Stimulus, check — but for Obama, it's just the beginning

McClatchy NewspapersFebruary 16, 2009 

WASHINGTON — This week will be a pivotal one for President Barack Obama and the U.S. economy, as interlocking parts of his economic rescue effort are set to be signed, sealed or delivered.

Obama will hear from automakers Tuesday on how they'll restructure to get more taxpayer bailout money. Then he'll sign a $787 billion stimulus bill in Denver and fly to Phoenix, where on Wednesday he'll unveil how his administration will spend at least $50 billion of Wall Street rescue money to begin halting mortgage foreclosures nationwide.

And sometime during the hectic week, the Treasury Department is expected to provide more details on a $100 billion-plus plan for the federal government and private investors to team up to rid bank balance sheets of toxic assets. Those are the distressed mortgage securities and other complex financial instruments that investors are shunning, and that are crippling bank balance sheets and restraining lending.

On their own, each of these developments would be dramatic by historical standards. But for any of them to succeed, they'll need to work in unison with the others.

Even before General Motors and the United Auto Workers finalized their joint pact for mutually assured survival, the White House confirmed Monday that the earlier idea of naming a "car czar" to oversee industry restructuring was out. In was an inter-agency task force, led by Treasury Secretary Timothy Geithner and chief White House economic adviser Lawrence Summers.

"The approach that the administration has settled on I think provides a vast amount of expertise that crosses a number of governmental agencies and departments, and brings in the vast amount of experience that the administration has to deal with the auto restructuring — any auto restructuring issues," spokesman Robert Gibbs said aboard Air Force One.

Meanwhile, GM and Chrysler were in down-to-the-wire restructuring talks with the UAW Monday to stave off bankruptcy. GM received more than $9 billion in taxpayer help late last year and wants $4 billion more. Chrysler got $3 billion and seeks another $4 billion.

The carmakers' interim report will be overshadowed later Tuesday when Obama signs the economic stimulus plan, which includes public works spending, aid to states to keep essential government services intact, social services for the poor and some modest tax credits and rebates for businesses and consumers.

Some economists say the plan is too small, and others say that it doesn't provide enough tax incentives to spur purchases of homes or cars. The plan's ultimate success, however, will depend in large part on the other plans and on whether they'll arrest the decline in home prices and restore banks to health.

"The president's going to speak to the housing component of it this week, and I think that people will be well satisfied with what he comes up (with)," David Axelrod, a White House senior adviser, said on "Meet the Press" Sunday. "But let's be clear; it is a very complex problem, the likes of which we've never seen. We're going to do it thoughtfully."

Obama is expected to announce a plan to help some economically distressed borrowers avoid foreclosure and see their mortgages modified to bring monthly payments to a range from 31 percent to 38 percent of their after-tax income. Banks may be asked to take losses, with taxpayers perhaps sharing part of their pain for the greater good of trying to halt the nationwide slide in home prices.

Americans have lost trillions of dollars in wealth over the past year from the housing and stock-market declines. The Dow Jones Industrial Average is off more than 5 percent since the Obama team outlined a partial bank-rescue plan just last week. Absent greater clarity on the bank-rescue plan, stocks could be poised for further losses, which could sink consumer confidence and personal wealth further.

For now, the administration isn't talking about bank nationalization. That topic attracted more attention Sunday when South Carolina Republican Sen. Lindsey Graham mentioned the possibility on TV.

"We will do what we need to do, but our long-term goal is to have a strong private sector banking and financial system," Axelrod said Sunday.

ON THE WEB

Axelrod interview transcript

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