Obama, allies aren't on same page as G20 opens

By Steven Thomma and Kevin G. Hall

McClatchy Newspapers

(MCT)

LONDON _ With economic peril spreading around the globe, President Barack Obama and other world leaders will convene Wednesday in London, desperate to avoid the mistakes that plunged the planet into the Depression in the 1930s and seeking common approaches to jolt their economies back to life.

Obama landed in London on Tuesday evening, ready to plunge into meetings Wednesday and Thursday. Topping his agenda is affirming national government plans already under way to spend $2.5 trillion to stimulate economies and working out a new global framework to regulate financial markets. This could include extending the regulatory net over hedge funds and offshore tax havens, as well as identifying gaps in regulation between countries.

Another crucial goal: making sure that developed countries avoid protectionism, or shutting themselves off from international trade, a key mistake that helped worsen the worldwide depression more than seven decades ago.

Obama and European allies also seek to empower the International Monetary Fund and World Bank to boost economies great and small and to discourage the erection of trade barriers.

That may be difficult given growing political pressures in many nations. Thousands of protesters are expected to flood London's streets, underscoring how the loss of jobs and pensions in Europe magnifies social stresses and political tensions.

The American president is the fresh face among world leaders, many of whom already were in office when the global financial system went into cardiac arrest last fall. Starting with a dinner Wednesday evening, Obama and colleagues then will work through the day Thursday on what originally had been billed as rewriting the global rules for finance.

The meeting involves the so-called G20, a group of 19 countries with major economies plus the European Union. Together they represent 85 percent of the world's economy, from old European powers to emerging powerhouses such as China and Brazil. Others beyond the 19 are attending as well, including Spain and the Netherlands.

"The stakes for this summit are very high," Michael Froman, the White House's deputy national security adviser for international economic affairs, said in a London briefing Monday. "They are magnified by the fact that much has happened since the last G20 summit in November."

The global financial crisis has deepened since then and countries now are focused on halting the bleeding and restoring growth.

Yet in the weeks leading up to this summit, trans-Atlantic tensions mounted. The Obama administration criticized European allies as not doing enough to stimulate their economies, and they retorted that the United States is moving too slowly to put new rules in place to rein in large financial institutions.

Both have backed off since, but the Obama team suggested that success will be measured in tone, not detail.

"What's important is that there is agreement to do whatever is necessary until growth is restored, there's agreement to take sustained effort until growth is restored and there's agreement to ask the IMF to monitor both what's necessary and what's being done by the G20, and to report back on a regular basis," Froman said. "Every country has adopted stimulus. They're in the process of implementing it."

France and Germany have warned against a summit that seeks a consensus so general that it lacks relevance.

(EDITORS: STORY CAN END HERE)

French newspapers reported this week that President Nicolas Sarkozy would insist on benchmarks for gauging progress on the imposition of new regulations over finance. He threatened in mid-March to walk out of the G20 summit if serious progress isn't being made.

In an interview with London's Financial Times published Friday, German leader Angela Merkel hadn't backed off from her emphasis on regulation instead of spending.

"The crisis did not take place because we were spending too little but because we were spending too much to create growth that was not sustainable. It isn't just that the banks took over too many risks. Governments allowed them to do so by neglecting to set the necessary (financial market) rules and, for instance in the U.S., by increasing the money supply too much," she said.

The United States and England, however, are unlikely to support hasty moves to new regulation.

"Self-interest wins in the end always, and the United States and the U.K. get more out of financial services than anyone else. We have the two world financial capitals. It's not in our interest to have other people write the regulations or have regulations that try to average across many nations," said Vincent Reinhart, a former top economist at the Federal Reserve.

Likewise, he cautioned, big nations such as China and Russia, and the smaller but important European powers, see it in their interest to impose new rules on London and New York.

"I don't see how you reconcile that difference in national interests," said Reinhart, who's a scholar at the American Enterprise Institute, a conservative research center. "I think it's going to be very hard for the U.S. to make this summit a success."

(EDITORS: STORY CAN END HERE)

Obama did steal some of the European thunder last week, outlining his own vision for a tougher new regulatory environment that included new oversight for hedge funds, which control vast pools of global capital. It included a call for new rules that would force banks to keep more cash on hand and prevent them from investing so heavily with borrowed money. That's amplified the global financial crisis.

Even if not resolved in London, pressure for new global rules will remain.

"We're still trying to fragment regulation in a global financial market, and we're discovering it doesn't work," said David Wyss, the chief economist for rating agency Standard & Poor's in New York. He expects little more than a framework to be accomplished this week. "I think there will be some attempt to smooth the feathers."

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© 2009, McClatchy-Tribune Information Services.

Visit the McClatchy Washington Bureau on the World Wide Web at www.mcclatchydc.com.

_____

Bankruptcy advocates say GM's best bet may be 'prepack'

By Michael Oneal

Chicago Tribune

(MCT)

CHICAGO _ Faced with an auto industry that is bleeding cash and seemingly unable to fix itself, President Barack Obama began laying the groundwork Monday for a possible government-sponsored Chapter 11 bankruptcy filing by General Motors Corp. and Chrysler LLC.

After threatening to cut off government aid to both companies unless they meet strict new deadlines for forging restructuring plans acceptable to the president's auto task force, Obama said that bankruptcy filings could represent part of the solution to either company's woes.

The move to put a Chapter 11 filing squarely on the table is an abrupt repudiation of the conventional wisdom in the auto industry that bankruptcy would be disastrous for car sales and the general economy. But with the automakers burning through billions while negotiations with creditors, unions and other stakeholders drag on, Obama may be ready to take that risk, experts said.

"If anybody was under the illusion that the Obama administration was going to sink billions of dollars into this industry until the end of time, they were disabused of that notion" on Monday, said Douglas Baird, a bankruptcy expert at the University of Chicago Law School.

Several observers said the administration's willingness to consider bankruptcy may have both practical and tactical elements. On the practical side, few restructuring experts have ever felt GM or Chrysler could work out their myriad problems without the aid of a bankruptcy judge. Obama's auto task force may be coming to this view.

Tactically, the task force may be sending a signal to creditors, unions and company managements that the government's patience and checkbook are not unlimited and that if they can't stomach the cuts needed to make GM and Chrysler viable, a court will have to make the cuts for them.

On Sunday, the Obama administration eliminated one longtime opponent of a bankruptcy filing when it asked GM Chairman Rick Wagoner to resign.

Wagoner and other auto industry officials had warned since the car companies began running out of cash late last year that a bankruptcy filing by any of the Big Three would be disastrous for the entire industry. They said it would crush sales by scaring away consumers worried about buying such a big-ticket item from an unreliable company. And, because the industry is tightly intertwined, they said it would set off ripple effects that would threaten dealers, suppliers and other car companies responsible for a large swath of the U.S. economy.

"The people who say bankruptcy is a good idea don't understand the complexity of the industry," said David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich. "It's mostly bankruptcy lawyers who are saying that because they will feast on it."

Those advocating a bankruptcy process argue that a so-called "prepackaged" Chapter 11 filing with financing supplied by the government may be the best option for a company like GM. In a "prepack," the various stakeholders agree to a solution in advance and use the court to enforce it in a relatively quick, in-and-out process.

That can solve a lot of problems, experts said.

GM's debt, for instance, is currently trading at around 15 cents on the dollar, but bondholders have so far signaled support only for a deal worth a little more than 30 cents. Getting all the bondholders _ a group numbering in the thousands _ to agree to cuts so drastic might be impossible out of bankruptcy court, Baird said. But under the rules of a pre-arranged bankruptcy, half of the bondholders by number, or two-thirds by dollar amount, can cut a deal and drag the other, more recalcitrant investors along with them, making for a smoother process.

During his speech Monday, Obama seemed to embrace the idea of a prepackaged filing while taking pains to address concerns about spooking consumers. A Chapter 11 filing, he explained, would not mean the failure and unwinding of either GM or Chrysler.

"What I'm talking about," he said, "is using our existing legal structure as a tool that, with the backing of the U.S. government, can make it easier for General Motors and Chrysler to quickly clear away old debts that are weighing them down so that they can get back on their feet."

(EDITORS: STORY CAN END HERE)

Obama also introduced specific measures to stimulate sales and make jittery car buyers more comfortable about buying from a manufacturer in financial trouble.

First, he said the government would guarantee all auto warranties so buyers don't have to worry about being stuck with a damaged car if its manufacturer is incapacitated. Then he announced one initiative to allow car buyers to write off sales and excise tax on new cars and another to provide incentives for replacing older, less fuel-efficient cars with new ones.

One thing Obama made clear is that Chrysler and GM are very different.

Chrysler was given 30 days to complete a global partnership agreement with Italy's Fiat.

General Motors, on the other hand, will have 60 days to forge a compromise between management, the United Auto Workers and the company debt-holders. In addition to the debt restructuring, the UAW will likely have to agree to more wage cuts and a controversial debt-for-equity swap to fund its retiree health trust. And management will have to show how its restructuring adds up to viability.

Fritz Henderson, GM's new interim CEO and a longtime Wagoner lieutenant, acknowledged to reporters after Obama's speech that the risk has increased that the company will have to reorganize through bankruptcy, because of greater demands from the Obama administration to get debt off its balance sheet.

In a statement, the company said: "Our strong preference is to complete this restructuring out of court. However, GM will take whatever steps are necessary to successfully restructure the company, which could include a court-supervised process."

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© 2009, Chicago Tribune.

Visit the Chicago Tribune on the Internet at http://www.chicagotribune.com/

Distributed by McClatchy-Tribune Information Services.

Feds refuse more aid to GM, Chrysler

By Kevin G. Hall

McClatchy Newspapers

(MCT)

WASHINGTON _ President Barack Obama on Monday will reject requests for almost $22 billion in new taxpayer bailout money for General Motors Corp. and Chrysler, saying the car makers have failed to take steps to ensure their viability.

The government demanded the resignation of GM chief Rick Wagoner and said the company needed to be widely restructured if it had any hope of survival. It said it would provide the company with 60 days operating capital to give it time to undertake reforms.

The government will grant Chrysler 30 days operating funds, but said it must merge with another carmaker in order to remain viable. Talks with Italian carmaker Fiat are underway.

The administration also announced a warranty-guarantee plan that administration officials hope will give consumers enough confidence that they will continue to buy the companies' vehicles.

GM and Chrysler have already received $17.4 billion in government rescue money. The two companies faced a Tuesday deadline for the government to approve plans they had submitted weeks ago in hopes of persuading the Obama administration they could remain in business and deserved additional money.

But the decision from Obama was no and was accompanied by unusually detailed assessments of the two companies' business plans and prospects.

The administration, however, did not demand repayment of the earlier loans. It also did not completely slam the door on the additional $21.6 billion the carmakers sought, but sent the two back to the drawing board.

A senior administration official, briefing reporters late Sunday night on the condition of anonymity in order to speak freely, said Obama will call for more sacrifice from carmakers, their investors and automotive unions.

The official said there were encouraging signs the Chrysler merger with Fiat will happen soon. The administration wants this deal to happen, but has tried to avoid too big a stake by Fiat for fear taxpayers would be funding a foreign takeover.

Fiat will commit to produce fuel-efficient cars and engines in the U.S., and will be limited to a 49 percent stake until all taxpayer loans have been repaid. There are no expected leadership changes at Chrysler, given the ongoing merger talks.

Another senior administration official, also demanding anonymity, denied the administration required Wagoner's ouster. But officials acknowledged they wanted a fresh start at GM and Wagoner agreed to step aside. Other executives are also expected to depart.

The government's assessment of Chrysler's prospects was particularly damning. It noted that none of Chrysler's current models were recommended in a recent article by Consumer Reports, and every one of its brands ranked in the lower quartile for quality in an assessment by J.D. Power.

It said the company is too dependent on its truck and SUV business and had only a 3 percent share of the small-car market, even though that segment makes of 21 percent of car sales overall. Noting that Chrysler's strength is in trucks, SUVs and mini-vans, all vehicles with relatively low fuel efficiency, the government said it was unlikely Chrysler would be able to meet new government standards for fuel consumption.

GM too was criticized for being dependent on the sale of trucks and SUVs for its revenue.

The quality of its products also was a concern. While GM has worked hard to improve quality, "lingering consumer perception is that GM makes lower-quality cars . . . which in turn leads to greater discounting, which harms GM's price realizations and depresses profitability."

The government also said GM had not done enough to rid itself of underperforming dealers and its large number of vehicles were a distraction to its management.

The government offered a bleak assessment of the prospects for GM's much heralded Volt electric car, noting GM was a full generation behind Toyota in "green powertrain development."

"While the Volt holds promise, it is currently projected to be much more expensive than its gasoline-fueled peers and will likely need substantial reductions in manufacturing cost in order to become commercially viable," the government assessment said.

Given all that, the government assessment found GM's proposed plan was too optimistic in foreseeing "only a very moderate decline" in market share. GM's market share in the U.S. stood at 45 percent in 1980, dropping to 36 percent by 1990 and 29 percent in 2000. Today, GM's share of the U.S. automarket is approximately 22 percent.

Still, the report concluded the company can be saved if it undertook major restructuring. "It is strongly believed, however, that such a substantial restructuring will lead to a viable GM," he report said.

(EDITORS: STORY CAN END HERE)

In their briefing for reporters, administration officials said GM has made no progress in talks with its bondholders. It has about $35 billion in debt, $27 billion of it unsecured and at risk if GM is forced to file for bankruptcy. GM was expected to reduce that amount to $9 billion through a voluntary exchange of bonds for new shares of GM stock.

Bondholders have instead sought government help, officials said, suggesting they are betting there won't be a bankruptcy. Officials, however, did not rule out the possibility of a so-called surgical bankruptcy under which GM could be sent into protection from creditors for a 30-day period after most details had been worked out in advance.

Under normal circumstances, banks would provide the long-term financing to help the two carmakers restructure but these are not normal times. In fact, banks have received hundreds of billions of taxpayer dollars to stay afloat and the government is the only game left in town.

Chrysler is a smaller company than GM yet it owes banks more than $8 billion and these financially weakened banks are not in a forgiving mood.

(EDITORS: STORY CAN END HERE)

Wagoner's departure from GM is surprising given that he has been the public face of the struggling carmaker and has worked at GM at home and abroad since 1977, rising to CEO in 2000.

Wagoner's long tenure saw days of glory, but GM was caught flatfooted as its fleet was heavy with trucks and sports utility vehicles that got weak fuel mileage as rising gasoline prices sent consumers looking for more fuel-efficient vehicles. GM was last profitable in 2004.

Most of the banks receiving government assistance have replaced their top officials, and the administration gains a measure of political cover for its rejection of the auto bailout by bringing in a new team of leaders.

In an interview with the CBS Sunday morning show Face the Nation, Obama hinted that changes were coming for the carmakers.

"We think we can have a successful U.S. auto industry. But it's got to be one that's realistically designed to weather this storm and to emerge at the other end much more lean, mean and competitive than it currently is," Obama told host Bob Schieffer, who asked if the carmakers were there yet. "They're not there yet."

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© 2009, McClatchy-Tribune Information Services.

Visit the McClatchy Washington Bureau on the World Wide Web at www.mcclatchydc.com.

House GOP offers alternative budget, with details to come

By David Lightman

McClatchy Newspapers

(MCT)

WASHINGTON _ Republicans in the House of Representatives answered President Barack Obama's challenge for a GOP alternative budget on Thursday by producing their own plan _ but the document contained virtually no specifics on spending, taxes or deficit reduction.

Instead, the glossy 18-page book, "The Republican Road to Recovery," was largely a harangue against Democratic policies and a series of statements of long-held Republican principles. House Republican Leader John Boehner of Ohio promised details next week.

Obama at his Tuesday news conference had criticized Republicans, saying, "We haven't seen an alternative budget out of them."

"Here it is, Mr. President," Boehner declared on Thursday.

Asked if the Republican plan would cut the deficit in half in five years, as Obama proposes, Boehner said, "It'll be better."

The House and Senate expect to vote next week on fiscal 2010 budgets, and separate votes are expected on Republican alternatives.

Since Democrats have comfortable majorities in both houses of Congress, and such budget debates are tightly controlled, the bills they have written are expected to pass easily.

(EDITORS: BEGIN OPTIONAL TRIM)

Rep. Paul Ryan, R-Wis., the top Republican on the House Budget Committee, set the tone for the Republican effort, calling the Democratic plan "so reckless, so irresponsible ... a gusher of new spending followed by a gusher of new borrowing we cannot sustain."

Democrats would spend about $3.55 trillion next year. Obama wanted a 10.1 percent boost in nondefense discretionary spending, which includes most domestic programs. The House Democrats' version would pare that to 9.5 percent, while the Senate's would cut it to 7 percent.

Most of Obama's key initiatives, such as health care, climate change and his "making work pay" tax credit, will be considered later this year. The House and Senate Democratic budgets require that their costs be covered by tax increases or offsetting cuts in spending elsewhere.

(END OPTIONAL TRIM)

Democrats scoffed at the GOP plan.

"It's like being in the era of the Bush administration all over again," said Rep. John Spratt, D-S.C., the House Budget Committee chairman.

The GOP plan methodically takes the Democratic bill apart. On health care, it complains that "Democrats propose to finance nationalized health care," and says a better solution would be allowing people to shop across state lines for insurance policies.

On spending, the Republican plan lists specific objections to Democrats' plans, but proposes only that the GOP would "cut overall nondefense spending by reforming or eliminating a host of wasteful programs deemed ineffective by various government entities."

Taxes would be lower, the Republicans promise, in a "simple and fair tax code" with a 10 percent tax rate for incomes up to $100,000 and 25 percent thereafter, as well as "a generous standard deduction and personal exemption."

However, Republicans also would "allow any individual or family satisfied with their current tax structure" to pay those rates, though it would drop the two lowest brackets by 5 percent. Rates currently range from 10 percent to 35 percent.

On energy, the Republican plan would open the Arctic Coastal Plain to energy exploration, while making it easier to build new nuclear reactors.

And the party says it would help ease financial industry turmoil by discouraging bailouts and creating a climate of "certainty and economic growth."

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ON THE WEB

Republican road to recovery plan": http://www.gop.gov/solutions/budget/road-to-recovery-final

Internal Revenue Service description of 2009 tax brackets: http://tinyurl.com/6xpayy

Congressional Budget Office budget projections: http://tinyurl.com/ddjb9p

President Obama's 2010 budget outline: http://tinyurl.com/bcbxk6

Concord Coalition budget analysis: http://tinyurl.com/cwjb2e

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© 2009, McClatchy-Tribune Information Services.

Visit the McClatchy Washington Bureau on the World Wide Web at www.mcclatchydc.com.

Lawmakers poised to make cuts to Obama's budget

By David Lightman

McClatchy Newspapers

(MCT)

WASHINGTON _ Congress will begin rewriting President Barack Obama's $3.55 trillion fiscal 2010 budget Wednesday, and key lawmakers are poised to change some of his most ambitious plans significantly.

"There will be change, there's no question," said Sen. Dianne Feinstein, D-Calif., a Senate Appropriations Committee member.

The House of Representatives and Senate budget committees hope to cut hundreds of billions of dollars from the president's outline.

Obama originally proposed a 10.1 percent increase in key nondefense domestic spending last month, according to Senate Budget Committee estimates, and Committee Chairman Kent Conrad, D-N.D., wants to hold the increase to about 7 percent. Conrad also wants to eliminate a $250 billion reserve that Obama wants for future bailouts of troubled companies.

The committees are unlikely to back resorting to a controversial legislative tactic that would make it easier to win Senate approval of carbon emission curbs, however.

The president, who plans to meet Wednesday at the Capitol with Senate Democrats, is contending that he will have succeeded if the final budget achieves four general goals: making a "down payment" on a health care overhaul; creating a "path to energy independence"; overhauling education; and cutting the "inherited" deficit in half by 2013.

Few lawmakers from either party would disagree with those principles, but they're sharply divided over how to attain them _ and alarmed by new deficit projections.

Obama's budget estimated that the 2010 deficit would reach $1.17 trillion, but the nonpartisan Congressional Budget Office last week projected the figure at $1.4 trillion. The CBO also issued new, dire warnings about the future. By 2019, it said, debt held by the public would double to 82 percent of the gross domestic product if the president's budget becomes law.

The new figures have made Democratic budget leaders in Congress more aggressive about cutting Obama's budget. Conrad will offer a plan Wednesday to cut the deficit to $508 billion by fiscal year 2014.

Among the changes that are being seriously discussed:

_The non-filibuster rule. The president's budget team has considered using the budget "reconciliation" process to bring up complex changes in health care and carbon emissions "cap-and-trade" measures. That tactic permits the Senate to enact budget-related bills with only a simple majority of the 100-member body.

Usually Senate rules permit a minority to hold up legislation until 60 members vote to move to a final vote. Democrats control 58 Senate seats, so they could ram big programs through under "reconciliation." Republicans object, however, and even some Democrats remember that when they were in the minority, they valued minority-protection rules.

The House Democratic Blue Dog Coalition, a group of 51 party moderates, has made it clear that it doesn't want the reconciliation process used to change policy. Also, senators from industrial states, worried about the impact of a cap-and-trade system to limit emissions from the auto industry, are voicing concern.

Still, House Democratic leaders are balking at abandoning the tactic for winning an overhaul of health care.

(EDITORS: BEGIN OPTIONAL TRIM)

Using the tactic could wound already-bruised relations with Republicans. Sen. Susan Collins, R-Maine, who cast a crucial vote for last month's economic stimulus package, said she flatly opposed using the tactic for such big issues.

"Reconciliation should not be used to implement a major policy change," she said. "It's unfair to those who hold minority views."

(END OPTIONAL TRIM)

_The financial rescue plan. Obama's budget lists a $250 billion "placeholder" aimed at giving more help to ailing industries, but Congress seems in no mood to provide it. Since the first major bailouts last fall, lawmakers have heard repeatedly from angry constituents who oppose government aid to shaky companies.

(EDITORS: BEGIN OPTIONAL TRIM)

"I don't think it should stay in. I don't think there's enough support for any additional rescue plans at this point," said Sen. Ben Nelson, D-Neb., a key moderate.

Senate Majority Leader Harry Reid of Nevada agreed. "I have no problem with that. ... If it's an emergency we can do it."

(END OPTIONAL TRIM)

_Nondefense discretionary spending. The Senate Budget Committee says the president wants a 10.1 percent increase in domestic discretionary spending, which includes most education, labor, transportation and other popular programs.

The Blue Dogs want spending on these programs held to the rate of inflation, which is nearly zero, and Senate moderates also are concerned about runaway spending. Conrad is expected to recommend a 7 percent spending increase, but that's going to be a hard line to hold in the House, where liberals have more clout.

This looms as one of the biggest budget battles. A coalition of liberal groups began mobilizing Tuesday against major cuts from Obama's wish list, and House leaders, many of them sympathetic to liberal causes, are said to be balking at cuts too.

(EDITORS: STORY CAN END HERE)

_Pell grants. Currently, Congress and the president decide each year how much money this program to aid lower-income students should receive. Obama wants to make it an "entitlement," guaranteeing that it would get a certain level of funding each year.

He's proposed a maximum award of $5,550 for the 2010-11 school year, a sum that would be indexed to the rate of inflation plus 1 percent annually after that. Conrad would preserve Obama's increases, but wouldn't make the grants a full entitlement program, meaning that Congress would have more discretion to make changes each year.

Rep. Paul Ryan of Wisconsin, the top House Budget Committee Republican, said that while he backed Pell grants, the president's plan would make it "another autopilot entitlement, immune from congressional oversight at precisely the time when we should be reforming" entitlements.

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ON THE WEB

President Obama's 2010 budget outline: http://tinyurl.com/bcbxk6

Concord Coalition's budget analysis: http://tinyurl.com/cwjb2e

White House plan on Pell Grants, other education revisions: http://tinyurl.com/a9tvlo

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© 2009, McClatchy-Tribune Information Services.

Visit the McClatchy Washington Bureau on the World Wide Web at www.mcclatchydc.com.

Treasury to spend $100 billion to lure investment in bad securities

By Jim Puzzanghera and Walter Hamilton

Tribune Washington Bureau

(MCT)

WASHINGTON _ The Obama administration on Monday released the long-awaited details of its plan to cleanse banks of bad home loans and other toxic assets, igniting a major Wall Street rally as investors glimpsed what might be the beginning of the end of a problem at the core of the financial crisis.

The Dow rocketed nearly 500 points after Treasury Secretary Timothy Geithner briefed reporters on the administration's innovative but untested plan, which makes a strategic bet that partnering with private investors to buy the assets will stabilize the crisis while limiting the risk to taxpayers.

"We believe that this is one more element that is going to be absolutely critical in getting credit flowing again," President Barack Obama said. "It's not going to happen overnight. There's still great fragility in the financial systems. But we think we are moving in the right direction."

The new Public-Private Investment Program will use $75 billion to $100 billion in federal financial rescue money to lure private investors to join with the government in purchasing as much as $1 trillion in bad subprime mortgages, mortgage-backed securities and other troubled assets that are dragging down the balance sheets of financial institutions.

With Wall Street greeting the plan optimistically, experts said, the potential for generous government financing could entice investors into the troubled sector.

"I like where they're going," said Frank Pallotta, a principal at Loan Value Group in Rumson, N.J., a consulting firm that advises buyers and sellers of distressed mortgage assets. "It's a step in the right direction."

Two large money management firms, Pimco in Newport Beach, Calif., and BlackRock Inc. in New York, said they would participate in the asset-purchase program. And the Financial Services Roundtable, which represents large banks that would put assets up for sale and private-equity firms that would buy them, said it heard positive feedback Monday.

Geithner on Monday tried to ease concerns among potential investors in the toxic assets that Congress might change the rules later, reflecting a worry raised by congressional outrage over the $165 million in retention bonuses paid to employees at bailed-out insurance giant American International Group.

Getting investors to join with the government and take the risk of buying the bad assets "will require confidence among investors there's clearly established rules of the game consistently enforced going forward." Geithner said the administration would work with Congress to strike the right balance. The administration understands the anger over the bonuses, he said, and more broadly at the financial institutions that helped cause the crisis by making risky investments.

For that reason, the program is designed to limit the risk to taxpayers of cleaning up those assets, while also trying to lure private investors to help participate in the cleanup.

Geithner said the program would allow the government to share with private investors both the risks of acquiring the bad assets and the potential gains if they are bought at low enough prices. That innovative idea was selected as a better alternative to having the government buy up all the assets itself or simply allowing banks to work through the problems on their own.

"The alternative strategies would have the government either taking on all that risk ourselves, having all those losses on our balance sheet, or sitting back and let this process of deleveraging continue to weigh on the American economy, pushing viable businesses closer to the edge," Geithner said.

(EDITORS: STORY CAN END HERE)

The final details are still being developed and the Treasury Department hopes to launch the program within the coming weeks, in participation with the Federal Deposit Insurance Corp. and the Federal Reserve. The FDIC and the Fed are partners because they have large amounts of money to provide loan guarantees.

The FDIC also has experience in selling financial assets, which it does after it seizes failed banks.

The new Treasury program targets two groups of assets that are at the center of the financial crisis: bad mortgage loans being held by banks and securities containing those loans that are held by banks and other financial institutions. The values of those assets have plummeted with the collapse of the housing market, making them almost impossible to sell. That dynamic has dragged down the value of financial institutions and made it extremely difficult for them to raise the money to provide new loans. The resulting credit crunch has pushed the financial system into crisis, deepening the recession.

Geithner's plan involves using government loans and guarantees to lure investors to buy the assets at discounted prices.

"A principal virtue of this mechanism is to use the financial interests of investors to help set the price. Because they have money at risk, they're going to make better judgments about how to set the price for these assets than the government could hope to make," Geithner said. "We have seen and I expect to see a lot of interest from the private sector."

Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, said the plan will help determine prices for the assets even if it isn't widely used, resolving the main issue holding up their sale. "They're not toxic because they have no value, they're simply toxic because they have no market, and because there is no market we don't know what the price is," Talbott said. "The proposal today cuts the Gordian knot and provides an elegant solution to an elusive problem."

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© 2009, Tribune Co.

Distributed by McClatchy-Tribune Information Services.

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Obama gives Treasury secretary vote of confidence during '60 Minutes' interview

By Mark Silva

Tribune Washington Bureau

(MCT)

WASHINGTON _ The besieged secretary of the Treasury gets a strong vote of confidence from President Barack Obama in a TV interview to be broadcast Sunday.

In a 90-minute session with "60 Minutes" interviewer Steve Kroft, Obama tells Kroft that if Timothy Geithner were to tender his resignation, he would tell him, "Sorry, buddy, you've still got the job."

The president stressed that neither he nor Geithner has mentioned resignation. But Obama said that criticism is natural, in light of the circumstances.

"It's going to take a little bit more time than we would like to make sure that we get this plan just right," Obama said. "Of course, then we'd still be subject to criticism _ 'What's taken so long? You've been in office a whole 40 days and you haven't solved the greatest financial crisis since the Great Depression.' "

The president also discussed the proposed bonus tax for companies that have collected federal bailout money, health care, assistance for automakers, and the situation in Afghanistan and Pakistan.

Addressing national security, Obama had an answer for Vice President Dick Cheney's recent contention that the new president has put the nation at greater risk with his plans to close the detention center at Guantanamo Bay and prohibit torture of prisoners.

"How many terrorists have actually been brought to justice under the philosophy that is being promoted by Vice President Cheney?" Obama said. "It hasn't made us safer. What it has been is a great advertisement for anti-American sentiment."

Asked about released prisoners who have returned to terrorist groups, Obama said: "There is no doubt that we have not done a particularly effective job in sorting through who are truly dangerous individuals ... to make sure (they) are not a threat to us."

But the president said the Bush administration's policy on detainees at Guantanamo _ including long incarcerations without trial _ is "unsustainable."

Excerpts from the interview, taped Friday, will air on "60 Minutes" Sunday at 7 p.m. EDT.

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© 2009, Tribune Co.

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AIG's CEO says he's asked employees to give some of bonuses back

By William Douglas and David Lightman

McClatchy Newspapers

(MCT)

WASHINGTON _ The head of the American International Group told Congress on Wednesday that he's asked employees who received $165 million in bonuses to "step up and do the right thing" and voluntarily give back at least half of their rewards.

Edward Liddy, AIG's chairman and chief executive officer, told a House Financial Services subcommittee that, earlier in the day, he requested that AIG employees who received retention bonuses of more than $100,000 return at least half of the money.

"Some have already stepped forward and offered to give up 100 percent of their payments," Liddy said. "We will work toward the highest level of employee participation in this effort in the days ahead, and will keep the Congress and the American people informed of our progress."

Nevertheless, public indignation about AIG's bonuses raged unabated Wednesday throughout Washington, as President Barack Obama called for more power to oversee financial firms such as AIG. He also voiced confidence in his embattled treasury secretary, Timothy Geithner, who's facing mounting criticism for his failures to block AIG's bonuses and on other financial fronts.

In addition, Congress moved speedily to try to take back AIG's bonuses through legislation. The House of Representatives plans to vote Thursday on a bill that would tax such bonuses at a 90 percent rate.

Liddy's testimony was a mixture of contrition and confidence. While deploring the bonuses, he said he thought that paying them was correct, to avoid a financial disaster at AIG that could further damage the American economy.

He said he understood the public furor over a company that had received $170 billion in taxpayer bailout money shelling out $165 million for bonuses to the executives who drove the firm into virtual insolvency, but that he still considered the payments necessary.

Although AIG has managed to unwind more than $1 trillion from its troubled financial portfolio, a problematic $1.6 trillion portfolio remains and "continues to contain substantial risk," Liddy said.

"To prevent undue risk exposure in the meantime, AIG has made a set of retention payments to employees based on a compensation system that prior management put in place at the end of '07 and the beginning of 2008."

"I'm trying desperately to prevent an uncontrolled collapse of that business," Liddy added. "This is the only way to improve AIG's ability to pay taxpayers back quickly and completely, and the only way to avoid a shock to the economy that the U.S. government's help was meant to relieve."

(EDITORS: BEGIN OPTIONAL TRIM)

Liddy said that if he'd been in charge of AIG when the retention contracts first came up, he would have opposed them.

"But we concluded that the risk to the company, and therefore the financial system and the economy, were unacceptably high," he said.

Liddy acknowledged that mistakes "were made at AIG on a scale few could have ever imagined possible."

"The most critical of those mistakes was that the company strayed from its core competencies in the insurance business," he said. "This was typified by the creation of what grew to become an internal hedge fund, which became substantially overexposed to market risk."

(END OPTIONAL TRIM)

Liddy's testimony did little to soothe lawmakers.

Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, demanded the names of AIG employees who got bonuses and threatened to use subpoena power to get them.

Liddy said he was reluctant to produce the names because the company had been receiving death threats.

"All the executives and their families should be executed with piano wire around their necks," Liddy read from one note.

Frank called the threats "despicable" but said he still wanted the names.

"If you give in to these kind of threats, we would never get information made public about a lot of things," Frank said.

Frank may have gotten an assist in his quest from a New York state judge, who ruled Wednesday that Merrill Lynch and Bank of America couldn't keep private the names of Merrill executives who received bonuses.

The bonuses that AIG awarded last week were paid to 418 employees and included $33.6 million for 52 people who've left the firm, according to the office of Andrew Cuomo, New York state's attorney general.

Rep. Gary Ackerman, D-N.Y., while saying that he held no personal animosity toward Liddy or AIG, said: "This old teacher is going to give you a little bit of advice: Pay the $165 million back."

In a related development, Senate Banking Committee Chairman Christopher Dodd, D-Conn., told CNN that he was responsible for adding the loophole to the $787 billion economic stimulus bill that permitted AIG and other companies that received bailouts to pay bonuses. He said he did it at the request of Geithner's Treasury Department.

As the House subcommittee heard Liddy's testimony, Obama called for ways to exert greater federal regulatory control over financial institutions.

On the South Lawn of the White House before he left for a two-day trip to California, Obama said that he would work with Congress to put on a "fast track" an expanded "resolution authority" similar to the Federal Deposit Insurance Corp. but over insurance companies and other nonbanks, such as AIG.

"It would allow us proactively to get out in front, make sure that we're separating out bad assets from good, dealing with contracts that may be inappropriate and preventing the kinds of systemic risks that we've seen taking place with AIG," Obama said.

The president noted that his administration wasn't yet in power when the AIG contracts allowing bonuses or the regulatory situation that led to the economic crisis occurred. Still, he said, "the buck stops with me. ... Ultimately, I'm responsible. I'm the president of the United States."

He also gave a vote of confidence to his treasury secretary, as Republican lawmakers are starting to call for Geithner's head. Obama said that Geithner was facing more challenges than any predecessor perhaps since Alexander Hamilton, who first held the job 220 years ago and had to deal with the debt from the Revolutionary War.

"What we need to be doing is making sure that we are providing him the support he needs in order to work through all these problems, so that we're able to deal with them more effectively in the future," the president said.

(EDITORS: STORY CAN END HERE)

Lawmakers from both parties continued to look for ways to retrieve the bonus money from AIG.

The House plans to vote Thursday on a measure to tax these types of bonuses at a 90 percent rate.

"When you get mugged, you want two things: justice, and your money back," said Rep. Steve Israel, D-N.Y., the chief sponsor of the bill, which is expected to pass overwhelmingly.

The House Democratic leadership is strongly backing the bill. When Rep. Charles Rangel, D-N.Y., the chairman of the House Ways and Means Committee, was asked whether the White House had been involved, he said, "We just kept them aware of what we were doing."

House Speaker Nancy Pelosi, D-Calif., said that she wanted the House Judiciary Committee to look into how Attorney General Eric Holder might recover the AIG bonuses.

Holder said that his department would check to see whether any component of the bonuses "has to do with illegal, inappropriate, fraudulent activity."

Pelosi also wants the House Financial Services Committee to examine what powers the federal government holds as a stakeholder in AIG.

Frank said that he'd like the government, which owns a 79.9 percent stake in AIG, to bring a shareholders suit against the company.

"We would try to recover the bonuses to employees who did not deserve them," he said. "I think that's the cleanest way to do it."

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(McClatchy Newspapers correspondents Margaret Talev, Kevin G. Hall, Marisa Taylor and Steven Thomma contributed to this report.)

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© 2009, McClatchy-Tribune Information Services.

Visit the McClatchy Washington Bureau on the World Wide Web at www.mcclatchydc.com.

Congress threatens to tax back bonuses to AIG executives

By David Lightman and William Douglas

McClatchy Newspapers

(MCT)

WASHINGTON _ The Obama administration and members of Congress scrambled Tuesday to find ways to rescind $165 million in bonuses paid to employees of bailed-out insurer American International Group as constituent ire grew.

At the White House, spokesman Robert Gibbs said "there are certain provisions" that could be used to get the money back, though he cited nothing specific.

At the Capitol, members of Congress proposed using the tax code to take back the money. However, it was unclear whether, or how quickly, Washington could act to reclaim bonuses paid to 73 executives of AIG, which so far has received $170 billion in federal aid.

By late afternoon, the top members of the Senate Finance Committee, Democrat Max Baucus of Montana and Republican Charles Grassley of Iowa, said they intended to introduce legislation that would slap a 35 percent excise tax on excessive executive compensation.

The measure would apply to all bailout recipients and companies in which the federal government has taken an equity interest, including Fannie Mae and Freddie Mac, senior Senate Finance Committee aides said.

Under the proposal, retention bonuses _ the type that AIG paid out _ would be subject to the tax and would have to be paid both by the offending company and the bonus recipient.

"If it was a million dollar payment to the employee, AIG or the employer will pay a $350,000 excise tax. In addition, the individual recipient will pay a $350,000 excise tax as well," according to a senior committee aide.

The Baucus-Grassley proposal would also go after non-retention bonuses _ year-end bonuses, performance bonuses, and others _ if they exceed $50,000, committee aides said.

The administration and Congress are looking to gain momentum Wednesday, when Edward Liddy, AIG's chairman and chief executive officer, will be among those testifying before a subcommittee of the House of Representatives.

(EDITORS: BEGIN OPTIONAL TRIM)

Lawmakers promised a tough, lively hearing.

Rep. Carolyn Maloney, D-N.Y., wants to know: "Did they attempt to renegotiate the contracts? They say they can't alter contracts ... but they're altering contracts for workers at GM (General Motors) and Chrysler."

Maloney introduced a measure to tax bonuses at 100 percent for employees of AIG and any other institution in which the government owns a majority stake. Rep. Gary Peters, D-Mich., would impose a 60 percent surtax on bonuses of more than $10,000 from any firm in which the government has a major interest.

(END OPTIONAL TRIM)

Lawmakers said that their constituents' anger had erupted in recent days as rarely before. The public has been unhappy about bailouts since they first emerged last year, polls have found, and the AIG news may have been the last straw. The message, said House Majority Leader Steny Hoyer, D-Md., was that "these guys ought to give the money back."

He and others warned, however, that getting tax legislation passed quickly is a rare feat.

Some experts thought the executive branch could act on its own.

Douglas Kmiec, constitutional legal counsel at the Justice Department during parts of the Reagan and George H.W. Bush administrations, said it wasn't unusual for contracts to be altered because of changing circumstances.

Kmiec, a professor of constitutional law at Pepperdine University in California, said that the Office of Management and Budget could issue an opinion outlining how unforeseen circumstances, as well as other factors, had changed the nature of AIG's mission in recent months.

"No one could have anticipated the allocation of public funds" to the ailing insurer, he said.

The White House legal counsel or the Department of Justice also could offer a ruling, Kmiec said.

AIG could challenge such an opinion in federal court, but it would be up against the people of the United States. In addition, the government could argue that without the federal bailout "the reality is the AIG executives would have received zero, or amounts subject to multiple claims in bankruptcy," Kmiec said.

However, John Lapp, an economics professor at North Carolina State University and an expert on the Federal Reserve System, said that there was little that the Obama White House could do legally to recoup the bonus money.

"I think it would be difficult, because these are specified contracts," Lapp said. "There's a serious problem when the government decides what contracts are valid and which ones aren't. If you start cherry-picking ... that would reduce productivity, enterprise and risk-taking, when the government intervenes."

(EDITORS: STORY CAN END HERE)

Tim Blessing, the director of the presidential performance study at Alvernia University in Reading, Pa., agreed that there was little that the White House can do to retrieve the bonuses.

"They could allege the contracts on which the bonuses were based were improper or fraudulent _ collusion or something like that," Blessing said. "But my guess is these are straightforward contracts."

Other avenues also faced potential roadblocks. At a Senate Finance Committee hearing, Internal Revenue Commissioner Douglas Shulman said that he couldn't add a lot to what the president had said. Obama has denounced the bonuses and instructed Treasury Secretary Tim Geithner to pursue every legal channel to get them back.

"The IRS will do what it can to assist in the exploration with the committee and obviously the Department of the Treasury," Shulman said, offering no specifics.

(EDITORS: STORY CAN END HERE)

The White House also is looking at whether it could use a change in bonus policy that was included in last month's economic stimulus plan. Top executives at firms that received money from the Troubled Asset Relief Program, aimed primarily at bailing out banks, will be barred from getting bonuses that are more than one-third of their annual salaries.

Other restrictions would apply, notably that the treasury secretary would review past compensation paid to the top 25 employees of TARP beneficiaries, which could be reimbursed if the payments were "contrary to the public interest" or "inconsistent" with the purposes of the bailout plan or the stimulus plan.

While AIG got bailout money, the bill appears to apply only to contracts that were in effect after Feb. 11, and AIG's predate that.

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© 2009, McClatchy-Tribune Information Services.

Visit the McClatchy Washington Bureau on the World Wide Web at www.mcclatchydc.com.

Save money with your iPhone

By Etan Horowitz

The Orlando Sentinel

(MCT)

Yes, the iPhone is an expensive gadget, but if you already have one (or have an iPod touch), there are lots of applications you can download to help save money. Here are five of the best, which can all be found by visiting the iTunes store and searching for each one by name. Once you download the applications, you may be able to customize settings for each application.

1. Mint.com _ This free app is a godsend for managing your money. It's the companion to the Web version (Mint.com), which will automatically pull information from your online banking accounts and display graphs tracking how much you spend on different items each month. You can set a budget and quickly see if you are close to going over. It's a great way to quickly assess your financial situation when you're about to buy something. Create a free account at Mint.com before downloading the app.

2. Cheap Gas _ Free app that displays cheap gas nearby.

3. KidsEatFree _ A 99-cent app that tells you the closest restaurants where kids eat free. Restaurants are organized by distance, and when you tap on one, you are given the details of the special.

4. Amazon Mobile _ Free app that lets you quickly look up items on Amazon to see how much they cost, read reviews, etc. A great way to see if the price at Best Buy or Costco is a good deal. You can also order merchandise directly from the app.

5. Fring/Truphone _ These two free apps use the iPhone's Wi-Fi connection to allow you to make free and low-cost international calls. You have to create an account, and some setup time is required. The apps automatically display your iPhone contacts. If you have a Skype account, you can make Skype calls through Fring, and calls from one TruPhone member to another are free, regardless of where you are. TruPhone also allows low-cost international calls over the cellular network.

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(Etan Horowitz is the technology columnist for the Orlando Sentinel. He can be reached at ehorowitz@orlandosentinel.com.)

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© 2009, The Orlando Sentinel (Fla.).

Visit the Sentinel on the World Wide Web at http://www.orlandosentinel.com/.

Distributed by McClatchy-Tribune Information Services.

During lean times, more shoppers reach for coupons

By Barry Shlachter

McClatchy Newspapers

(MCT)

FORT WORTH, Texas _ Gwen Martinez is buying more groceries and health and beauty products than ever before _ but spending less.

Like a growing number of Americans in this economic downturn, 29-year-old Martinez is a relatively recent convert to clipping coupons from newspapers and in-store circulars and finding them online.

"I am saving about 69 percent overall," said the Arlington, Texas, medical secretary, who began in August after a fellow customer at a Walgreens checkout gave the cashier a handful of coupons, immediately saving her $10.

Martinez was hooked, and she's far from alone.

"Coupon clipping is definitely up," said Mark Adamcik, 45, an Albertsons store manager who's worked more than two decades for the chain and its predecessor, Skaggs.

"As the economy tightens up, it makes coupons more appealing."

Coupon use rose 15 percent in the last three months of 2008, compared with the same period of 2007, said Charlie Brown, vice president of marketing at NCH, the redemption unit of Livonia, Mich.-based Valassis, which invented the Sunday newspaper coupon sections and owns Red Plum, one of two big coupon companies.

And in a typical year, Americans redeem $3 billion worth of coupons, with fewer and fewer finding themselves too embarrassed to pull out wads of coupons or lug in baseball card albums choked with coupons for breakfast cereal and canned soup.

"There's less negative stigma attached to coupon use during slower economic times," said Ron Larson, a marketing professor at Haworth College of Business at Western Michigan University in Kalamazoo.

A recent survey bears that out.

Nearly 57 percent of 3,013 consumers surveyed nationwide in December admitted that they were once self-conscious about handing over grocery coupons but no longer care because of the money they're saving, according to a study by ICOM Information & Communications, a provider of marketing data. Twenty-two percent said they were still uncomfortable using the coupons.

Forty-three percent said they've used coupons more in the past six months, it said.

Manufacturers of brand-name food products, under pressure from supermarket chains' cheaper private-label items, bought about 5 percent more coupons in the fourth quarter of 2008 to promote their goods at a time when cost-conscious American families are eating more home-prepared meals, said Suzie Brown (no relation to the NCH executive), chief of marketing at Valassis.

On a recent Thursday evening, Martinez entered an Albertsons in Hurst, Texas, with a shoebox-sized, purple plastic box containing more than a thousand coupons sorted by category, and picked up the weekly store circular with a front-page of more coupons.

Less than 30 minutes later she wheeled her cart toward cashier Cinda Atkins' checkout lane with $103.08 worth of groceries.

After her coupons were scanned, Martinez said, "This is my favorite part."

Atkins calls out that the cost was reduced to $61.49 _ a savings of $41.59 or slightly more than 40 percent. The customer next in line, who waited patiently as 40 coupons were scanned, shook his head in amazement.

Martinez does even better on health and beauty items at two major drug chains, CVS and Walgreen, bringing her monthly average overall savings close to 70 percent.

(EDITORS: BEGIN OPTIONAL TRIM)

On Jan. 10, a receipt showed that she paid just $1.05 for $45.45 worth of goods at Walgreens, having combined store coupons providing credits for the entire price of an item with coupons clipped from the newspaper for the same product.

The savings allow her to spend more on food and healthcare goods than before, and to pay down some credit card bills.

(END OPTIONAL TRIM)

Stephanie Nelson of couponmom.com claims that a family of four can save $100 a week on groceries by clipping coupons. Since 75 percent of grocery coupons come from the Sunday newspaper, she recommends buying two or three copies to save dramatically, then scan the Internet for more.

And some manufacturers are sweetening the deal.

Last year, multiple-purchase requirements on health and beauty coupons dropped to 6 percent, from 11 percent in 2007. Moreover, expiration dates were lengthened, the average period rising to 2.8 months from 2.6 months, said NCH's Brown.

But the opposite was true for grocery coupons, which saw expiration dates reduced to 2.3 months in 2008 from 2.4 the year before. Multiple-purchase requirements decreased, but only by a tad, to 35 from 37 percent.

The average value of a coupon distributed today is $1.29, NCH's Brown said.

Coupon use and private-label purchases tend to rise during tougher economic times because many people look for ways to save money, said Larson, adding that consumers might also have more time on their hands to clip and sort.

Larson rattled off the grocery coupon's various effects: They draw attention to a product, lower its price for past buyers and attract new ones, generate consumer "pull" during soft sales periods, remind even nonclippers of the product's existence, create a marketing synergy benefit when coupled with in-store specials, and they limit growth of private-label competitors.

Despite the manufacturers' desire to snare a steady buyer with a coupon offer, Martinez says she no longer becomes loyal to a particular brand.

"I'm a sale kind of girl," she said.

(EDITORS: STORY CAN END HERE)

Her grocery cart included a mix of national and private-label brands, including a loaf of Albertsons budget Good Day sandwich loaf.

The Minnesota-born Martinez alternates between Kroger and Albertsons, depending on the weekly specials. Both are convenient on her commuting route. And both double and triple the value of many coupons. Typically, the big-box discounters like Wal-Mart and Target discount only the face value.

Although some coupons carry fine print saying they cannot be combined with other offers, she learned from Internet couponing forums that most stores don't mind.

On Thursday, Albertsons staff said they had no objection if the computerized scanning system accepted them.

"Cheese was a really good deal," Martinez said.

Combining offers allowed her to apply an in-store flier coupon putting a $5 sale price on three 8-ounce packages of Kraft-brand cheese along with a newspaper coupon and another won in an online contest.

The combination reduced her cost to 50 cents apiece. The usual retail price of an 8-ounce packet at Albertsons is $2.50.

While few supermarkets make much, if anything, on savvy coupon users like Martinez, she wouldn't be there without the tiny slips of paper.

Before August, most of her groceries were purchased at Sam's Club.

"But I stopped after I began couponing, and find I get better deals at supermarkets with coupons," said Martinez, noting that coupons don't help much in the large bulk quantities at a wholesale club store like Sam's.

"Frankly, I used to hate grocery shopping," she went on. "It was my most dreaded chore until I started coupon-clipping.

"Now it's an adventure and a challenge."

(EDITORS: STORY CAN END HERE)

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TIPS ON SAVING BIG WITH COUPONS

Savvy shopper Gwen Martinez shares some of her strategies for saving big:

_ Double up. Purchase multiple Sunday newspapers for extra coupon insert sections.

_ Join reward programs at all the stores and learn how they work.

_ Read the fine print. A coupon may exclude trial sizes or you may grab an item not included in the offer.

_ Don't toss that coupon. You never know when that item will go on sale and become a great deal.

_ Stock up. Buy multiples when items are on sale.

_ Be adventurous. Don't stay loyal to a brand when you can get a far better deal on something new.

_ Share the savings. Think of a neighbor or someone in your community and pick up the item to donate.

_ Ask. Even veteran coupon users get useful advice from others, so join an online forum or a local coupon club to maximize savings. (Martinez is a member of www.hotcouponworld.com.)

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© 2009, Fort Worth Star-Telegram.

Visit the Star-Telegram on the World Wide Web at http://www.star-telegram.com.

Distributed by McClatchy-Tribune Information Services.

Obama to seek ‘every single legal avenue' to block AIG bonuses

By Margaret Talev and Kevin G. Hall

McClatchy Newspapers

(MCT)

WASHINGTON _ President Barack Obama said Monday that he will seek "every single legal avenue" to block the payout of $165 million in bonuses to executives of disgraced insurer American International Group, a company that U.S. taxpayers are bailing out.

Obama unleashed his criticism in the White House East Room, eclipsing an event where he announced $15 billion in new help for small businesses hurt by the recession.

Before promoting those steps, however, the president went after AIG, blaming its financial woes on executives' "recklessness and greed," and asking, "How do they justify this outrage to the taxpayers who are keeping the company afloat?"

It was unclear whether Obama thinks that the government has authority to take back AIG's bonuses, or instead is primarily seeking to position himself to keep in step with public outrage.

The Financial Products division that did the most damage to the company's standing was based in London. It sold billions of dollars worth of credit-default swaps, complex insurancelike financial instruments, which ultimately AIG couldn't fund.

AIG officials and administration officials, including Larry Summers, the head of the White House National Economic Council, previously indicated that the bonuses appeared to be protected by contract law, especially British law.

AIG is receiving about $170 billion in taxpayer assistance and is now about 80 percent taxpayer-owned. Federal officials moved to save it in September because they thought its failure would take down the global financial system since AIG insured the assets of so many major financial institutions.

"Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay," Obama said.

Obama said that given the taxpayer assistance AIG is receiving, he would asked Treasury Secretary Timothy Geithner "to use that leverage and pursue every single legal avenue to block these bonuses and make the American taxpayers whole. ... This is not just a matter of dollars and cents, it's about our fundamental values."

White House spokesman Robert Gibbs said that Obama inherited the contracts AIG signed last year under former President George W. Bush. "We can't change everything in the past. We will do all that we can."

Late Sunday night, AIG released the names of companies on the other end of its swap transactions. Its business partners were mainly major U.S. and foreign banks, adding to the public's rising sense of injustice over the bonuses, since taxpayers are now bailing out the banks both through the front door with government loans and the back door via support for AIG.

New York Attorney General Andrew Cuomo also turned up the political heat on AIG on Monday, demanding that it identify all employees receiving the bonuses, their job descriptions, performance records and copies of their work contracts. He issued subpoenas late Monday. In a letter to the company, Cuomo said he wants to determine if the bonuses amount to "fraudulent conveyances" under New York law, and that the contracts might be unenforceable because fraud was involved.

In his comments, Obama used his bully pulpit to push for corporate responsibility. He also was seeking, however, to separate himself from unpopular corporate excesses. A new Pew Center poll released Monday showed that Obama has begun to suffer declining public support because of the economic crisis.

"The president shares the public's outrage on this," Gibbs said.

Lawmakers on Capitol Hill sounded off, too.

"At a time when millions of Americans are losing their jobs and trying to make ends meet, it is outrageous that a company that has been bailed out by the taxpayers for its mistakes would turn around and pay its executives such a staggering sum of money," said Sen. Russ Feingold, D-Wis. Other lawmakers from both parties said much the same.

(EDITORS: STORY CAN END HERE)

Added House GOP Leader Rep. John Boehner of Ohio: "The latest revelation about AIG executives receiving millions in bonuses while taxpayers continue to bail out the company with hundreds of billions of dollars is outrageous and the clearest example yet of why an exit strategy is essential. The administration should pursue all means of recovering these bonus payments and present Congress _ and, more importantly, taxpayers _ an exit plan as soon as possible."

A House Financial Services subcommittee scheduled a Wednesday hearing on AIG.

(EDITORS: STORY CAN END HERE)

The AIG flap overshadowed Obama's announcement of help for small businesses, which was warmly welcomed. His latest economic rescue package will waive fees for small business loans, buy up to $15 billion in securities linked to loans guaranteed by the Small Business Administration, and require monthly reports from large banks and quarterly reports from other banks on small-business lending.

Thomas J. Donohue, the president and chief executive of the U.S. Chamber of Commerce, said that "small-business owners who are struggling to gain capital and stay afloat were offered a helping hand by the president today."

However, William Dunkelberg, the chief economist for the National Federation of Independent Business, the leading small-business trade group, said that only 3 percent of his members cite a lack of financing as a top problem, compared with 37 percent in the recession of the early 1980s. He said he didn't think access to finance was nearly as important as halting job losses and igniting a return of consumer confidence.

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(McClatchy Newspapers correspondents William Douglas, Greg Gordon and David Lightman contributed to this report.)

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ON THE WEB

More on the small-business plan: http://tinyurl.com/c9te46

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© 2009, McClatchy-Tribune Information Services.

Visit the McClatchy Washington Bureau on the World Wide Web at www.mcclatchydc.com.

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AIG plans bonuses to staff at unit that sent insurer to brink of collapse

By Marketwatch

MarketWatch

(MCT)

WASHINGTON _ American International Group is set to pay $450 million of bonuses to employees of the unit that was largely responsible for the New York insurer's near collapse last fall.

The decision to pay bonuses elicited howls of protest in Washington, which has prevented the failure of AIG by providing the insurer with more than $173 billion in aid. The federal government now owns 80 percent of AIG (AIG).

Larry Summers, one of President Barack Obama's top economic advisers, called the payments "outrageous," and a key House lawmaker, Barney Frank, D.-Mass., told Fox News the government should examine whether the bonuses are "legally recoverable."

Another Democrat, Rep. Elijah Cummings, D.-Md., renewed his call for AIG Chief Executive Edward Liddy to resign.

Liddy, in a letter to Treasury Secretary Timothy Geithner dated Saturday, said AIG had committed to paying the bonuses to employees of the financial-products unit and that they were "binding obligations" the company cannot legally rescind. The first payments are due March 15.

"I do not like these arrangements and find it distasteful and difficult to recommend to you that we must proceed with them," wrote Liddy, citing the recommendation from the insurer's legal counsel.

The payments to 400 employees of the financial-services unit _ some of whom no longer work at the insurer _ were promised last year before the federal government bailout. Bonuses range from as little as $1,000 to as much as $6.5 million.

Summers said the government would examine its options, but he acknowledged it might not be able to terminate prior bonus agreements.

"We are a country of law. There are contracts. The government cannot just abrogate contracts," he said in an interview Sunday on ABC's "This Week."

AIG is already scheduled to pay $121.5 million in incentive payments for 2008 to senior executives and 6,400 of its employees. And AIG is laying out another $619 million for 2009 in retention payments to more than 4,000 employees.

Total expected payments amount to almost $1.2 billion.

Regarding future incentive payments Liddy told Geithner the company cannot retain its best employees if their compensation is subject to "continued and arbitrary adjustment by the U.S. Treasury." If AIG loses its best employees, he indicated, it would make it harder for the company to recover and help the government recoup its investment.

Liddy also pointed out he won't receive a bonus and the company cut bonus payments for it senior executives. The top 25 executives in the financial-product unit, moreover, have agreed to accept a salary of just $1 for the rest of 2009, his letter said.

(EDITORS: STORY CAN END HERE)

AIG nearly collapsed under the weight of contracts that the financial-products units sold to protect other institutions against losses from securities backed by subprime mortgages.

Since so many financial firms around the world were insured by AIG, the failure of the firm could deal a devastating blow to the global financial system, Treasury and Federal Reserve officials say in justifying the most expensive bailout ever.

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© 2009, MarketWatch.com Inc.

Visit MarketWatch on the Web at http://www.marketwatch.com

Distributed by McClatchy-Tribune Information Services.

Obama decries earmarks, signs bill with 9,000 of them

By Steven Thomma and David Lightman

McClatchy Newspapers

(MCT)

WASHINGTON _ As a candidate, Barack Obama once said that a president has to be able to do more than one thing at a time. Wednesday he proved it, though not in the way he had in mind.

He criticized pork barrel spending in the form of "earmarks," urging changes in the way that Congress adopts the spending proposals. Then he signed a spending bill that contains nearly 9,000 of them, some that members of his own staff shoved in last year when they were still members of Congress.

"Let there be no doubt, this piece of legislation must mark an end to the old way of doing business, and the beginning of a new era of responsibility and accountability," Obama said.

He said, however, that it was crucial for him to sign the $410 billion bill as soon as it arrived at the White House from Congress because it's needed to finance much of the government for the rest of this fiscal year. It was largely written last year but was held back while Republican George W. Bush was president because he opposed it.

"I am signing an imperfect ... bill," Obama said, "because it's necessary for the ongoing functions of government, and we have a lot more work to do. We can't have Congress bogged down at this critical juncture in our economic recovery."

Obama proposed changing the way special projects are financed, including competitive bidding for spending that goes to for-profit businesses. Aides also said the White House Office of Management and Budget would review the spending bill for examples of wasteful spending. The president then could send those back to Congress as proposed cuts, called rescissions, for an up-or-down vote.

Although Obama insisted that the recently enacted $787 billion plan to stimulate the economy be free of any earmarks _ spending on special projects usually in senators' home states or representatives' districts _ he made no such demand of this spending bill.

"The president could have done better. He couldn't have eliminated the earmarks in this bill, but he could have at least cut them back significantly," said Steve Ellis, the vice president of Taxpayers for Common Sense, a budget watchdog group. "We appreciate how he kept them out of the stimulus, but we think he's only batting .500."

"The American people know actions speak louder than words," said Rep. John Boehner, R-Ohio, his party's leader in the House of Representatives. "The president's new promises on earmark reform would carry greater weight if they had been accompanied by a veto keeping his earlier promises on earmark reform."

The bill contains 8,816 earmarks worth $7.6 billion, according to Taxpayers for Common Sense.

Notable among them are $155.9 million worth of projects that six members of the Obama administration who were members of Congress last year, when the bill was originally written, inserted into the bill.

Top among them was Vice President Joe Biden. As a senator from Delaware, Biden added 56 earmarks that cost a total of $52.1 million, including $13.7 million for the Intracoastal Waterway from the Delaware River to the Chesapeake Bay and $190,000 to help build a children's museum in Wilmington.

Others:

_White House Chief of Staff Rahm Emanuel, who as a House member from Illinois added 16 earmarks worth about $8.3 million, including money for a Chicago planetarium and suburban children's museum.

_Interior Secretary Ken Salazar, formerly a Democratic senator from Colorado, $44.6 million.

_Transportation Secretary Ray LaHood, formerly a Republican congressman from Illinois, $26.5 million.

_Labor Secretary Hilda Solis, formerly a Democratic House member from California, $15.5 million.

_Secretary of State Hillary Clinton, formerly a Democratic senator from New York, $6.7 million.

The White House has pledged to send legislation to Congress seeking the rescission of all earmarks sponsored by current members of the Obama administration.

(EDITORS: STORY CAN END HERE)

Geographically, Alaska topped the list, with 100 earmarks valued at $143 million, or $209.71 per capita. Next was North Dakota, with $110 million or $172 per capita.

The data show that it pays to be a top Appropriations Committee official. Hawaii, the home state of Senate Appropriations Committee Chairman Daniel Inouye, came in third, at $165 million, or $128.12 per capita. Fourth was Mississippi, represented by top Republican Appropriations member Thad Cochran, with $324 million in earmarks, or $110.59 per capita.

Last on the list: Arizona, the home state of Sen. John McCain, with $54 million, or $8.41 per capita. McCain railed against the practice throughout the weeklong Senate debate, just as he did in last year's presidential campaign, but his effort to effectively erase earmarks from the bill failed by a big margin Monday night.


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© 2009, McClatchy-Tribune Information Services.

Visit the McClatchy Washington Bureau on the World Wide Web at www.mcclatchydc.com.

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PHOTOS (from MCT Photo Service, 202-383-6099): OBAMA

Obama makes case for taking time to get economy out of deep hole

By Kevin Diaz

Star Tribune (Minneapolis)

(MCT)

WASHINGTON _ President Obama, in his 51st day on the job, acknowledged that he has yet to reassure a nervous public about his game plan for stabilizing the financial system that has pulled the rug out from under the economy."We can always do a better job," he said Wednesday during a roundtable discussion with 15 regional newspapers, including the Star Tribune of Minneapolis.

"I recognize the degree of concern that people have. We've been in office all of seven weeks so far. This is a crisis that was eight years in the making, maybe longer, in certain aspects. The buck stops with me and we're responsible, but it's going to take some time."

The meeting was Obama's second with regional reporters who cover Washington, part of an aggressive media strategy that has seen the new president reach out to bloggers and columnists across the political spectrum.

"This is my monthly occasion to break out of the Washington bubble," Obama said in the West Wing's Roosevelt Room. "I enjoy the keen insights of people outside of Washington."

The president walked into the room with a casual "Hey, how you guys doing?" He spent the next hour holding forth on topics ranging from Mexican border violence to 57 extra police officers in Minneapolis, citing the latter as evidence of the benefits of his recently passed $787 billion economic stimulus package.

"Obviously, our overarching focus right now is the economy," Obama said. "I'm very mindful of the hardships that are taking place all throughout the country."

Speaking slowly and deliberately, like the college professor he was, Obama made clear that his administration is in its infancy and that he still has the public on his side.

"The truth of the matter is the American people I think understand that it's going to take some time," he said. "If you look at the public polling, they recognize that it's going to take a while to dig ourselves out of the hole."

Obama noted that it's been only two weeks since he laid out his plans in a joint session of Congress. "The reviews were pretty good," he said.

(EDITORS: BEGIN OPTIONAL TRIM)

He noted that one aspect of the stimulus package _ extra money to preserve police officer jobs _ was highlighted by Minneapolis Mayor R.T. Rybak, a co-chairman of Obama's presidential campaign in Minnesota. "People are getting the message that slowly, surely, we are making progress on these fronts," Obama said.

(END OPTIONAL TRIM)

As for the unanimous opposition to his stimulus plan from House Republicans, including the three from Minnesota, Obama said "Saying 'no' is easy. ... I'm not impressed by just being able to say no."

For early signs of hope, Obama pointed to his new housing plan to provide relief to homeowners facing foreclosure. "You're already starting to see an uptick in refinancings that are providing families with relief," he said. "And in certain pockets of the country, you're starting to see housing prices stabilize after a long drop."

The president acknowledged, however, that there's "significant uncertainty" in the markets about the banking sector, which has been decimated by bad loans and mortgages. "That's obviously a particular concern to Wall Street," he said.

One problem is that the administration is still in the process of "stress-testing" or evaluating the financial strength of banks. "What we don't want to do is to prejudge those tests, or make a lot of statements that cause a lot of nervousness around banks that are already having difficulties," Obama said. "On that particular issue we've got to explain to people _ and as I said, we can always do better _ why it is so important to get lending going again, to get credit flowing to businesses and consumers.

"I'll be making statements about this tomorrow and the next day and in my radio addresses next week. And the main message I'm going to be delivering is that it's going to take some time to get out of this deep hole we're in. But we're going to get out."

By the time Obama took his last question, his water glass was still more than half full.

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© 2009, Star Tribune (Minneapolis)

Visit the Star Tribune Web edition on the World Wide Web at http://www.startribune.com

Distributed by McClatchy-Tribune Information Services.

Madoff plans guilty plea, faces 150 years in prison

By Anthony M. DeStefano
Newsday
(MCT)
MELVILLE, N.Y. _ Bernard Madoff, after being charged with 11 counts for allegedly running Wall Street's biggest Ponzi scheme, now faces up to 150 years in prison when he pleads guilty tomorrow, officials said Tuesday.
Manhattan federal prosecutors unveiled the charges, as well as the 70-year-old's prospect of dying behind bars, during a court appearance in which the disgraced investment adviser told a judge that he wanted to keep his lawyer despite potential legal conflicts.
The attorney, Ira Sorkin, said Madoff intends to plead guilty to the charges tomorrow.
In disclosing the charges, prosecutors revealed that Madoff is accused of mail fraud, wire fraud, securities fraud and money laundering in connection with a $50-billion Ponzi scheme that allegedly ran for more than 25 years. He is also charged with perjury, giving false statements to the Securities and Exchange Commission and stealing from an employee benefit program.
"From at least as early as the 1980s through on or about December 11, 2008, Bernard L. Madoff, the defendant, perpetrated a scheme to defraud the clients of Bernard L. Madoff Investment Services by soliciting billions of dollars of funds under false pretenses," federal prosecutors said in charging documents.
"I think 150 years is in the right direction," said investor Burt Ross of Englewood, N.J. "When will he go to jail?"
The documents didn't spell out a specific amount of investor losses. But the charges noted that as of November, Madoff's clients received statements showing total balances in their accounts of $64.8 billion, when the amount was just a fraction of that. When he was arrested, Madoff allegedly told investigators his scheme totaled $50 billion.
The charges also indicate other unnamed Madoff employees took part in the alleged scheme by generating false account statements and trading tickets to show investment activity that didn't exist.
There wasn't information on Madoff's wife, Ruth, who is on the verge of being counseled by the law firm of former federal prosecutor Peter Chavkin. Chavkin was in court Tuesday as a special counsel to advise Madoff on the conflict-of-interest issues involving Sorkin. Chavkin has cited that possibility in court.
Madoff, under house arrest after posting a $10 million bond, also diverted $250 million in client funds over a six-year period to fund the operation of his legitimate market-making activities, according to the documents.
Disclosure of the charges overshadowed the ostensible reason for the court hearing, which was the legal conflict of interest issue. On that point, Madoff, who had come to court wearing a protective vest, spoke publicly for the first time. Leaning against a table, Madoff for 12 minutes answered repeatedly with "Yes," and "Yes, I am," when asked by U.S. District Court Judge Denny Chin if he understood or was aware of the nature of Sorkin's potential conflicts.
Sorkin had represented two men who were potential witnesses against Madoff, and his family members had prior investments with Madoff's company. Sorkin himself also at one point had about $60,000 in retirement money invested with Madoff, but took it out around 1993, court papers disclosed.
Prosecutor Marc Litt revealed Madoff hasn't signed an agreement with the government, indicating he would have to plead guilty to all charges and could face up to 150 years. "He is throwing himself at the mercy of the court," said a defense attorney not involved in the case, who didn't want to be named.
Chin said sentencing would take place "several months" after any guilty plea.
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© 2009, Newsday.
Visit Newsday online at http://www.newsday.com/
Distributed by McClatchy-Tribune Information Services.

Obama Unveils Plan to Stem Foreclosures

By Kevin G. Hall
McClatchy Newspapers

WASHINGTON (MCT) - President Barack Obama rolled out a bold $75 billion, three-part plan Wednesday to halt the soaring rate of mortgage foreclosures nationwide, one that seeks to encourage refinancing of homes now worth less than their mortgages and provides incentives for lenders to lower the debt load on struggling homeowners.

The Homeowner Stability Initiative, which Obama unveiled in Phoenix, seeks to address one of the triggers of the global financial crisis: the 2.3 million U.S. foreclosures last year that are protracting the housing crisis and helping to drive down home prices across the nation.

"When the housing market collapsed, so did the availability of credit on which our economy depends. As that credit dried up, it has been harder for families to find affordable loans," Obama said. "In the end, all of us are paying a price for this home mortgage crisis. And all of us will pay an even steeper price if we allow this crisis to deepen _ a crisis which is unraveling homeownership, the middle class, and the American Dream itself."

Specifically, the Obama plan seeks to provide low-cost refinancing for as many as 5 million Americans. It seeks to help delinquent or at-risk borrowers get their mortgages modified so that no more than 31 percent of their income is tied up in their mortgages. And it provides financial incentives to lenders and even a new insurance program to promote more mortgage modifications.

Like the failed efforts under the Bush administration, however, the Obama plan doesn't compel banks and other lenders to modify troubled mortgages. Instead, it provides a menu of incentives that may or may not prove sufficient.

"This is not just the treasury secretary going into the room and asking people to do the right thing," said a senior Treasury official, speaking on the condition of anonymity to speak more freely. "This is the first time there has really been a systemic incentive strategy for them (lenders)."
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ON THE WEB
Treasury summary:
http://www.treas.gov/press/releases/tg33.htm
Treasure plan:
http://tinyurl.com/bx295h
Treasury examples:
http://tinyurl.com/bhl6d8
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© 2009, McClatchy-Tribune Information Services.
Visit the McClatchy Washington Bureau on the World Wide Web at www.mcclatchydc.com.
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Congress Sends $787 Billion Stimulus to Obama's Desk

By David Lightman
McClatchy Newspapers
(MCT)

WASHINGTON _ Congress, voting largely along party lines, Friday voted to jolt the nation's struggling economy with a $787.2 billion stimulus package designed to provide quick tax relief and create or save 3.5 million jobs.

The Senate approved the package by a 60-38 vote, as 55 Democrats joined three moderate Republicans and two independents. Sen. Edward Kennedy, D-Mass., did not vote, and one of Minnesota's seats remains vacant. The final, deciding vote was cast by Sen. Sherrod Brown, D-Ohio, who had returned to Washington late Friday after his mother's funeral.

Earlier in the day, the House passed the plan, 246-183. Among those voting, all 176 Republicans and seven Democrats voted no.

The bill now goes to President Barack Obama, who is expected to sign it early next week.

Once he does, some of the money should start flowing quickly. The bill promises some relatively quick job creation by spending $27.5 billion to modernize roads and bridges, $16.4 billion for investments in high-speed rail and transit, and $53.6 billion to help states pay education expenses.

It also includes up to 33 weeks of additional jobless benefits in high unemployment states, as well an extra $25 a week in benefits; funds to help the poor and those with disabilities with health care costs; and payments of $250 to retirees, Supplemental Security Income recipients and veterans who get pensions or disability payments.

GOP critics were bitter, charging that the bill was dotted with favors to special interests that had no business in emergency legislation, and that it offered too few tax cuts.

They ridiculed one of the biggest provisions, Obama's signature "Making Work Pay" tax relief, which provides $400 to most taxpayers. The credit, estimated to cost $116.2 billion, should mean only $13 a week this year, assuming the plan begins in June, and $8 a week next year.

"Thirteen bucks a week isn't going to do a whole lot to get this economy going again," said House Republican Conference Chairman Mike Pence of Indiana.

Republicans also objected that congressional negotiators worked largely behind closed doors to cobble the bill together quickly this week, despite Obama's promises of transparency. And when copies of the 1,073 page, eight-inch thick bill became available only a few hours before the votes, it had changes scribbled in ink in the margins.

The mood among supporters was a combination of relief, euphoria _ and confusion in the final hours.

The bill was pieced together only after some messy last-minute scrambling, as lawmakers pleaded Thursday to get more pet projects shoehorned into the measure. A provision was added that could give General Motors _ already getting a $13.4 billion federal bailout _ a $3.2 billion break that could lower future taxes.

Sens. Olympia Snowe and Susan Collins of Maine, Republicans whose votes were crucial to final Senate passage, sought and got an expanded tax break for small business.

Even the bill's Democratic defenders warned that the legislation wouldn't spark an instant economic turnaround. The nation has lost 3.6 million jobs since the recession began in December 2007, and the bill's supporters predict that the stimulus would allow the economy to recover almost an equal number of jobs, but not rapidly _ nor would they be the same jobs.

Its backers said the bill would ease the recession's impact and perhaps allow the economy to revive sooner.

"The American people understand that the legislation we send to the president's desk will not solve this crisis overnight," said Senate Majority Leader Harry Reid of Nevada. "We cannot say for certain when this crisis will end, but we do know for certain that this is when recovery must begin."

The bill aims to provide stimulus in four general ways: Tax relief, investments in the future, immediate job creation and help for people struggling.

One of the biggest tax expenses is the $70 billion "patch" in the alternative minimum tax, so that about 26 million people won't be subject to the tax this year. House Minority Whip Eric Cantor, R-Va., disputed the impact of this provision, noting that it simply extends current policies rather than puts new money into anyone's pockets.

The Tax Policy Center, a joint project of the Brookings Institution and the Urban Institute, two respected center-left policy research organizations, agrees.

The other major break is the $400 "Making Work Pay" credit, which will phase out at $95,000 for single taxpayers and $190,000 for joint filers.

Other tax cuts are more targeted to boost specific industries or groups. The first $2,400 of jobless benefits this year won't be counted as taxable income. Most new car buyers can deduct state and local sales taxes on the purchase. First-time home buyers who purchase a home until Dec. 1 can get up to an $8,000 tax credit.

Short-term job creation is expected from the education and infrastructure spending. The $53.6 billion State Fiscal Stabilization Fund includes $40 billion for local school districts, which could use it for school modernization, teacher pay and other expenses.

Infrastructure spending includes $27.5 billion for rebuilding roads and bridges _ half of which must be committed to projects within 120 days _ and $19 billion for clean water and flood control projects.

The investments for the future are seen as ways of assuring that jobs will be created in later years. Some $30 billion would be spent on developing a new, more efficient power grid, advanced battery technology and other energy efficiency measures. And the bill provides $20 billion in tax incentives for renewable energy over the next 10 years.

In addition, the measure contains more than $15 billion for scientific research. More than half would go to the National Institutes of Health for biomedical research to study Alzheimer's, Parkinson's, cancer and heart disease.
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© 2009, McClatchy-Tribune Information Services.
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GRAPHICS (from MCT Graphics, 202-383-6064): STIMULUS

Bulletin: Bernard Madoff Case

Bulletin: A New York judge has determined Bernard Madoff will be allowed to remain free on bail at his Mahattan penthouse

Paulson unveils $800 billion plan to ease credit crunch

By David Lightman
McClatchy Newspapers
(MCT)
WASHINGTON _ Treasury Secretary Henry Paulson, warning that "millions of Americans cannot find affordable financing for basic credit needs," announced a major expansion of the federal bailout on Tuesday _ as much as $800 billion to make mortgages and consumer credit more available and affordable.
The government will buy up to $600 billion in mortgage-backed assets, and, in a separate action, lend up to $200 billion to investors who have bought securities backed by consumer loans such as credit cards, auto and student loans, in a bid to free up consumer credit.
Paulson, speaking at a Washington news conference, hailed the housing aid as "a very strong statement of support for the housing market. ... Mortgage spreads have ... not come down as much as they might, but I would say mortgage financing has remained ... available and it has not risen nearly as fast as the cost of other credit."
The latest expansion of the federal bailout came as new data underscored how shaky the U.S. economy is.
The Standard & Poor's/Case-Shiller national home price sales index dropped 16.6 percent in the third quarter. The Gross Domestic Product, the value of the nation's goods and services, shrank 0.5 percent from July through September, the Commerce Department reported Tuesday, revising its initial 0.3 percent shrinkage estimate downward.
Under the plan announced Tuesday, the Federal Reserve plans to buy up to $100 billion in direct obligations from mortgage finance giants Fannie Mae and Freddie Mac and the Federal Home Loan Banks.
It also will purchase another $500 billion in mortgage-backed securities, which consist of mortgage loans that are packaged together and sold to investors. These securities, viewed as toxic now because so many mortgages are going unpaid, are at the heart of what's weighing down troubled banks. Purchasing them is intended to free up bank lending, which would spur the economy.
In addition, Paulson said Treasury will provide $20 billion of credit protection to the Fed from last month's $700 billion financial rescue package. The protection will be part of a new Fed program that could lend as much as $200 billion to investors in securities backed by credit card, auto and other loans.
Paulson noted that "credit market stresses led to a steep decline in the third quarter of 2008, and the market essentially came to a halt in October."
Compounding the problem, he said, was that "credit card rates are climbing, making it more expensive for families to finance everyday purchases. This lack of affordable consumer credit undermines consumer spending (and) as a result weakens our economy."
The new fund aimed at freeing up credit, Paulson said, "will enable a broad range of institutions to step up their lending, enabling borrowers to have access to lower cost consumer financing and small business loans."
Paulson said he worked closely on Tuesday's plans with Treasury Secretary-designate Timothy Geithner, currently president of the New York Federal Reserve Bank. President-elect Barack Obama nominated Geithner to the post on Monday.
Paulson called Geithner "very well positioned" to oversee the economic relief effort, "because he understands everything we have in place today, and participated very actively in helping put it in place."
Paulson also issued a plea for patience: "The fact is, we now have the tools and the capacity to stabilize the system and work to get credit flowing again _ and it will take awhile to do that."
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© 2008, McClatchy-Tribune Information Services.
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