Obama and team flood Sunday talk shows to discuss the economy, Afghanistan

President Obama joined the Secretaries of Defense and the Treasury this morning on the Sunday talk shows to discuss the economy and the commitment of additional troops to the war in Afghanistan.

Speaking on CBS' Face the Nation the President recounted his tough conversation with the leaders of the nation's top banks.

"What I said was, look, first of all, there are a lot of bankers that are doing good work in the community, that are acting responsibly, that haven’t taken huge risks. I understand that. But understand that for the average single mom who is just barely struggling to pay her mortgage or medical bills for her kid, who is paying her taxes, who is playing by the rules, and then finds out that a taxpayer-assisted firm is paying out multimillion-dollar bonuses, that’s not just not acceptable."

The President reaffirmed his commitment to make permanent the two-year middle class tax cuts passed as part of his recent stimulus package. "I’m going to be pushing as hard as I can to get it done in this budget," he said. "If it’s not done in this budget, then I’m going to keep on pushing for it next year and the year afterwards, so that we don’t see a drop-off after the two-year tax cuts."

Over on ABC's This Week, Treasury Secretary Timothy Geithner stressed that the government's response to the crisis would not end soon. "The lesson of financial crises is governments tend to do too little," he said, "They wait too long to escalate."

On NBC's Meet the Press, the Secretary defended his decision to provide nearly $1 trillion public-private loan guarantees as a simple choice between action and prolonged economic turmoil. "We can let -- leave that as it is, hope that banks earn their way out of this over time. That would be a mistake," he said. "That would leave us with a strong -- with a deeper, longer recession."

The President also discussed his decision to commit additional troops to the war in Afghanistan, saying it was a vital step in combatting Al-Qaida.

"What we want to do is to refocus attention on Al Qaida.," he said. "We are going to root out their networks, their bases. We are going to make sure that they cannot attack U.S. citizens, U.S. soil, U.S. interests and our allies’ interests around the world."

Secretary of Defense Robert Gates agreed on Fox News Sunday that Al-Qaida remained a serious threat, saying that Administration was willing to consider alternate proposals if the troop increase proved ineffective. "I think [The President has] been clear -- and frankly, it was my view in our discussions -- that we don’t want to just pursue -- settle on this strategy and then pursue it blindly and open-endedly," he said.

Senator McCain speaking on Meet the Press endorsed the President's approach, saying: "I think this -- the outlines of this proposal are good. The best way to get out of Afghanistan fast is people to think we’re staying."

Stock markets soar after Treasury details plan to buy bad assets

With just about every member of the financial world looking on, Treasury Secretary Tim Geithner detailed his department's plan to launch a public-private partnership to buy toxic loans from struggling banks. And, if the stock market is a barometer of their mood, they liked what they saw.

The Dow Jones Industrial Average climbed 6.8 percent, closing up almost 500 points.

The S&P 500 ended the day more than 7 percent higher.

The NASDAQ Composite jumped more than 98 points.

Administration set to announce regulatory reform and recovery proposals

The Administration tomorrow will announce a long awaited plan to help banks grapple with the financial crisis, along with a regulatory reform proposal that would grant the government broad new powers to protect the economy against financial shocks.

The Administration is preparing to spend up to $1 trillion to lift the toxic assets at the heart of the financial crisis from banks' balance sheets. The government plan would create a new entity called the Public-Private Investment Program to held distribute the risk between taxpayers and private investors.

Under the plan, the government would offer billions in low-interest loans to help the private sector purchase toxic assets. Using money from the $700 bank bailout fund, the government would match private investments dollar for dollar and share in both the losses and the potential profits.

The Treasury would also expand its recently-launched $1 trillion Term Asset-Backed Securities Loan Facility to help sweep up toxic assets. The TALF is currently setup to guarantee the loans behind securities backed by consumer debt such as auto loans, student loans, and credit card debt.

The FDIC would also be called upon to share their expertise in managing the toxic assets retrieved from failed banks.

“We’re going to move quickly to lay out a new financing program to deal with these legacy assets,” Treasury Secretary Timoth Geithner told Bloomberg News. “We have and expect to see a lot of support for this program.”

Under the proposed regulatory framework, the Treasury Secretary, with the permission of the President and the Federal Reserve, would be empowered to place into government conservatorship ailing institutions whose collapse could threaten the financial system.

The Treasury Secretary would then be permitted to dissolve contracts and limit payments to creditors. These powers would largely prevent a recurrence of the bonus debacle currently plaguing A.I.G.

The Public-Private Investment Program will be announced tomorrow, with an announcement concerning the new regulatory framework coming by Tuesday.

Sunday talk shows preview coming budget battle

Administration officials and Congressional Republicans squared off this morning over the President's $3.6 trillion budget outline amidst news that the Congressional Budget Office's forecasts are significantly gloomier than the Administration's own projections.

The CBO announced on Friday that federal deficits would rise an additional $4.8 from 2010-2019, $2.3 trillion more than the Administration's estimates. The difference stems in large part from a disagreement over how fast the economy will grow after it escapes from recession.

"When you get out five, 10 years, they’re assuming that real GDP is only going to grow about 2.2 or 2.3 percent a year," said Christina Romer, chair of the Council of Economic Advisers, on Fox News Sunday. "And that’s just lower than private forecasters. It’s lower than the Federal Reserve. And we think it’s just too pessimistic."

Congressional Republicans, including several powerful moderates, said that the deficits were unacceptably large and would need to be scaled back in the final budget.

Senator Susan Collins of Maine said on ABC's This Week that the debts were "not sustainable," and that they posed "a threat to the basic health of our economy." Senator Judd Greg, who declined to serve as President Obama's Commerce Secretary, called the debts "staggering," and said that deficits of "4 percent to 5 percent of GDP" were "not sustainable under any form of government."

"The practical implications of this," Judd continued, "is bankruptcy for the United States. There’s no other way around it. If we maintain the proposals which are in this budget over the 10-year period that this budget covers, this country will go bankrupt. People will not buy our debt; our dollar will become devalued."

Policymakers also demonstrated their support for Treasury Secretary Timothy Geitner, who received widespread criticism after it was revealed that A.I.G. used part of its bailout money to pay for $165 million in employee bonuses.

"If you’re asking me should he resign," said Senator Chuck Grassley on CBS' Face the Nation, "I don’t think anybody after two months has been tested enough that I would say he should resign. I think he ought to be given some time."

Romer characterized calls for the Secretary's resignation as "really silly."

Members of Congress continued to fume over the A.I.G. bonuses, though it seemed far from certain that the President would sign a House-passed bill reclaiming the bonuses through the tax code.

"Retention bonuses are, to a great extent, extortion," Congressman Barney Frank said. "It is people saying... I’ve got the combination to the safe, and if you don’t bribe me, I’m going to leave and you’ll never be able to open the safe."

Vice Presidential advisor Jared Bernstein responded on This Week that the bill might be "dangerous," saying: “The president would be concerned that this bill may have some problems in going too far – the House bill – may go too far in terms of some legal issues, constitutional validity, using the tax code to surgically punish a small group of people."

Over on NBC's Meet the Press, Governors Ed Rendell and Arnold Schwarzenegger joined with New York City Mayor Michael Bloomberg to discuss their new group, Building America's Future, which will call for substantial investments in the nation's infrastructure.

"This country desperately needs to build a high-speed rail passenger system." Governor Rendell said. "We need to improve our rail freight system. But it's not just transportation.  It's the levees that failed in Cedar Rapids and New Orleans.  It's dams, it's water and wastewater systems. It's so much more."

Treasury moves to help auto suppliers

As the CR Cars Blog noted last week, car manufacturers aren't the only part of the auto industry left reeling in these difficult economic times. The suppliers that provide everything from whole interiors to transmission and axle assemblies to Detroit are on front lines of the carpocalypse.

Today, the Treasury Department announced a $5 billion plan aimed at rescuing those suppliers.

"The Supplier Support Program will help stabilize a critical component of the American auto industry during the difficult period of restructuring the lies ahead," said Treasury Secretary Timothy Geithner in a statement. "The program will provide supply companies with much needed access to liquidity to assist them in meeting payrolls and covering their expenses, while giving the domestic auto companies reliable access to the parts they need."

The basics of the plan, according to the Treasury Department:

• The program will provide suppliers with access to government-backed protection that money owed to them for the products they ship will be paid no matter what happens to the recipient car company. 
• Participating suppliers will also be able to sell their receivables into the program at a modest discount. This will provide suppliers with desperately needed funding to operate their businesses and help unlock credit more broadly in the supplier industry.
• The program will be run through American auto companies that agree to participate in the program. Suppliers to those companies that agree to maintain qualifying commercial terms will have the opportunity to request this government backed protection. If granted, the supplier will pay a small fee for the right to participate in the program.
• The Treasury Department has made available up to $5 billion in financing under this program.

For more details, check out the Treasury's Fact Sheet (PDF).

Administration moves to reduce the cost of small business loans

The Administration is expected tomorrow to unveil a plan to aid small businesses by unfreezing the credit market to reduce the cost of business loans. Congressional Republicans have complained that the Administration's recovery plans primarily helped the financial service and not small business owners.

The Administration will direct $730 million from the economic stimulus package to raise from 85% to 90% the government's guarantee on Small Business Administration loans under $150,000. The government will also eliminate common fees and processing charges that lenders pass on to borrowers, which can add up to 3.75 percent to the cost of a loan.

The Administration aims to unfreeze the credit markets by spending up to $20 billion to buy up loans from primary bank lenders. This in turn should allow the primary lenders to make new loans to other small business owners.

The Small Business Administration usually guarantees loans worth $20 billion each year, however new lending is on track to fall below $10 billion this year, according to Administration officials.

Speaking today on Meet the Press Christina Romer, the Council of Economic Advisors said, "We know that small businesses are the engine of growth in the economy, and we absolutely want to do things to help them... We’ve talked to a lot of small business owners, and one of the trouble they’re having is just community banks don’t want to lend to them because the secondary market in SBA loans has virtually disappeared. So one of the things we’ll be announcing is a program to get that market cleared and working again."

Minority whip Eric Cantor agreed this morning on Meet the Press that government action can unfreeze the markets. "I think the crux of the issue is the only credit markets that are working, by and large, are the credit markets where the government has stepped in to guarantee the issuance of the debt," he said.

The President is expected to announce the new measures tomorrow from the White House with Treasury Secretary Timothy Geithner.

President's economic advisors forecast eventual economic recovery

As the effects of the President's $787 billion stimulus package continue to take hold, the President's economic advisors this morning emphasized that nation was just beginning to walk the long path to economic recovery.

"We haven’t won yet," said Christina Romer, the chair of the the Council of Economic Advisors speaking on NBC's Meet the Press. "We have staged a wonderful battle. So we have put in place just a host of programs: the stimulus package, the financial rescue plan, the housing plan. We think it’s the right medicine and we think it will work."

Larry Summers, director of the National Economic Council, agreed, saying that while recent short-term gains were encouraging, economic recovery was still a long-term prospect. "We’ve got an economy that’s losing 600,000 jobs a month," he said on ABC's This Week. "That’s probably not going to stop imminently. And so, while there is signs that some of the things that the president is doing are starting to have effects, these problems did not get made overnight. They didn’t get made in a year. And they’re not going to get fixed very rapidly, either."

The President's advisors emphasized that the country was on solid economic footing.

"We know that, that temporarily we’re in a mess, right?" said Romer, before adding "the fundamentals are sound." Summer, on CBS' Face The Nation agreed, saying that Treasury bills would retain their status as "the asset of choice for people around the world."

The Administration is continuing to develop plans to address the toxic assets plaguing bank balance sheets, which remain at the heart of financial sector's unease. "I can tell you that that kind of a blueprint is top on our agenda," Romer said "and I expect it to come out very soon."

Summers did reveal that any eventual plan requiring the use of taxpayer funds would wipe out investors. "No taxpayer in these arrangements is going to lose money until the investor who put up the money has lost 100 percent of the money they put up," he said. "So until whoever it is who buys it, whether it’s an insurance company or a hedge fund, until whoever it is who buys it is completely wiped out, the government financing isn’t going to be touched at all."

Meet the Press host David Gregory asked Romer what responsible consumers should do during the crisis.

"That’s an excellent question," Romer responded. "I think we know that consumers have lost a lot of wealth and that normally what you’d say is they should be saving more. I think the truth is consumers have also not done a lot of spending for the last 14 months.

So what I would predict and I think would be a perfectly reasonable thing is you go out and you buy that car that you’ve been thinking about for 14 months and you do some of the spending. And then, over the long haul, I’m hoping we’ll come back to probably a higher savings rate, because we know we were at kind of a historic low before this all happened."

Obama reassures China that U.S. debt is a sound investment

President Obama today reassured China and other world lenders that their investments in American debt were safe and secure.

“Not just the Chinese government," Obama said, "but every investor can have absolute confidence in the soundness of investments in the United States.”

China's prime minister, Wen Jiabao, yesterday questioned whether China's extensive investment in the United States' debts were safe. China is by far the largest holder of U.S. debt.

At the end of last year, China held Treasury Securities worth almost $730 billion. Including bonds, recent debt purchases, and other investments, it's estimated that China has close to $1 trillion invested in the United States.

Were China to sell its Treasury holdings, the value of the dollar would fall, making it more difficult for both consumers to afford Chinese exports and for the government to finance the public debt through borrowing.

“There’s a reason why even in the midst of this economic crisis, you’ve seen actual increases in investment flows here into the United States,” Obama said. “I think it’s a recognition that the stability not only of our economic system but our political system is extraordinary.”

The comments came after the President met with Brazilian president, Luiz Inácio Lula da Silva.

Government details mortgage rescue plan

The Obama administration has released guidelines for its mortgage rescue plan, setting out rules for the distribution of $75 billion to an estimated 4 million at-risk homeowners (in addition to another 5 million who may be permitted to refinance their loans).

The Treasury Department's statement said that the government will work with loan companies to get homeowners' mortgage payments down to 31 percent of their incomes.

The first part is up to the lenders:

The lender will have to first reduce monthly payments on mortgages to a specified affordability level (specifically, the lender must bring down monthly payments so that the borrower’s monthly mortgage payment is no greater than 38% of his or her income).

The second part is where the government steps in:

Next, the program will match further reductions in monthly payments dollar-for-dollar, from 38% down to 31% debt-to-income ratio for the borrower.

Those payment levels will be locked in for five years, according to the Treasury Department's Fact Sheet (PDF).

Despite some opposition, the White House's mortgage bailout appears to have a broad base of support.

In a new NBC News/Wall Street Journal poll, 56 percent said they thought the proposal was a good idea and 27 percent said it was a bad idea.

That same poll, however, found that many thought bailing out homeowners was unfair because it rewarded people who have not been fiscally responsible.

Forty-eight percent said that it was unfair, according to the poll, whole 36 percent said the "condition seems fair and provides assistance to people who have been caught up by the worst conditions in the past fifty years."