consensus among economists that the U.S. is likely to have to endure one of the most painful recessions in decades.

According to a piece from The Wall Street Journal:

The U.S. economy has sunk into a recession and government action is critical to stem the damage, according to economists in the latest Wall Street Journal forecasting survey.

It is a challenging scenario for the next president, as the election moves into the home stretch. Either Sen. John McCain or Sen. Barack Obama likely will face an economy in the midst of recession on Inauguration Day, even if the credit crisis begins to ease. The new administration will have to get up to speed quickly, taking over the largest government intervention since the Great Depression.

by Frank James

Looks like the tongue-lashing from Congress earlier this week has gotten the response from insurance giant AIG that lawmakers were seeking.

Earlier today, AIG announced it was canceling a retreat scheduled for next week for dozens of AIG officials and independent insurance agents at a swank California resort.

That announcement came after members of Congress berated former AIG officials earlier this week for a similar event that occurred a week after the federal government rescued the troubled company with an $85 billion loan of taxpayers money.

Lawmakers were outraged that the company spent more than $400,000 for luxury resort stays that included pedicure, manicures, spas, golf greens fees and bar tabs.

Now, AIG has decided to go further. The parties are over. Here's the announcement they issued this afternoon:

Earlier today, AIG announced an important policy change - one that we wanted to be sure you knew about.

As we move forward, we will continue our focus our efforts to pay back the $85 billion loan from the Federal Reserve Bank of New York as quickly as possible.

by Frank James

One of the biggest knocks on the Bush Administration's $700 billion bailout/rescue plan was that buying up toxic assets wouldn't do a lot to put cash in banks' coffers.

Many an expert said a better approach would be to inject U.S. taxpayer dollars directly into banks and getting some ownership in the form of preferred shares in return.

The banks didn't like this idea because it would mean they would have Uncle Sam as a partner which could throw its considerable weight around around. That would obviously be a pain in the neck for any free-wheeling businessman.

Conservatives didn't like the idea because it would mean government ownership of private enterprises, specifically banks. It smacked of socialism, some said and was too reminiscent of the Fannie Mae, Freddie Mac situations. Before federal officials took them over, those companies were quasi-private but with federal government guarantees behind them business practices which many critics believe contributed to the current financial crisis.

Anyway, things move quickly in Washington these days and now it appears the Bush Administration has really warmed to the idea of buying into banks after all.

Here's the exchange between reporters and White House Press Secretary Dana Perino today.

Q Thanks. Does the idea of the federal government taking a part ownership in a number of U.S. banks fit with the president's philosophy of free enterprise?

Part of that package includes a broad range of authorities for the Treasury secretary. What you're referring to, I believe, is capital injections that would actually be investing in banks but not taking them over.

by Frank James

Sacrebleu. Looks like when the G-7 finance ministers meet in the Washington Friday, there could be some awkward moments between Treasury Secretary Henry Paulson Jr. and French counterpart, Christine Lagarde. She thinks has botched things terribly.

This is how Reuters reports it:

Allowing Lehman Brothers to fail last month was a major mistake for the equilibrium of the global financial system, French Economy Minister Christine Lagarde said on Wednesday, adding that France would not abandon its lenders.

"When we let one go, the risk is that others at that moment don't know who their counterparty is anymore and find themselves exposed. Once we let one domino fall, the rest risk collapsing."

Lagarde has a lot of company. In the U.S, many have questioned Paulson's judgment over the year plus since the housing and financial crisis erupted.

By Andrew Zajac

Newly-installed Fannie Mae CEO Herb Allison, Jr. was national finance chair of John McCain's Republican presidential bid in 2000 and as recently as 2006 he wrote a $5,000 check to McCain's Straight Talk America PAC. But a year later Allison switched his party affiliation to Democrat and this year he's contributed $4,600, the maximum allowed by law, to Barack Obama.

Allison, 65, voted as a registered Republican in New York in the November 2006 election, but a year later registered as a Democrat in Connecticut and voted as one in that state's primary on Super Tuesday, February 5, 2008.

Allison sent a pair of $2,300 checks to the Obama campaign, the most recent on August 25, two weeks before the government seized the struggling mortgage guarantor and put him in charge of it. Previously, Allison's political giving favored Republicans, but he's also donated to New York Sen. Charles Schumer and a few other Democrats.

He hasn't given anything to McCain since 2006, according to the non-partisan Opensecrets.org campaign finance web site.

by Frank James

Just how deep a hole are U.S. consumers in? The Wall Street Journal has a story today that gives an important partial answer:

The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults -- the very misfortune that touched off the credit crisis last year.

The comparable figures were roughly 4% under water in 2006 and 6% last year, says the firm's chief economist, Mark Zandi, who adds that "it is very possible that there will ultimately be more homeowners under water in this period than any time in our history."

These are very troubling numbers given that consumer spending accounts for about 70 percent of U.S. economic activity and that it will be consumers who will eventually have to lift the economy out of its rut.

by Frank James

Federal Reserve Chairman Ben Bernanke hinted yesterday in a speech he gave to business economists that the central bank was disposed to another interest-rate cut because of the economy's weakness.

We didn't have long to wait. The Fed has cut the key Federal Funds rate by half a percentage point, taking it to 1.5 percent, in a coordinated move with several central banks.

It's another attempt by the Fed and the other central banks to get more money flowing through the international financial system. The problem remains, however, that it's not so much a lack of money as it is a lack of trust that is freezing the credit markets. Cheaper money, while welcome in a slowing global economy, does little to restore trust between financial institutions or confidence in the economy's near-term prospects.

Here's an excerpt from the Fed's press release announcing its move:

Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets.

Federal Reserve Actions
The Federal Open Market Committee has decided to lower its target for the federal funds rate 50 basis points to 1-1/2 percent. The Committee took this action in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures.

by Mark Silva

For the record, the federal budget defict reached a new record in the 2008 budget year, which ended last week: $438 billion.

For the new year, the president's Office of Management and Budget already has projected another new record of more than $480 billion. And that projection is likely to be shelved soon, in the midst of a $700-billion bailout of the financial system authorized by Congress.

But for the year past, the government has surpassed its past record of $422 billion, according to the Congressional Budget Office. The reason: Spending. The war and more.

The estimated 2008 budget deficit of $438 billion well surpasses the deficit of $276 billion last year. It had been declining after reaching its peak of $422 billion under President Bush.

"Relative to the size of the economy, that deficit was equal to 3.1 percent of Gross Domestic Product, up from 1.2 percent in 2007, CBO Director Peter Orszag reports.

(The average deficit over the preceding five years, 2002-2006, was 2.6 percent of GDP.)

The big expenses that helped drive the deficit highher: $62 billion in tax rebates (from the economic stimulus legislation) that were recorded as offsets to revenues. In contrast, receipts of social insurance (payroll) taxes rose by about $31 billion (or 3.5 percent), and other receipts increased by about $9 billion (or 5.4 percent).

"Spending rose by about 8 percent,'' Orszag notes. "Contributing significantly to the growth in spending were outlays for tax rebates (those rebates that were recorded on the spending side of the budget because they exceeded the recipients' income tax liability), for deposit insurance, and for national defense.

Also for the record, Bush promised to cut the budget deficit in half by the end of his final term. Bush also inherited a budget surplus from President Clinton, but is preparing to hand his successor a runaway new record in the deficit.

Code Pink protesters give former AIG CEO Martin Sullivan piece of their mind. (Photo by Alex Wong, Getty Images.)

by Frank James

Yesterday it was Lehman Brothers, the bankrupt investment bank, that got the congressional autopsy treatment. Today it was AIG, the insurance giant saved from Lehman's fate by the kindness of strangers, that is, taxpayers who ponied up $85 billion to bail them out long enough so the company can be disbanded in an orderly way.

It was also a chance for Congress to rake a couple of AIG executives-- Martin Sullivan and Robert Willumstad--over the coals which they did, though it wasn't the most brutal coal-raking ever witnessed on Capitol Hill.

Congressional outrage settled on a few choice areas:

One, huge pay packages received by senior AIG executives even though it was clear the company's earnings would take a hit because of bad financial-market bets made by some of its executives.

Two, the overly optimistic reports some of those same executives made to the public and investors at a time when the company's financial situation was deteriorating.

Three, the failure of top managers to accept blame for the company being put in such perilous financial straits. Listening to them, it was all the fault of the accountants who made them mark down the value of investments few people wanted to buy who caused AIG's woes.

Four, an executive in AIG's London office who was fired for making many of the bad financial bets that eventually swamped the company's finances but who was given a $1 million a month consulting contract with the company and

Five, the $500,000 or so AIG spent on a week-long retreat orchestrated by one of its subsidiaries for executives. It occurred a week after the federal government's bailout of the company. Even the former AIG execs had to admit the retreat held at a very pricey resort was probably a bad idea.

by Frank James

How bad has the damage to the retirement savings of Americans been due to the financial markets meltdown and the slowing economy? Peter Orszag, head of the Congressional Budget Office told a congressional committee today that retirement funds are an estimated $2 trillion lighter than they were 15 months ago.

Here's an excerpt from the Associated Press report:

WASHINGTON (AP) -- Americans' retirement plans have lost as much as $2 trillion in the past 15 months, Congress' top budget analyst estimated Tuesday.

... Public and private pension funds and employees' private retirement savings accounts -- like 401(k)'s -- have lost some 20 percent overall since mid-2007, he estimated. Private retirement plans may have suffered slightly more because those holdings are more heavily skewed toward stocks, Orszag added.

by Frank James

Federal Reserve Chair Ben Bernanke, one of the world's foremost experts on the Great Depression, has obviously learned much from history and is determined not to repeat it.

One reason the Great Depression became so durable according to experts was that central bankers at the time responded by doing exactly the wrong thing, they tightened access to money.

So Bernanke's Fed has repeatedly pumped vast sums of money into the financial markets in order to lubricate the gears that have essentially ground to a halt due to fear and a lack of trust between financial institutions.

Bernanke's latest move is extraordinary. The Fed has announced that it will be purchasing the short-term loans known as commercial paper, a market that has gotten clobbered by the credit crisis.

Commercial paper is issued by companies to raise money to fund operations, expansions, you name it. They are essentially IOUs.

But the commercial paper market has been drying up in part because the money-market funds that once avidly bought them have been spooked by current conditions and are holding on to their cash.

Ninety percent of the commercial paper is issued by financial institutions. So buy going into the market to buy up commercial paper, the Fed is hoping to kick start banks into lending to each other again since their reluctance to do so has been a major contributor to the current credit freeze.

by Frank James

Treasury Secretary Henry Paulson Jr., whose bald pate has become a fixture on our TV screens in recent weeks, has tapped his similarly bald protege Neel Kashkari as bailout czar.

Kashkari, like Paulson, is a former Goldman Sachs investment banker, as well. And it's impressive that so much trust is being placed in the 35 year old assistant Treasury secretary for international affairs.

Here's an excerpt from the Wall Street Journal's story on Kashkari:

Mr. Kashkari, 35 years old, a Treasury assistant secretary for international affairs and a former Goldman Sachs Group Inc. banker, is expected to be named interim head of Treasury's new Office of Financial Stability as early as Monday. The position confers substantial power on Mr. Kashkari, who will oversee Treasury's effort to buy bad loans and other distressed securities clogging the books of financial institutions and making them reluctant to lend...

Mr. Kashkari was part of the Treasury team that negotiated the asset-repurchase program with Congress, putting in marathon sessions along with Robert Hoyt, Treasury's general counsel, and Kevin Fromer, the head of legislative affairs. He was also one of the originators of the plan. Last year, he and Phillip Swagel, assistant secretary for economic policy, crafted a proposal called "break the glass" -- referring to the emergency nature of using such a tool -- which envisioned Treasury buying bad loans and other assets.

by Frank James

Richard Fuld, former chief executive officer of the extinct Lehman Brothers investment bank was on Capitol Hill today to answer questions about the demise of his firm and the huge pay packages he and other top executives received before Lehman filed bankruptcy.

What did Fuld say? Mistakes were made but not so much by him. Rather, he made investors who made bets against his company by short selling its shares the villains of the piece.

Fuld did say he wakes up in the middle of night to ask what he could have done differently to save the company. He also said he would be haunted by the fall of the House of Lehman for the rest of his life.

When House Democrats questioned why Lehman didn't get federal help to stay afloat like AIG for instance, Fuld indicated he shared that question.

But he pushed back numerous times. When Rep. Henry Waxman, chairman of the House Oversight and Government reform committee, asserted that Fuld received $500 million between 2000 and 2008 in compensation, Fuld didn't agree with that number, saying Waxman had overstated what he received in options.

He also pointed out that he didn't receive a golden parachute, didn't have a contract which guaranteed a payout on his exit and had millions of shares that weren't worth much on the day Lehman closed his doors. Wisely, he said he wasn't seeking the committee's sympathy and none was given.

by Frank James

Anyone looking for a brilliantly accessible explanation of the turmoil facing the economy and the financial markets should listen to the outstanding explanatory programs done by Chicago Public Radio's "This American Life."

Over the weekend, the second installment of the program's examination of the financial-markets meltdown was aired on many public radio stations across the nation. Called "Another Frightening Show About the Economy" it's invaluable information, containing one of the best explanations of the role financial instruments known as credit-default swaps have in the present crisis.

When you're done with that, either listen to the first installment, "The Giant Pool of Money" which aired in May or read that show's transcript. It explains how earlier this decade a surplus of global investment capital ran out of things in which to invest which led to the "giant pool of money" finding creative and increasingly risky new ways to invest in mortgages.

Here's an excerpt from the first installment that gives a flavor for the reporting in it.

Alex Blumberg: This is Glen Pizzolorusso, who was an area sales manager at an outfit called WMC mortgage in upstate New York. Just to repeat, he was making 75 to a 100 grand a month. That's over a million dollars a year. Glen was just out of college. His job was a lot like Mike Garner's, he was the same link in the chain, and Glen loved his job.

Alex Blumberg: Glen had five cars, a 1.5 million dollar vacation house in Connecticut, and penthouse that he rented in Manhattan. And he made all this money making very large loans to very poor people with bad credit. Glen Pizzolorusso: We looked at loans. These people didn't have a pot to piss in. They can barely make a car payment and we're giving them a 300, 400 thousand dollar house.

by William Neikirk

Now that Congress has approved a $700 billion "rescue" for the economy, more doubts are arising over whether it will work.

Some economists say the effort to have the Treasury to use the money to buy "distressed" or "toxic" mortgage-backed securities should be changed to get at the heart of the problem.

And the heart of the problem is a rapid decline in housing prices--the collateral for these highly leveraged securities. They have caused a rise in foreclosures and resulted in deterioration of bank capital.

In addition, they have led to a severe credit crunch in which banks have virtually stopped lending, leading to fears that the economy could be in for a deep downturn.

Martin Feldstein, who was chairman of the government's Council of Economic Advisers during the Reagan administration, wrote an interesting piece about this in the weekend Wall Street Journal.

And that is to have the U.S. government get directly into the mortgage business. He suggested the government should offer any mortgage holder the chance to replace 20 percent of the mortgage with a low-interest (possibly 2 percent) government loan. Such a scheme would be an effective buffer against falling prices, he said, by making it less likely that the value of a house would be lower than the mortgage.

The government could take over the home in case of a default, Feldstein said, but he did not see a new wave of defaults. In addition, he said, the cash that banks and other creditors receive as a result of the proposal could be used for finance new loans. The cost of such a plan, Feldstein estimated, would be $1 trillion, but it would be more effective than the one approved by Congress.

by Mark Silva

Two weeks ago today, the secretary of the treasury rolled out a three-page proposal asking for the authority to spend as much as $700 billion in public money on bad securities.

Yesterday afternoon, the House approved a bailout (rescue, as leaders will have it) of banks and financial institutions struggling with mortgage-related securities "clogging'' the arties of the nation's credit markets and threatening, as Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke had warned congressional leaders, a "heart attack'' in the economy.

In the annals of presidential lobbying and legislative action, the passage of a $700-billion federal bailout of the financial industry -- a 400-plus-page legislative extravaganza capped with more than $100 billion in tax relief and other goodies to force it through a House that wouldn't buy it on the first run -- must be some kind of record.

Bush waited for the bill to clear the House on Friday, then stepped out to the Rose Garden on a spectacular, sunny fall day to praise Congress for decisive action and walked through the White House complex to emerge from the east door of the East Wing, cross the driveway between the White House and the Treasury and climb the stone steps of the Treasury, where Paulson awaited the president.

Paulson, standing on the steps, had gone through his own marathon two weeks of financial crisis and congressional lobbying. Asked how he felt now that the bill had passed, he said, simply: "Better."

Bush and Paulson went inside and thanked employees of the Treasury for all their hard work. Sometimes, Bush told reporters later, people in government never get thanked enough.

And then, within two hours of passage of the bailout, Bush returned to the White House and signed the measure into law.

It will take much longer, however, for the implementation of this rescue to have its itended effect, the White House says. Today, in an address to the nation on the radio, the president said, "the benefits of this package will not all be felt immediately. The federal government will undertake this rescue plan at a careful and deliberate pace to ensure that your tax dollars are spent wisely.''

It will take longer than two weeks to spend all this money, and perhaps months to tell whether the economy has been rescued or not.

by Frank James

After nearly every disaster involving Americans, there's the usual investigation to figure out why the plane crashed or the ship sank and to affix blame. The difference between most calamities and the present financial-markets meltdown is that the investigation of the latter can actually occur while the disaster is still unfolding.

Stephen Labaton's New York Times story is part of the examination of how the financial markets were laid so low. After reading the piece, I predict many people will join Sen. John McCain in calling for Securities and Exchange Commission Chair Christopher Cox's firing. Treasury Secretary Henry Paulson Jr. will look a whole lot worse, too.

In a nutshell, in 2004 before Cox took over the SEC, in a public meeting that was largely ignored at the time, the commission responded to heavy lobbying by Wall Street's large investment banks by changing a critical rule that required Wall Street's big five investment banks to maintain large enough cash cushions in their brokerage units to withstand periods of market turmoil.

By jettisoning that requirement, the investment bank giants, including Goldman Sachs, run at that time by Paulson, were able to use the freed-up cash to buy many of the risky assets that are at the heart of the present crisis.

Bad enough, right? It gets worse.

In exchange for this liberalized cash-reserve requirement, the SEC was supposed to pay closer attention to the debt levels at the investment banks.

This is where Cox comes in. When he became SEC chairman in 2005, he not only didn't appear to care much about this enforcement responsibility, he actually reduced the number of SEC cops on the beat. Also, the investment banks were supposed to self-regulate. We all know how that went.

by Frank James

The economy continued to lose jobs in September, with 159,000 jobs evaporating during the month, producing the highest number of job losses in five years though the unemployment rate held steady at 6.1 percent. The job losses exceeded what many economists expected.

Here's an excerpt from the Labor Department's website.

Nonfarm payroll employment declined by 159,000 in September, and the unemployment rate held at 6.1 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Employment continued to fall in construction, manufacturing, and retail trade, while mining and health care continued to add jobs.

The job loss figures add more pressure on Congress as the House once again takes up the financial-markets bailout package which is meant to lubricate the credit markets which have gotten jammed up because of declining trust between financial institutions about the one another's soundness.

Returning to the employment report, the nation has lost more than three quarters of a million jobs this year, more precisely 760,000.

In September alone, the numbers were very ugly. Manufacturing lost 51,000; construction, 35,000; retailing 40,000; transportation and warehousing, down 16,000; the financial sector, 17,000; professional and business services, 27,000.

If we're not in a recession, the economy is doing a pretty good impersonation of one.

As mentioned earlier, the only areas that appeared recession-proof were health-care and mining. Health-care grew by 17,000 jobs in September, probably a reflection of the aging of the nation.

But even that was significantly lower than the 30,000 clip that sector averaged in previous months.

Meanwhile, mining grew by 8,000 jobs, likely a reflection of the nation's attempt to expand its own energy production and higher commodities prices.

by Frank James

What do rum, motorsport race tracks and wooden arrows used by kids all have in common? The financial markets bailout bill, that's what.

Taxpayers for Common Sense has compiled a handy list of what it called the top ten tax-related provisions in the financial-markets bailout bill passed yesterday by the Senate and they include some provisions that touch on, yes, rum, motorsport and wooden arrows and more.

As TCS says:

Not all the provisions are per se outrageous, but collectively are intended to help Congressional leadership get final passage of the 2008 Emergency Economic Stabilization Act.

Auto track owners are simply trying to get out of paying more taxes - which they'd have to do if they deducted less every year. These owners have gotten plenty of tax breaks over the years from states and localities eager to get speedways. The provision would be extend 2 years till the end of 2009 and would cost 100 million. The provision encompasses all facilities including grandstands, parking lots and concession stands.

by Mark Silva

The stunning news about the American economy delivered in the private session that Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson held with congressional leaders on Capitol Hill two weeks ago today has been described in a number of ways - "the air came out of the room... chilling... frightening.''

As Sen. Chuck Schumer and others have told the tale, Bernanke told the leaders of the House and Senate, basically, that the arteries of the nation's economy are clogged and if the government doesn't intervent the economy will suffer a "heart attack.''

And, it is largely on the storm warning that Bernanke and Paulson delivered two weeks ago that Democratic leaders have aligned with the Bush White House in a rush to approve an unprecedented government intervention: A $700-billion bailout, or as leaders would now have it, rescue, of the nations financial institutions to clear those arteries.

Yet at least one of the players in this economic drama may be falling out of favor with one of the candidates who hopes to succeed Bush in the White House: Sen. John McCain, who has called for the firing of Securities and Exchange Commission Chairman Chris Cox, also voiced some reserved criticism today for Fed Chairman Bernanke.

"I'm not overall pleased with his performance,'' McCain said of Bernanke today during an interview on MSNBC's Morning Joe, "I think it's a little bit different from the person, the individual specifically assigned to regulate. And Chris Cox is a fine and honorable man, don't get me wrong. But when the captain is asleep in the cabin and the ship runs aground, it's the captain that's still responsible.''

That "not overall pleased'' rating of the Fed chairman is a far cry from the faith that McCain placed in Bernanke's predecessor, Alan Greenspan. When McCain ran for president in 2000, he suggested keeping Greenspan at the Fed forever. And more recently, he suggested putting the ex-Fed chairman in charge of a sweeping overhaul of the nation's tax codes.

"If he's alive or dead it doesn't matter. If he's dead, just prop him up and put some dark glasses on him like, like 'Weekend at Bernie's,'" McCain joked in October, campaigning in South Carolina with a line that he had used for Greenspan eight years before. "Let's get the best minds in America together and fix this tax code."

Should McCain win election, he'll face some fence-mending with the Fed chairman (pictured above, testifying before Congress, with Paulson behind him, in an AP photo by Manuel Balce Ceneta)

by Frank James

There were no fireworks so a lot of people probably missed it. We even forgot to mention it here on The Swamp when it happened though we saw the reports. Anyway, on the last day of September, the national debt hit $10 trillion plus.

President Bush signed legislation in July that raised the debt ceiling to $10.615 trillion. Meanwhile, the financial bailout legislation passed by the Senate last night would raise the debt ceiling further to $11.315 trillion.

Here's something else worth knowing. The gross national debt as a percentage of the gross domestic product has, under the Bush Administration, hit a 50-year high. The following two charts illustrate the trend nicely.

(Chart from ZFacts.com)

(Chart from Concord Coalition)

by Frank James

The foreclosure crisis, part of the easy-credit hangover now racking the country, has hit few states in the nation as hard as California, Nevada and Florida.

In these states there are neighborhoods where every other house seems to be in foreclosure.

KCET, Los Angeles's public broadcasting television station, recently took a look at the foreclosure crisis in a part of Southern California known as the Inland Empire, along the I-15 corridor.

It's a very sobering view of the reality of foreclosure which gives a real dimension to the financial meltdown that has transfixed Washington, and indeed the globe, in recent weeks.

Especially fascinating is how much of their lives some evicted families leave behind, like personal photographs.

(Hat tip to the Calculated Risk blog.)

by Frank James

Here's the Economic Emergency Stabilization Act of 2008, the financial rescue proposal which a lot of people heretofore were calling the Wall Street bailout bill.

It's the bill the Senate is debating at this moment and which the chamber is due to vote on later tonight.

What started as Treasury Secretary Henry Paulson Jr.'s three-page proposal has now morphed into a 451-page monster with unrelated tax-extender or tax-increase and energy legislation.

by Frank James

The conventional wisdom in Washington is that one reason the Bush Administration's proposal to buy toxic assets from financial institutions failed in the House earlier this week is because of bad marketing. The administration allowed the plan to be described as a "bailout" and that word by itself outraged many Americans.

So the language has been changed. The proposal is now being described as an economic, financial or national "rescue plan."

Here's President Bush this afternoon:

I appreciate Senator Harry Reid's leadership in the United States Senate when it comes to the financial rescue plan. I also appreciate Mitch McConnell's leadership as well. The Senate will be voting on a very important measure tonight. It's -- the rescue plan bill has been improved by raising, by other things, raising, temporarily raising the cap of FDIC insurance.

Sen. Mitch McConnell, the Senate Minority Leader said:

I'm optimistic that we're going to have a significant bipartisan victory on the rescue plan here in the Senate tonight.

Speaking to the media outside the Senate chamber, Sen. Harry Reid, the Senate Majority Leader used the word bailout but tried to give it a different twist:

This is not a bailout for Wall Street. It's bailout for a country.

But later in the chamber, Reid was on message:

Senators Bennett, Corker and Gregg on the Republican side, as well as Senators Dodd, Baucus, Conrad, Durbin, Jack Reed and Schumer have done an exceptional bipartisan job to move the rescue legislation forward here in the Senate, and their work continues.

by Frank James

Russian premier and puppetmaster Vladimir Putin sure knows how to kick a country when it's down.

He trash talked the U.S. today for its "irresponsibility" in handling the financial meltdown and to get the Wall Street bailout done. He said it raised questions about the U.S.'s world leadership.

Here's an excerpt of a Reuters story:

MOSCOW, Oct 1 (Reuters) - Russian Prime Minister Vladimir Putin criticised the United States on Wednesday for what he said was the country's inability to deal with the financial crisis affecting the global economy.

"And what is really sad is that we see an inability to take appropriate decisions. This is no longer irresponsibility on the part of some individuals, but irresponsibility of the whole system, which as you know had pretensions to (global) leadership", he said.

We're sure Putin is many things but saddened at the predicament the U.S. finds itself in is probably not one of them.

by Frank James

One of the new features of the revised Wall Street bailout plan scheduled to be voted on in the Senate tonight is an expansion of the Federal Deposit Insurance Corp's coverage to accounts of $250,000 from $100,000.

The last time the limit was raised was 1980 which makes you wonder, why hasn't it been raised in almost 30 years? It seems like just taking inflation into account would have required lifting the limit long before now.

The fact is many banks, particularly smaller independent community banks, have for years pleaded to have the coverage limit raised. Back in 2000, they pushed hard to double the limit to $200,000.

A higher limit, they believed, would make them more competitive with other places where people were putting their money, like money market funds.

But opponents to boosting the limit always seemed to have the upper hand. They argued a higher limit could lead to unnecessary risk-taking by banks (ironic, no?) Larger banks feared premium hikes. Other financial players didn't want banks to have the competitive edge that would come from having higher deposit-insurance limits.

One of the staunchest opponents of a higher insurance limit was none other than Phil Gramm, the former senator from Texas who once chaired the Senate Banking Committee and also erstwhile campaign co-chair of Sen. John McCain's presidential effort.

This excerpt is from the Arpril 3. 2000 American Banker:

"I think if anything, $100,000 is too high," he said the day Ms. (Donna) Tanoue (FDIC chair) announced the agency's plans. "I'm not going to support raising them (coverage levels) under any circumstances."

But it wasn't just Gramm who opposed the higher insurance limit. Federal Reserve Chair Alan Greenspan and Treasury Secretary Lawrence Summers also warned against doubling the limit.

Here's a lengthy excerpt from the June 22, 2000 American Banker which details their objections:

In unusually blunt remarks, both agreed that doubling current coverage would heighten risks to the deposit insurance funds, reduce incentives for investors and depositors to scrutinize the financial conditions of banks, and primarily benefit the wealthy.

"Such an increase would be ill-advised and would represent a serious public policy error that could increase systemic risk by eroding market discipline," Mr. Summers said in response to a question by Senate Banking Committee Chairman Phil Gramm at a hearing on unrelated legislation. "It is not, in our judgment, necessary in order to protect small savers."

by William Neikirk

What a story! Embattled Main Street rises up to smite Wall Street. The hordes celebrate. The financiers fret. The little folks have flexed their muscles.

Too bad that isn't the real story. The real story could well be that Main Street shot itself in the foot, but won't know it until banks close, their savings are threatened, and layoffs accelerate. That could happen sooner than you think.

The $700 billion "bailout" plan for financial markets is aimed at getting rid of a large number of toxic mortgage-backed securities that no one wants to buy. But that is a mere means to an end.

The real purpose is to induce bankers to start lending again, so that credit markets do not completely seize up and send the economy spiraling into a deep, deep recession--a Main Street recession, if you will. When the banks don't lend, businesses can't find funds to keep afloat or to invest in job-creating enterprise.

Still, even if the bill should pass, there is no assurance this will work in this complex world.

The bill that took a licking in the House on Monday could be in for some more amending, something that might actually be more to Main Street's liking, another sweetener if you will. For instance, some are suggesting that the Federal Deposit Insurance Corp.'s guarantee of bank deposits should be enhanced--from $100,000 to perhaps $250,000.

by Mark Silva

With leaders of both Democratic and Republican House ranks blaming each other for the initial failure of a $700-billion federal bailout for struggling financial institutions, congressional leaders plan to redouble efforts to approve a rescue this week.

"What happened today cannot stand. We must move forward,'' House Speaker Nancy Pelosi (D-Calif.), said after the House rejected the bailout, "and our work will not be finished until that is done.''

Despite a stunning setback in the first test of an agreement which leaders of both parties had reached with the White House over the weekend, leaders say the urgency of the financial crisis which the bailout is intended to ease demands that Congress provide a solution before recessing for the fall elections.

President Bush has warned of a "long and painful'' recession if the government does not act to unlock financial markets frozen by bad mortgage debt threatening a credit crunch at every level of the economy, threatening everything from home loans to car loans and credit cards.

Yet the Bush White House has proven unable in the first go-round to corral the president's own party in the House for a vote which the president has deemed essential and which fell just 13 short of approval. In the next 48 hours, with a Jewish holiday recess, reluctant Republican leaders voicing their own dismay about the plan will attempt to rally the forces needed, while Democrats scour their own ranks for a few converts.

The sharply divided House vote against the bailout on Monday - 228-205 - has exposed the depth of dissension within each party. While 60 percent of the Democrats voted for the plan, 95 still voted no. And the Republicans voted by two-to-one against the plan - by 133-65.

Rep. Ginny Brown-Waite of Florida voiced the objections of many fellow Republicans in complaining of being pressed to vote for "surely one of the biggest bailouts in American history.... With a gun to our heads.''

The breakdown has accentuated a rift between the presidential candidates as well. Republican Sen. John McCain, who "suspended'' his campaign for a day last week to return to Washington to take part in bailout talks, has faulted Democratic rival Barack Obama for "watching from the sidelines.

"It's not my style to phone it in,'' McCain said Monday, claiming of Obama: "At first he didn't get involved, and then he was monitoring the situation. That's not leadership. That's watching from the sidelines.''

Obama, who had joined McCain last week in a meeting with Bush at the White House, called Monday for patience that a solution will be reached.

"Now is not the time for fear, now is not the time for panic," Obama told a campaign rally in Colorado. "We may not be able to do everything overnight. It took a long way to dig us into the hole we're in . . . But I want you to understand, I know we can do it... Things are never smooth in Congress. It will get done."

by Mark Silva and updated

In a sharply divided vote, with many members of both parties balking, the House today rejected an unprecedented $700-billion bailout for the nation's banks and other financial institutions.

And on Wall Street, which Washington is rushing to offer a sign of relief, the Dow Jones average tumbled 777 points -- a record drop in points for any single day in the market's history, though not the biggest plunge in percentage. It rested at 10,365.

The market already was declining as the House started debating but then the collapse of the bailout on the House floor echoed on Wall Street.

"Clearly something needs to be done, and the market dropping 400 points in 10 minutes is telling you that," said Chris Johnson president of Johnson Research Group. "This isn't a market for the timid."

The markets turned highly volatile as it became clear that the bailout wouldn't win the votes needed in Washington. Still, in percentage terms, the decline remained well below drops of more than 20 percent on "Black Monday,'' October 1987. and the Depression.

After more than a week of intensive negotiations, with the Senate prepared to act on the plan Wednesday, the House's contentious rejection of a measure which the Bush administration has deemed essential to stabilizing a shaken economy cast into doubt what congressional leaders still might achieve before their adjournment for the fall election campaigns.

President Bush, who pressed for a Treasury purchase of toxic mortgage-related assets threatening an economic crisis, has pushed Congress to approve it swiftly to avert a "long and painful recession.'' On Monday, Bush called the plan "an extraordinary agreement to deal with an extraordinary problem in our economy.... a bold bill that will help keep the crisis in our financial system from spreading throughout our economy.''

The House vote: 228-205 against the measure, with members of both parties reluctant to approve a deal approved by their leaders. Ninety-five Democrats and 133 Republicans voted no.

As leaders fell short of the votes needed for passage, they kept the clock open and pressured members to change their minds. In many minutes of arm-twisting, Democratic leaders added several votes to the yes column, but not enough for passage. The disarray in the chamber was palpable.

"I don't know that they get much tougher than this,'' House Minority Leader John Boehner (R-Ohio) said of the vote - as he voted yes. "Nobody wants to vote for this. They don't want to be anywhere around it. I don't want to be anywhere around it.''

Supporters insisted they were acting to avert a crisis that could freeze credit for consumers at every level - an action motivated by the welfare of Main Street, not Wall Street.

"I wish there was a better way, but I haven't seen it yet,'' said Rep. Tom Davis (R-Va.). "Failure to take this step today will almost certainly worsen the situation.... But politics is the art of the possible, not the art of the perfect. If this bill goes down, I don't think my colleagues want ownership of what will follow.''

Opponents decried the plan as a dangerous government intervention in the failings of Wall Street financiers driven by greed in the accrual of risky mortgage investments that ultimately backfired.

Rep. Ginny Browne-Waite, decrying "what is surely one of the biggest bailouts in American history,'' complained that lawmakers are acting with "a gun to our heads.'' Brown-Waite (R-Fla.) complained that Congress is rushing to the rescue of Wall Street financiers even as the FBI starts investigating possible criminal abuses in trading. "We could call this the in-out plan. As the FBI is going in, we're bailing out.''