Obama Eyes $500 Billion in Stimulus; Paulson Weighs Ramping Up Aid Again
By JONATHAN WEISMAN, DEBORAH SOLOMON, and JON HILSENRATH
NOVEMBER 24, 2008, 10:07 A.M. ET
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Aides to President-elect Barack Obama and President George W. Bush are rushing to craft measures to shore up financial markets and prevent a policy vacuum from further harming the economy during the transition of power between the two men.
Mr. Obama's team is putting together a new economic stimulus plan containing more than $500 billion in federal spending and tax cuts over the next two years, Obama aides and advisers said. That package would be far more aggressive than anything envisioned during the campaign. Democratic leaders in Congress are preparing to rush passage shortly after New Year's to have a stimulus-plan bill ready for Mr. Obama to sign once he is inaugurated Jan. 20.
Meanwhile, University of California at Berkeley economist Christina Romer will chair Mr. Obama's Council of Economic Advisers, two Democratic officials said Monday morning.
Prof. Romer will be in Chicago today with Mr. Obama as part of the first day of a two-day rollout of the new economic team.
The naming of Prof. Romer fills one of the remaining vacancies in the president-elect's group of economic aides. At noon ET Monday, Ms. Romer will join Mr. Obama at a press conference along with Lawrence Summers, designated to lead his National Economic Council, and Timothy Geithner, tapped to be Treasury Secretary. On Tuesday, Peter Orszag, Mr. Obama's choice to be director of the Office of Management and Budget, will headline the second day of economic events.
The president-elect is likely to use the events to assure investors and consumers that he will take rapid, large-scale action in the coming weeks and months. The message will be: "This is an extraordinary time, and extraordinary responses are going to be needed," said one aide.
At the same time, Mr. Bush's outgoing Treasury secretary, Henry Paulson, is now considering a more activist stance in his final weeks in office than he had signaled as recently as last week. He is considering tapping the second half of the government's $700 billion financial-industry rescue fund, and rolling out new programs in response to worsening market conditions, according to people familiar with the matter.
Among other things, he is seeking ways to make it easier for households to borrow money. He is also looking for ways to reduce the burden of foreclosures on homeowners.
The moves came as officials at the Treasury and the Fed spent the weekend on yet another emergency rescue plan, this one for giant Citigroup after its stock fell 60% the past week. Citigroup's deterioration underscores the fragile state of markets and the economy during Washington's long transition of power.
The moves came as officials at the Treasury and the Fed spent the weekend on yet another emergency rescue plan, this one for giant Citigroup after its stock fell 60% the past week. Citigroup's deterioration underscores the fragile state of markets and the economy during Washington's long transition of power.
Mr. Obama is also expected to try to calm Wall Street worries about trying to rewrite the rules of existing aid to Wall Street, and excessive spending in his new administration, according to Obama transition officials.
So far, the main government response to the economic crisis has been the $700 billion Troubled Asset Relief Program, or TARP, designed to help banks and other financial institutions. Mr. Obama's economic-stimulus plan would be separate from that.
On Monday, Mr. Obama will likely offer for the first time an explicit pledge to honor all commitments already made by the Bush administration in the TARP program, without imposing new conditions even if there are changes are made to the program in the future. Obama officials also say the president-elect will promise to find spending cuts to try to keep short-term stimulus spending from ballooning the budget deficit over the long term.
While Mr. Obama is moving quickly to give markets unusually early clarity on what he'll do when he takes office in January, Bush aides are rethinking how they'll handle their final weeks in power.
The Bush Treasury is in the middle of injecting into banks some $250 billion of TARP funds, and Mr. Paulson had suggested earlier this month that he wasn't planning to do much beyond that before he leaves office in two months. Another $40 billion of the TARP money has been invested in American International Group, Inc., the giant insurer.
But last week's deterioration in the markets heightened concern at the Treasury that it might need to take confidence-boosting steps before Mr. Obama's team takes over. On Friday, Goldman Sachs Inc. revised down its projections for economic growth, saying the economy is in the process of contracting by 5% in the fourth quarter and would contract another 3% in the first three months of 2009. If Goldman is right, it would mark the worst performance since the 1982 recession, one of the deepest contractions since the Great Depression.
Goldman placed the blame largely on Washington. "The main reason for the downgrade to our forecast is the policy impasse that has developed in Washington and the tightening in financial conditions it has provoked."
Since winning the presidency Nov. 4, Mr. Obama has expressed reluctance to begin steering economic policy, repeatedly saying the country can have only one president at a time. Large-scale economic stimulus is all but impossible before Mr. Obama takes office, since Mr. Bush has said he would oppose big new spending plans before he leaves the White House.
But Mr. Obama and his team have chosen in recent days to signal fairly explicitly that a sizeable boost will come as soon as he takes office.
Obama advisers decline to detail publicly just how large the stimulus would be. But several senior aides have pointed to analyst reports calling for $500 billion to $700 billion to be injected into the economy.
In an appearance before chief executives in Washington earlier in the week, Mr. Summers suggested stimulus of that size was possible. He also said stimulus should be "speedy, substantial, and sustained" -- a shift in tone from his calls earlier in the year for "temporary" and "targeted" aid. "We're going to need impetus for the economy for two to three years," he now says.
House Majority Leader Steny Hoyer said the new Congress, which will be dominated by Democrats, will have a stimulus package completed "during the first couple of weeks of January."
Mr. Obama's selection of Mr. Geithner for Treasury secretary has, in effect, given his administration a greater role in the current handling of the financial crisis. That's because Mr. Geithner has already been a close partner of Mr. Paulson in managing the bailouts in his role as New York Fed president.
The selection of Mr. Geithner is providing comfort to Treasury officials, who view his selection as an indication they will be able to push ahead with using more of the $700 billion rescue fund to respond to the financial crisis than perhaps Mr. Paulson had suggested last week.
Treasury spokeswoman Michele Davis on Sunday said Mr. Paulson had always planned to implement new programs when they were ready, and never ruled out tapping the remaining half of the $700 billion fund. "We're looking at a variety of programs to support the market and we'll implement them as soon as they're ready," she said.
Treasury's immediate focus is on establishing a program, along with the Federal Reserve, that would help increase the availability of auto loans, student loans and credit cards -- which Mr. Paulson believes will help alleviate strains in the consumer borrowing market.
A person familiar with the planning said the Treasury and the Fed have agreed on the structure of such a program and are working on the details, such as whether the Fed should buy assets itself or provide loans to entice private investors to buy securities. The Treasury is expected to contribute $25 billion to $100 billion to the program, which could be announced within a few weeks, this person said.
Treasury is continuing to look for a way to prevent more foreclosures on homeowners, including trying to improve a proposal floated by Federal Deposit Insurance Corp. Chairman Sheila Bair. Democratic lawmakers have been pressuring Mr. Paulson to use some of the $700 billion rescue fund to help people in danger of foreclosure.
Treasury had also been designing another capital-injection program aimed at financial institutions beyond banks, in addition to considering making more money available to banks that have already received a government infusion.
Write to Jonathan Weisman at jonathan.weisman@wsj.com, Deborah Solomon at deborah.solomon@wsj.com and Jon Hilsenrath at jon.hilsenrath@wsj.com |
