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Obama makes promises as he drafts plan for remaining half of rescue fund

US President Barack Obama yesterday promised to lower mortgage costs, offer job-creating loans for small businesses, get credit flowing and rein in free-spending executives as he readies a new strategy for spending billions from the second installment of the financial rescue plan.

The White House is deciding how to structure the remaining half of the US$700 billion that Congress approved last year to save financial institutions and lenders. An announcement was expected soon on an approach that would use a range of tools to unfreeze credit, helping families and businesses.

At the end of a week that saw hundreds of thousands of people lose their jobs, Obama also used his Saturday radio and Internet address to tell Americans that "no one bill, no matter how comprehensive, can cure what ails our economy."

Obama has seized on the grim economic news to push his separate US$825 billion economic stimulus bill now in the works, urging lawmakers to act boldly and overcome partisan divisions to counter a "devastating" crisis for Americans.

At the same time, Obama faces a dilemma over protectionist provisions in the bill that many fear could set off a trade war. Opposing the "buy America" measures, however, could set off a backlash from his supporters, particularly among labor unions.

During the final three months of 2008, the US economy recorded its worst downhill slide in a quarter-century, stumbling backward at a 3.8 percent pace, the government reported Friday; that rate could accelerate to 5 percent or more this quarter.

Treasury Secretary Timothy Geithner is trying to finish a plan to overhaul the bailout program begun in the Bush administration. Geithner has said the administration is considering using a government-run "bad bank" to buy up financial institutions' bad assets. But some officials now say that option is gone because of potential costs.

Many ideas under consideration could end up costing hundreds of billions beyond the original price tag. Aides would not rule out the possibility that the administration would seek more than the US$350 billion already set aside.

Obama said Geithner soon would announce a new strategy "for reviving our financial system that gets credit flowing to businesses and families. We'll help lower mortgage costs and extend loans to small businesses so they can create jobs. We'll ensure that CEOs are not draining funds that should be advancing our recovery."

His administration "will insist on unprecedented transparency, rigorous oversight and clear accountability so taxpayers know how their money is being spent and whether it is achieving results."

The Bush administration's spending of the first US$350 billion of the bailout package drew heavy bipartisan and public criticism because it went overwhelmingly to bankers who have not put much of the money into the credit system. Obama only gained access to the second US$350 billion with written assurances to US Congress that the funds would reach Americans facing home mortgage foreclosures and in need of credit for autos and other big ticket items.

Geithner met Friday with Federal Reserve Chairman Ben Bernanke and other top government officials to develop a plan and improve regulation of the financial system.

Obama's message -- largely repackaged from a week of White House statements -- was as much for the country as it was for lawmakers: Pass the separate American Recovery and Reinvestment Plan or things are going to get worse.

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid planned to discuss Obama's legislative agenda during a White House visit Monday evening, an administration official said.

"Rarely in history has our country faced economic problems as devastating as this crisis," the president said. "Now is the time for those of us in Washington to live up to our responsibilities."

Obama this past week won passage of a separate US$825 billion economic stimulus plan in the House without a single Republican vote. It now heads to the US Senate, where Vice President Joe Biden predicts the measure will fare better among Republican lawmakers.

The Democratic president does not need Republicans for his economic plan and other initiatives to clear the Democratic-controlled Congress, but he has said he wants to get away from politics as usual and introduce a new era of bipartisanship at a time when the country faces two wars and its worst recession in 70 years.

Obama appeared to be leaning toward appointing a third Republican to his Cabinet, a move that would place the fiscally conservative Senator Judd Gregg at the head of the Commerce Department. A liberal Democrat, New Mexico Governor Bill Richardson, was initially tapped for the post, but bowed out when a grand jury investigation over how state contracts were issued to political donors threatened to cloud his confirmation hearings.

Gregg is the leading candidate to become commerce secretary, an Obama administration official said yesterday. A decision could come as soon as Monday, according to the official, who spoke on condition of anonymity because the official wasn't authorized to discuss administration deliberations.

Republicans pledged yesterday to work with Obama, although leaders cautioned against treating government spending like a "trillion-dollar Christmas list" and renewed their opposition to much of the bill's spending.

"A problem that started on Wall Street is reaching deeper and deeper into Main Street. And the president is counting on members of Congress to come together in a spirit of bipartisanship to act," Senate Minority Leader Mitch McConnell, said in the Republican's radio address. "Unfortunately, the plan that Democrats in Congress put forward this week falls far short of the president's vision for a bill that creates jobs and puts us on a path to long-term economic health."

Obama has signaled his willingness to compromise on the bill; his chief spokesman said the president hoped to "strengthen" the bill as it headed toward a Senate vote late this week.

Republicans said they hope the administration takes into account their wishes.

"Every day brings more news of layoffs, home foreclosures and shuttered businesses," McConnell said. "And across the country, employers are cutting to the bone even at businesses that most Americans never thought were vulnerable."

Republicans, however, kept putting forward their own plans. McConnell promoted a mortgage program for creditworthy borrowers, offering fixed-rate 4 percent loans designed to increase housing demands and lending.

However, Obama's stimulus plan was receiving support from most Republican governors because it would send billions to states for education, public works and health care.

Their state treasuries drained by the financial crisis, governors would welcome the money from Washington.


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