Obama urges Congress to pass
costly stimulus bill
CHICAGO – Citing an “economic crisis of historic proportions,” President-elect Barack Obama urged Congress to pass a costly, job-creating stimulus bill as quickly as possible, a rare pre-inaugural call to action delivered as the outgoing Bush administration approved fresh billions to bail out one of the nation’s largest banks.
Stock prices surged — the biggest two-day percentage gain for the Dow Jones industrials in 21 years — as investors took heart Monday from the actions and words of the incoming and departing chief executives.
“If we do not act swiftly and boldly, most experts now believe that we could lose millions of jobs next year,” said Obama, 57 days shy of taking office in the shadow of the worst economic crisis since the Great Depression.
He blended criticism of Detroit’s beleaguered Big Three automakers — General Motors Corp., Ford Motor Co. and Chrysler LLC — with a pledge of support for government aid to help them survive. “We can’t allow the auto industry to … vanish,” he said, although he added that a blank check for an industry resistant to change was not the solution to its long-term decline.
At a news conference in which he introduced New York Federal Reserve President Timothy Geithner as his treasury secretary and named other top economic officials, Obama said restoring the economy to health took priority over deficit concerns. Still, he said he would be looking for “meaningful cuts and sacrifices” to restrain federal spending.
The president-elect was expected to stress that pledge at a second news conference on Tuesday. Democratic officials said he intended to name Peter Orszag, currently the head of the Congressional Budget Office, to be his budget director.
Obama and President George W. Bush spoke by telephone during the day, their first disclosed conversation since a visit at the White House more than a week ago, and each man appeared eager to show a transition proceeding smoothly.
At the same time, the juxtaposition of the outgoing and incoming chief executives grappling — publicly and simultaneously — with the economy underscored the severity of a crisis that has sent joblessness rising, caused a large spike in mortgage foreclosures and crippled the credit markets.
Bush said his administration’s dramatic overnight rescue of Citigroup Inc. was necessary to safeguard the nation’s financial system and help the economy recover. He said more such moves might follow if other institutions need help. Officials said the government might invest $20 billion in the firm, and guarantee $306 billion in risky assets.
Encouraged by the action, investors sent the Dow Jones industrials up 397 points. Coupled with Friday’s gain, that mean an 891 point increase over two trading days, the biggest percentage rise since October 1987.
Obama made a point of saying his administration “will honor the public commitments made by the current administration to address this crisis,” words of reassurance to the financial markets.
Remarkably for a president-elect, he said he wanted Congress to act “right away” on a stimulus measure that would blend spending and tax cuts. Asked for details, he said without elaboration that he wanted a measure “of a size and scope that is necessary to get this economy back on track.”
Democratic officials in Congress said the stimulus plan could include aid to cash-strapped states to provide health care to the poor, along with road and bridge funding. More money for food stamps is also likely, they said.
Obama renewed his campaign-long call for middle class tax cuts but said he would let his advisers make a recommendation on whether to roll back Bush-era tax cuts for the wealthy.
He offered few details about the economic stimulus measure he wants from the new Congress, saying he would ask his new team of advisers to consult with lawmakers.
As a candidate, he supported a $175 billion measure, but the economy has worsened since then, and many lawmakers and economists argue for a more robust jolt. Obama said his goal is to create 2.5 million jobs by “rebuilding our infrastructure, our roads, our bridges, modernizing our schools and creating the clean energy infrastructure of the 21st century.”
His forecast was sober. He said there are neither shortcuts nor quick fixes.
“The economy is likely to get worse before it gets better. Full recovery will not happen immediately,” he said. At the same time, he coupled those sentiments with optimism. “I know we can work our way out of this crisis because we have done it before.”
The new Congress comes into session on Jan. 6, two weeks before Obama takes the oath of office as the nation’s 44th president.
Democratic leaders have said they are eager to spend the time before then working on the legislation he wants, and Obama had scarcely made his remarks when political jockeying broke out over the details.
Senate Majority Leader Harry Reid, D-Nev., issued a challenge to Republicans to join Democrats in sending legislation to the White House as soon as possible.
House Republican Leader John Boehner of Ohio said he hoped the new administration would listen to those “who do not believe increasing government spending is the best way to put our economy back on track.” …
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Tuesday, 11/25/08
Government announces new loan
programs
AP – Paulson announces new loan programs 
WASHINGTON – The government, still struggling to manage a severe financial crisis, unveiled two new programs Tuesday that will provide $800 billion to try to help unfreeze the market for consumer debt from home mortgages to credit cards.
The announcements by the Federal Reserve and the Treasury Department represented the latest modifications to the largest government bailout in history, a program designed to keep the troubled financial system from dragging the country into a deep and prolonged recession.
Treasury Secretary Henry Paulson has been criticized for continually revising the focus of the government’s response to the crisis.
Paulson on Tuesday defended all the changes, saying that there was no one response adequate by itself to deal with what he termed a once- or twice-in-a-century financial crisis. He said that was why the government was having to keep modifying its response.
“It is naive for any of us to think that when you are dealing with a situaiton of this magnitude that a bill could be passed or a single action taken to make all the issues go away,” Paulson told reporters at a briefing on the new programs.
To try to increase the availability of home loans to borrowers, the Federal Reserve said it will buy up to $100 billion in direct obligations from mortgage giants Fannie Mae and Freddie Mac as well as the Federal Home Loan Banks. The Fed also will buy $500 billion in mortgage-backed securities, pools of mortgages that are bundled together and sold to investors.
The program on consumer debt will lend up to $200 billion to the holders of securities backed by various types of consumer loans. It will be supported by $20 billion of credit protection from the $700 billion bailout package that was enacted last month.
The government, while looking to reduce fear in the credit markets, is eager to see lenders like credit card companies resume more normal levels of lending to help stimulate the economy. Since September, when credit markets first froze, financial institutions have been hesitant to hand over money for fear they won’t be repaid.
On Wall Street, the new government efforts provided an early lift to stocks, but the Dow Jones industrials were down about 10 points in midday trading.
Meanwhile, data released Tuesday provided further proof the country is almost certainly in the throes of a painful recession.
The Commerce Department’s updated reading on the economy’s performance showed gross domestic product shrank at a 0.5 percent annual rate in the July-September quarter, weaker than the 0.3 percent rate of decline first estimated a month ago, and the worst showing since the third quarter of 2001.
GDP measures the value of all goods and services produced within the U.S. and is considered the best barometer of the country’s economic fitness.
Meanwhile, the Standard & Poor’s/Case-Shiller national home price index released Tuesday tumbled a record 16.6 percent during the quarter from the same period a year ago. Prices are at levels not seen since the first quarter of 2004.
That, in turn, has made it harder for businesses and consumers to borrow.
Elsewhere, the New York-based Conference Board says its Consumer Confidence Index for November was 44.9, up from a revised 38.8 in October. Last month’s reading was the lowest since the research group started tracking the index in 1967.
Economists surveyed by Thomson Reuters expected the November reading to slip to 37.9. Still, this month’s figure hovers around levels not seen since December 1974, with Americans’ views on the economy the gloomiest in decades as they grapple with massive layoffs, slumping home prices and dwindling retirement funds.
Consumers nationwide are reeling from job losses, tanking investment portfolios and sinking home values. They are expected to hunker down further in the coming months, making it likely the economy will continue to shrink through the rest of this year and into 2009, more than fulfilling a classic definition of a recession: two straight quarters of economic contraction.
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Left Out of the Bailout: The Poor
As the roster of corporations and financial institutions on line for government bailouts seems to grow, some public policy advocates in Washington D.C. are calling on policymakers to focus more efforts on the nation’s poorest. The ranks of the destitute are growing quietly but alarmingly as much of the world focuses on troubles surrounding Wall Street. “Recent data show poverty is already rising quite substantially,” says Robert Greenstein, the executive director of the Center on Budget and Policy Priorities. “There is a strong potential for more hardship and destitution than we have seen in this country in a number of decades.”
Greenstein’s center released a new study on Monday projecting a sharp rise in the number of people living below the poverty line, which is roughly $21,200 annually for a family of four according to Department of Health and Human Services. An estimated 36.5 million Americans currently live below the poverty line, but those numbers will likely increase by as many as 10.3 million if current projections for the depth and duration of the recession hold true. According to the center’s analysis, the number of poor children will grow by as many as 3.3 million. And the number of children in deep poverty, those in families living on less than half the wages of the official poverty line, will climb by as many as 2 million.
Signs of the recession’s impact on America’s impoverished are increasingly apparent, Greenstein said, pointing to a dramatic rise in food stamp caseloads in recent months. The number of people using food stamps has risen 9.6%, or roughly 2.6 million people, between August 2007 and August 2008, the last period for which data are available. Food banks around the country are reporting longer lines even as donations are falling.
By historical comparison, the expected rise in the number of impoverished in this recession is relatively normal. During the recession years of the 1980s, the number of people in poverty rose by 9.2 million, an increase of more than a third. The recession of the 1990s was not quite as deep but still increased the number of people in poverty by 6.5 million. But those falling into poverty now face harder prospects and need more government help, Greenstein says, because many social safety nets have been cut away since the last economic downturns.
A number of policy changes at both state and federal levels have left basic cash assistance programs scarce, the center’s study argues. State general assistance programs were largely eliminated across the country in the late 1980s and early 1990s, except for programs benefiting the disabled. On the federal level, only about 40% of families eligible for cash assistance under the Temporary Assistance for Needy Families program actually receive it. That is about half the percentage of families eligible for the program’s predecessor (the Aid to Families with Dependent Children program) that received its benefits during the recessions of earlier decades.
President-elect Barack Obama voiced new concern over the economy Monday when announcing picks for his White House economic team, saying a new economic stimulus package was needed right away in addition to the ongoing efforts to pump more than $700 billion in federal rescue funds into ailing business like Citigroup. There was no indication how any of that round of spending will reach the growing numbers of nation’s neediest.
