Obama faces pressure for faster action

WASHINGTON: The rapidly unraveling U.S. economy is piling pressure on President Barack Obama to try bolder recession-fighting tactics even before all his economic advisers have found their desks.

The headlines in the first 72 hours of Obama's term included up to 5,000 job cuts at Microsoft, a gloomy economic outlook from General Electric and the steepest Inauguration Day stock market drop on record.

His choice for Treasury secretary, Timothy Geithner, is still awaiting Senate confirmation after the embarrassing disclosure that he had failed to pay certain taxes.

As if that weren't enough, his economic stimulus package is facing a tougher-than-expected fight from Republicans in Congress - although Obama says he still expects to win approval by mid-February - while investors and economists clamor for an even swifter response.

Passing the stimulus package appears to be Obama's first priority, but Wall Street may have other ideas. As investors pummel bank shares, calls are growing louder for setting up a "bad bank" to cordon off the soured loans that have wiped out their profits.

The new president can expect more bad economic news this week, culminating with the U.S. gross domestic product report Friday, which will no doubt underscore the obvious: The world's biggest economy is in a deep recession.

Economists polled by Reuters estimate that GDP contracted at a 5.4 percent annualized rate in the fourth quarter, which would be the worst performance since 1982.

The Federal Reserve's policy-setting committee will spend part of Tuesday and Wednesday hashing out how best to spur growth when interest rates are already near zero.

So what more can Obama do to fill that deepening hole? Stimulus is the most likely next step. The problem is that while economists widely believe government spending must increase to pull the economy back from the brink, it is difficult to spend your way out of an economic crisis that was spawned by overspending.

That means the stimulus package is getting intense scrutiny on Wall Street, and the reviews have not been great.

"As the size of the overall package grows, estimates of the amount of stimulus Congress will provide appear to be shrinking," said Alec Phillips, an economist at Goldman Sachs. "Preliminary estimates imply that of the $825 billion Congress is considering, only $250 billion will make it into the economy in the current calendar year."

Obama's economic team has tried to balance the need for immediate economic help with longer-term goals of improving infrastructure and creating jobs, not to mention eventually tackling a swelling budget deficit.

The result is a mix of tax cuts, aid to state governments and infrastructure spending. A Morgan Stanley economist, Richard Berner, said such measures "don't get to the causes of this downturn - they mainly tackle its symptoms."

Put simply, the cause is overleverage, and that applies to consumers, banks and, increasingly, the U.S. government. One way or another, debt must be reduced, which is why government efforts to lift consumption have fallen short.

Unemployed workers must cut their spending and often fall behind on mortgage, auto and credit card loans, adding to the pile of bad debts that have led many of the largest U.S. lenders to seek government aid.

That is why attention is shifting to finding a way to dispose of those bad debts. Obama's team has not ruled out setting up a "bad bank" to soak them up, but wants to move slowly to ensure that taxpayers' money is spent wisely.

The signal from Wall Street, where shares in several of the largest U.S. banks were trading at or near all-time lows, is that time is short.

Citigroup analysts said a good starting point might be tapping the $700 billion bailout fund that Congress approved last autumn. Of the remaining $350 billion, perhaps $200 billion could go to buying up bad assets. "This amount of funding would likely provide sufficient support in the short term," they wrote in a note to clients.

"But if the recession takes a sufficient hold on institutions," they added, "ongoing funding may be required for more than $200 billion in assets."

In other words, Obama should keep the checkbook open.

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$775-billion emergency measure on Barack Obama's desk

Political wrangling bogs down economic stimulus package

Economists warn that if the stimulus comes too late or loses focus, it could fall short of rescuing the nation.

Washington -- The drive for quick action on a huge economic stimulus package has become entangled in the push and pull of Washington politics and now may not clear Congress until mid-February.

Democrats had hoped to have the approximately $775-billion emergency measure on Barack Obama's desk when he entered the Oval Office on Jan. 20. But it is bogging down in a welter of competing ideas, ideologies and agendas, and may be further slowed by Obama's desire to win over as many Republicans as possible.

Economists from across the political spectrum warn that if the stimulus package comes too late or loses focus, it could fall short of rescuing the economy from the worst recession since the Depression. That could mean more job losses and another hit to consumer confidence.

"Businesses are effectively shut down. And there's no other response except a response from you, from the government," economist Mark Zandi of Moody's Economy.com said during a House Democratic forum Wednesday. "Confidence has been shattered. . . . The only way out is through aggressive and quick government action."

Obama will make the case for urgent congressional action in a speech today. And House Speaker Nancy Pelosi (D-San Francisco) is so concerned about a delay that she threatened, in an interview Wednesday, to cancel her chamber's Presidents Day recess and hold the House in session if legislation had not reached Obama's desk by the Feb. 16 holiday.

"A failure to act quickly can only lead to more job losses and more economic pain for Americans," she said at the forum.

There is broad agreement on the need for an economic stimulus. But for political and procedural reasons, Congress has difficulty operating at high speed. And some members are resisting fast action because of broad dissatisfaction with the $700-billion financial industry rescue fund, which they say was flawed and passed in haste by Congress last fall.

The size and scope of the stimulus, which under Obama's formulation would include complex tax cuts and targeted government spending, make the legislative process difficult, said Rep. Charles B. Rangel (D-N.Y.), chairman of the tax-writing House Ways and Means Committee. Further complicating the matter is that Obama is not yet president, and his cabinet selections have not been confirmed.

"If I had hearings, who would I call?" asked Rangel, who echoed the need to act quickly. "All we have is the broad concepts, and we have the responsibility of putting that into legislative form."

Mark Isakowitz, a Republican lobbyist who follows tax policy, said drafting such a bill -- with about $300 billion in tax cuts -- is difficult.

"Can you really do a bill quickly based on the force of Obama's popularity?" he asked. "It's dawning on people that the laws of Washington have not been suspended."

One of those laws is that members of Congress will always try to put their stamp on any high-profile bill. "We want to leave our own imprint on it," said Senate Finance Committee Chairman Max Baucus (D-Mont). "A lot of members are just starting to think about it and are saying they have ideas, too." 

Baucus mentioned his own "strong interest in more energy-producing incentives than we've seen so far."

Sen. Thomas R. Carper (D-Del.) wants more money for environmentally friendly jobs. And in the House, the fiscally conservative Blue Dog Democrats are worried about the exploding budget deficit and want to include some commitment to future fiscal discipline. 

Obama has said he will not allow the stimulus to contain any congressional pet spending projects, the controversial items known as earmarks. But lawmakers could work to tilt the tax cuts or government spending their way. The delay also gives interest groups time to try to influence the process, and many have been weighing in with wish lists.

Beyond the complexities of drafting the legislation, Democrats and Republicans are at odds over the focus of the stimulus.

Democrats are emphasizing government spending, particularly on roads, bridges and other infrastructure, to boost the economy and create jobs. Republicans say that amount of spending is wasteful -- particularly after the Congressional Budget Office on Wednesday projected a $1.2-trillion federal budget deficit for the current fiscal year. They are pushing for the bulk of the stimulus to come in the form of tax cuts.

Obama has tried to reach out to Republicans by proposing that about 40% of the stimulus -- roughly $300 billion -- would be used for tax cuts, including approximately $100 billion in breaks for businesses to encourage new investment and job creation.

Many Republicans are pleased that Obama is planning a significant tax cut. But some GOP lawmakers are skeptical that tax cuts would do much for the economy.

"The last [tax-cut] stimulus didn't stimulate the economy at all," said Sen. Judd Gregg (R-N.H.), ranking Republican on the Senate Budget Committee, referring to the $100-billion-plus in tax rebates sent out last year. 

Obama pledged a $500 tax credit for most workers during the campaign, costing the government as much as $150 billion. That proposal is widely thought to be a keystone of his stimulus plan. But lawmakers of both parties as well as many independent economists questioned whether such a tax reduction would be big enough to make much economic difference.

A Democratic official said there has been talk about bumping up the tax cut portion of the stimulus bill to lure more Republicans. But Rep. Patrick J. Kennedy (D-R.I.) said such a move could provoke resistance from Democrats.

"It's great to have our colleagues on board with us, but I didn't work hard to win back the majority to have to wait to get a green light from Republicans on everything," he said. "We've got good majorities now, and we've got to use them to do the kinds of work we weren't able to do when we didn't have those kinds of majorities."

House Minority Leader John A. Boehner (R-Ohio) on Wednesday complained about Democrats' plans for "massive increases in government spending." His staff distributed six pages of quotes from economists criticizing a stimulus bill that includes a large boost in government spending.

But none carried the weight of Harvard economist Martin Feldstein, a former top advisor to President Reagan, who told House Democrats Wednesday that this recession called for a mix of tax cuts and significant government spending.

"It pains me to say that, because I'm a fiscal conservative who dislikes budget deficits and dislikes increases in government spending," he said. "But it is important to have that fiscal stimulus at this time and to design the tax cuts and the spending changes in the most cost-effective way."

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US to hit record $1.2 trillion budget deficit

WASHINGTON — The federal budget deficit will rise to a record $1.2 trillion this year, and a package of new spending increases and tax cuts planned by President-elect Barack Obama and congressional Democrats will push that figure higher, the Congressional Budget Office reported today. 

The deficit for the fiscal year 2007/2008 which ended in September reached 438 billion dollars, or 3.1 percent of the nation's gross domestic product, the office said in a report. 

However, the figures do not include the cost of a huge economic stimulus plan put forward by the future administration of president-elect Barack Obama which would cost upwards of 775 billion dollars. 

According to the report issued by the budget office, the deficit will fall to around 700 billion dollars, which is still one of the highest budget deficits in the nation's history. 

President-elect Barack Obama on Tuesday reluctantly acknowledged that he would likely inherit an economy on course for a trillion dollar deficit as he takes office. 

"One of the measures of irresponsibility that we've seen is the enormous federal debt that has accumulated, a number that has doubled in recent years," he told reporters. 

"At the current course and speed, a trillion-dollar deficit will be here before we even start the next budget," warned Obama, who takes office on January 20. 

"Potentially we've got trillion-dollar deficits for years to come, even with the economic recovery that we are working on at this point," he added.

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Obama's intel picks short on direct experience

WASHINGTON – President-elect Barack Obama's decision to fill the nation's top intelligence jobs with two men short on direct experience in intelligence gathering surprised the spy community and signaled the Democrat's intention for a clean break from Bush administration policies.

Former Clinton White House Chief of Staff Leon Panetta, an eight-term congressional veteran and administrative expert, is being tapped to head the CIA. Retired Adm. Dennis Blair is Obama's choice to be director of national intelligence, a selection expected for weeks, according to two Democrats who spoke on condition of anonymity because Obama has not officially announced the choices.

The Obama transition team's long delay in selecting CIA and national intelligence directors is a reflection of the complicated demands of the jobs and Obama's own policies and priorities.

Obama is sending an unequivocal message that controversial administration policies approving harsh interrogations, waterboarding and extraordinary renditions — the secret transfer of prisoners to other governments with a history of torture — and warrantless wiretapping are over, said several officials.

The search for Obama's new CIA chief had been stalled since November, when John Brennan, Obama's transition intelligence adviser, abruptly withdrew his name from consideration. Brennan said his potential nomination had sparked outrage among civil rights and human rights groups, who argued that he had not been outspoken enough in his condemnation of President George W. Bush's policies.

And despite an internal list of former and current CIA officials who had impressive administrative credentials, all either worked in intelligence during the Bush administration's development of controversial policies on interrogation and torture or earlier, during the months leading up to the Sept. 11 terror attacks.

Neither Panetta nor Blair are tainted by associations with Bush administration policies, in large part because they both come from outside the intelligence world. Blair was posted at the CIA for about a year.

Panetta could face tough questions at his nomination hearing about his background in intelligence. California Sen. Dianne Feinstein, who will chair the Senate Intelligence Committee, said Monday she was surprised by the pick, and neither was informed nor consulted.

"I know nothing about this, other than what I've read," she said. "My position has consistently been that I believe the agency is best served by having an intelligence professional in charge at this time."

A former senior CIA official who advises Obama defended the surprise choice of Panetta, who has no direct intelligence experience beyond a two-year stint in the mid-1960s as a U.S. Army lieutenant. The official said Panetta had been a consumer of CIA intelligence when he was at the White House. He said he was selected for his administrative, management and political skills which will allow him both to control and advocate for the agency.

He said Panetta will rely on the expertise of CIA officers to balance his lack of personal intelligence experience.

Veterans of the CIA were caught off guard by the selection.

"I'm at a loss," said Robert Grenier, a former director of the CIA's counterterrorism center and 27-year veteran of the agency who now is managing director of Kroll, a security consulting company.

The lack of intelligence experience puts Panetta at "a tremendous disadvantage," Grenier told The Associated Press in an interview.

"Intelligence by its very nature is an esoteric world. And right now the agency is confronted with numerous pressing challenges overseas, and to have no background is a serious deficit. I don't say that he can't succeed. It may that he can compensate for the obvious deficit."

John Hamre, the president of the Center for Strategic and International Studies, served with Panetta during the Clinton administration. He said Panetta's experience as a former Cabinet member will help elevate the CIA's status inside the White House. The CIA director was once the president's main intelligence adviser. That role shifted in 2004 to the newly created national intelligence director.

Obama "has drawn a former Cabinet-level official to take a sub-Cabinet position, which means for a much more powerful CIA in the constellation of intelligence agencies," Hamre said.

Panetta was director of the Office of Management and Budget and a longtime congressman from California. As White House Chief of Staff during the Clinton administration, he spearheaded the internal effort to find a new CIA chief that led to the selection of John Deutsch in 1995. Deutsch served for 18 months. After he resigned, CIA security officers found classified material on his home computer, a violation of security procedures.

Panetta also served on the Iraq Study Group, a bipartisan panel that released a report at the end of 2006 with dozens of recommendations for reversing course in the war.

With his wife, Sylvia, Panetta directs the Leon & Sylvia Panetta Institute for Public Policy, based at California State University, Monterey Bay. The university that he helped establish is on the site of the former U.S. Army base at Fort Ord. Panetta also served for two years on a review board that helped oversee two major reports on the history of sex abuse in U.S. Catholic dioceses.

Obama's selection of Blair, a former U.S. Pacific Command chief, had been expected.

Blair served in the Navy for 34 years and was chief of the U.S. Pacific Command during the Sept. 11 attacks. Blair also is a China expert, and he was an associate director for military support at the CIA.

Blair and Panetta would replace retired Adm. Mike McConnell and former Air Force Gen. Michael Hayden, respectively. Both men had said they would stay in their positions if asked.

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Scribner to publish first lady Laura Bush's memoir

WASHINGTON – First lady Laura Bush has sealed a deal worth millions with Scribner to publish a memoir that will encompass her recollections of personal and historical moments, including her eight years in the White House.

The publishing house, in announcing the agreement on Monday, said the memoir is expected to be released in 2010. Sally McDonough, first lady Laura Bush's press secretary, declined to say how much Bush is being paid for the book but past deals involving first ladies have carried multimillion-dollar payouts.

McDonough said the first lady would work with a collaborator though one hasn't been selected yet.

"As a rare witness to the private moments of one of our country's most consequential presidencies, and as a first lady who has maintained a notable level of discretion, her memoir will provide a candid and personal perspective, and an enduring record, of the years that have already determined the course of the 21st century," said Susan Moldow, executive vice president and publisher of Scribner.

Moldow negotiated the book deal with Washington attorney Robert Barnett, whose many clients include former President Bill Clinton, Sen. Hillary Rodham Clinton and Sen. Edward Kennedy. Nan Graham, vice president and editor in chief of Scribner, will edit the memoir.

In an interview, Barnett said Bush has yet to start the currently untitled book, but she "has said she wants to get right to work on this project when she leaves the White House. It is a high priority for her."

Bush will have to work quickly to meet the 2010 publishing date. Former first lady Hillary Rodham Clinton's memoir "Living History" was published 2 1/2 years after she left the White House, well into her first term as New York senator.

A memoir from Laura Bush could be the political equivalent of "Garbo Speaks." The public has long been fascinated by the first lady, if only because she has said so little about herself, and her life is already a best seller in fictional form, in Curtis Sittenfeld's novel "American Wife."

Publishers seem to have a much higher regard for the first lady, a former schoolteacher known as a passionate reader, than for President George W. Bush, and the book deal — even during a dire economy — would likely be worth at least as much as Hillary Clinton's $8 million for her memoir.

Books by recent first ladies, including Laura Bush's mother-in-law, Barbara Bush, have had more dependable commercial appeal than those by former presidents. Scribner published Barbara Bush's two books. The publishing house, famous for the works of Ernest Hemingway and F. Scott Fitzgerald, is home for authors Don DeLillo, Stephen King and Frank McCourt.

Laura Bush said she looked forward to working with the publisher "as I tell the stories of the extraordinary events and people I've met in my life, particularly during my years in the White House."

President George W. Bush said last year that he, too, wants to write a book. Publishers, noting his poor approval ratings, have urged him to wait.

Publishers are betting that the market for a memoir by Laura Bush is much greater than for her children's book, "Read All About It!" — published last spring by HarperCollins with an announced first printing of 500,000. Although the book was launched by a mother-daughter appearance on the "Today Show," only 80,000 copies have sold so far, according to Nielsen BookScan, which tracks about 70 percent of industry sales.

Scribner, a division of Simon & Schuster Inc., part of CBS Corp., prevailed in an auction involving several publishers, Barnett said.

Farout: This News 'Scribner to publish first lady Laura Bush's memoir' is written as-is without warranty of any kind, either expressed or implied, including but not limited to the implied warranties of merchantability and fitness for a particular purpose. Neither the publisher nor its writers or distributors assume any liability for any alleged or actual damages arising from reading of this article. (Some states do not allow for the exclusion of implied warranties, so the exclusion may not apply to you.)

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