White House dampens stimulus expectations

President Barack Obama's aides warned Americans on Sunday not to expect instant miracles from the $787 billion economic stimulus bill he will sign this week, but said it would help eventually.

Obama is due to sign the bill passed last week by Congress in Denver on Tuesday. It was the first major legislative victory of his young presidency, which could rise or fall with its success or failure.

"There will be signs of activity very quickly," David Axelrod, the White House senior adviser, said on "Fox News Sunday." "But it's going to take time for that to show up in the statistics. The president has said it's likely to get worse before it gets better."

White House spokesman Robert Gibbs used similar language on CBS' "Face the Nation."

"I don't think there's any doubt that we've seen this economy has gotten worse just in the last few months. The acceleration in job loss probably means that this economy is going to get worse before it gets better," he said.

Obama himself said last week that if he failed to heal the economy, he would be out of a job by 2012, when he faces re-election.

The White House hopes the package will save or create 3.5 million jobs. Mark Zandi, chief economist at Moody's Economy.com, said on "Fox News Sunday" that was likely too optimistic.

"By my estimate, it will add 2 to 2.5 million jobs, more than would be the case without stimulus, by the end of 2010. That translates into a lower unemployment rate of about a point to a point and a half," he said.

Only three Republican senators supported the bill and no Republicans in the House of Representatives backed it. They kept up their criticism on the Sunday television talk shows.

"This bill was not bipartisan. It is incredibly expensive. It has hundreds of billions of dollars in projects which will not yield in jobs," said John McCain, whom Obama defeated in last year's presidential election, said on CNN's "State of the Union."

Gibbs said Obama's team had crafted a stimulus bill to produce jobs as quickly as possible in an economy that lost 3.6 million in the past year.

BALANCED APPROACH

"The urgency to get something done was very important," he said. "What we have here is a very balanced approach that's going to put people to work."

Obama faces a new potential flashpoint next week when two Detroit automakers, General Motors Corp and Chrysler LLC, must reach agreements with the United Auto Workers labor union to restructure themselves.

Talks between GM and the union broke down on Saturday. Chrysler's negotiations with the UAW are also deadlocked.

Axelrod made it clear the White House would not intervene in the situation until after Tuesday.

"Obviously, this is a difficult situation and everyone's going to have to continue to work toward a solution. We're going to wait and see what the automakers have to say on Tuesday and we'll go from there," he said.

On a third front, Obama plans to issue a plan to tackle the housing crisis next week, hoping to stem a flood of home foreclosures that has weakened the banking system and frozen credit markets while continuing to depress house prices.

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U.S. offers $2 trillion bank plan but stocks slump

U.S. Treasury chief Timothy Geithner on Tuesday unveiled a new bank rescue plan that would put $2 trillion to work mopping up bad assets and restoring credit, but stock markets plunged on fears it would not work.

Global markets had intensely awaited Geithner's ideas for a plan mixing private and public funding to stabilize a financial system tottering under the weight of bad mortgages, but were disappointed over the scant details provided.

The Dow Jones industrial average ended down 4.6 percent -- its biggest one-day percentage drop since December 1 -- with bank stocks hit particularly hard. U.S. government bonds rose as investors scrambled for safe-haven debt.

In a speech on television and in Capitol Hill testimony, Geithner made his case for how the Obama administration plans to handle the roughly $350 billion left in a $700 billion financial bailout fund approved by Congress in October.

Geithner said the lack of public confidence in prior rescue efforts had made it all the more difficult to stop "a dangerous dynamic" in which a lack of credit undercuts the economy and leads to more weakness among banks, worsening the recession.

"This is very complicated to get it right," he said in an interview on Bloomberg Television. "We are going to try to get it right before we give the details so that we don't add further to uncertainty in these markets."

He steered clear of saying whether the administration might have to ask Congress for more money to fix the banks, restore credit and counter recession, but did not rule it out.

"We're going to consult with the Congress carefully to try to make sure the world understands that the resources necessary to solve this will be available over time," Geithner told CNBC, adding: "The important thing is that ... we send a basic signal, working with the Congress, that we will do what's necessary to fix this."

The lack of details frustrated many market participants.

"Investors want clarity, simplicity and resolution. This plan is seen as convoluted, obfuscating and clouded," said James Ellman, president of Seacliff Capital in San Francisco.

But Thomas Priore, president of ICP Capital in New York, gave Geithner credit for candidly laying out the depth and difficulty presented by the problem of how to restart credit flows when banks are burdened by hard-to-value, weak assets.

"He told it like it is. That's a start," Priore said.

LEVERAGING PRIVATE MONEY

Geithner defended his decision to put forward what he called a framework instead of waiting until a detailed proposal was ready.

"If we wait and we take the approach that we don't lay that out, ever, until we've solved every problem and every detail, then I think that itself will create greater uncertainty," he said, acknowledging he was "very sensitive" to criticism about the approach.

A centerpiece of the renamed "Financial Stability Plan" is a proposal to set up a public-private investment fund, in partnership with the Federal Deposit Insurance Corp, a bank watchdog, and the Federal Reserve.

Seeded with public money, it would leverage up to $500 billion -- and possibly as much as $1 trillion -- so that toxic assets can be purged from a weakened banking system.

Geithner told an invited audience at the U.S. Treasury that $50 billion in federal rescue funds will be used to try to stem home foreclosures and soften the crushing impact of the deep housing crisis now afflicting the entire economy.

The plan would also expand a Fed program aimed at expanding credit card, student, auto and small business lending.

The facility will grow from its current $200 billion limit to up to $1 trillion, thanks to a jump in Treasury funding to $100 billion from $20 billion.

The lending program would be extended to cover some mortgage-related assets.

The Treasury also said it would continue to pump capital into banks, as the former Bush administration did, but Geithner said there will be conditions attached to ensure the money is lent and that top executives heed restraints on their pay.

In return for the capital, the government would receive preferred shares in the banks that could convert to common stock.

BANK FIX PART OF LARGER PLAN

Geithner said it was critically important to restore credit flows in order for a separate $800-billion-plus package of tax cuts and government spending measures to lift the economy.

Shortly after Geithner announced the plan, the U.S. Senate cleared an $838 billion stimulus package, which needs to be reconciled with a separate bill approved by the U.S. House of Representatives.

The Treasury is tussling with the worst financial crisis since the Great Depression as careless lending fueled a housing boom gone bust, dragging the U.S. economy -- and much of the rest of the world -- into a deep recession.

President Barack Obama said on Monday that cleaning up banks' balance sheets was a priority and did not rule out the possibility that it will take more money than the $700 billion Congress already has approved to complete the job.

"We don't know yet whether we're going to need additional money or how much additional money we'll need until we see how successful we are at restoring a level of confidence in the marketplace," Obama told a news conference.

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Obama pushes stimulus, sees no easy out for banks

President Barack Obama urged the U.S. Congress on Tuesday to wrap up a huge economic stimulus bill and warned investors not to expect quick fixes as financial markets plunged on the lack of detail in a new bank rescue plan.

Obama, speaking at a town hall meeting in a Florida city hard hit by mortgage foreclosures, praised the Senate for passing an $838 billion spending and tax cutting bill that the president says is crucial to avoid economic catastrophe.

"That's good news," Obama said after an aide passed him a note on stage about the Senate vote.

Obama said there was still work to be done to reconcile differences between the Senate version and a $819 billion bill passed earlier by the House of Representatives.

"I'm not going to tell you that this plan is perfect. I mean, it was produced in Washington," Obama said to rueful laughter.

"But I can tell you with complete confidence that a failure to act in the face of this crisis will only worsen our problems. Doing nothing is not an option."

In Washington, Treasury Secretary Timothy Geithner unveiled a bank rescue plan to remove up to $500 billion in bad assets and support $1 trillion in lending.

But financial markets, hoping for more details, fell on the news.

"Wall Street, I think, is hoping for an easy out on this thing and there is no easy out," Obama told television network ABC in an interview.

"There's a lot of work that has to be done to put these banks back on a firmer footing."

Geithner did not detail how the administration would address housing issues that sparked the financial and economic crises. Obama said he would lay out those plans himself.

"I'm going to be personally making an announcement in the next couple of weeks what our overall housing strategy is going to be," Obama told the Florida audience, answering a question about the unwillingness of banks to restructure the terms of housing loans when homeowners were not yet in default.

"Unless we address this in a serious way, we are not going to be able to get the economy back where it needs to be," Obama said.

The Florida trip, which included emotional moments with people hurt by the nation's economic downturn, was the second stop on a roadshow in which Obama is taking his argument for the stimulus package directly to Americans.

On Monday he went to Elkhart, Indiana, where unemployment has rocketed as the economy fell into the deepest recession in decades.

IMPORTANT MILESTONE

The stimulus package is an important milestone for the new president, a Democrat who took office three weeks ago, inheriting the crisis from his predecessor George W. Bush. He wants a finished bill on his desk by February 16.

Republicans complain it has too many spending projects and not enough tax cuts. The House version passed with no Republican support, while the Senate version drew only three Republican votes.

The final version will also need those votes to pass, setting up a new round of haggling this week.

Obama, who had originally worked to attract bipartisan support after championing a more cooperative approach in Washington, has shown decreasing patience for the stand of Republicans whose policies, he said, had caused the problem.

"It's a little hard for me to take criticism from folks about this recovery package after they've presided over a doubling of the national debt," he said at a news conference on Monday. "I'm not sure they have a lot of credibility when it comes to fiscal responsibility."

Obama went to Fort Myers partly because it had the country's highest foreclosure rate last year, with 12 percent of housing units receiving a foreclosure-related notice.

Unemployment in the area was 10 percent in December -- more than triple the rate two years ago, the White House said.

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Obama team works on bank rescue, private money eyed

The Obama administration on Monday was nailing down details of a bank rescue plan expected to offer incentives to lure private investors into buying bad debts undermining the financial system and the economy.

U.S. Treasury officials were expected to brief congressional committee staffers on the plan on Monday evening, with Treasury Secretary Timothy Geithner scheduled to outline it publicly at 11 a.m. on Tuesday.

The plan and the administration's economic stimulus program are pillars of President Barack Obama's strategy for tackling the deepest U.S. financial crisis since the Great Depression.

A top White House aide said the administration will push private investors to buy compromised mortgage-related assets that are clogging bank balance sheets.

"Government capital is a last resort, and wherever possible, we want to catalyze the private sector to take responsibility for a situation that in many ways was created in the private sector," National Economic Council Director Lawrence Summers said on CNN.

Financial sector lobbyists said they doubt the Treasury is ready at this point to unveil a plan with the level of detail being sought by much of the banking community and Wall Street.

Major banks and Wall Street want the government to buy distressed assets off their balance sheets, but the administration has struggled with pricing the assets in a way that helps the banks while also being fair to taxpayers.

Summers said on Sunday the administration believes that with the right kinds of government guarantees and financing, the government can bring in "substantial" private capital.

ANNOUNCEMENT POSTPONED

An announcement on the bank plan had been set for Monday, but was pushed back so the administration could focus its efforts on pushing a huge economic stimulus bill through Congress.

A source familiar with the administration's thinking said creation of a so-called "bad bank," financed in part by private equity, was under discussion as a way to take bad assets off banks' books.

To lure in private investors, the bank could be allowed to issue debt backed by the Federal Deposit Insurance Corp, the source said.

U.S. stock indexes edged down on Monday but bank shares gained on hopes the rescue plan would not dilute current shareholders.

The Treasury is expected to continue to pump capital into banks. A person familiar with the matter said it would likely begin taking preferred stakes that would eventually convert into common equity, buying time for a bank to recover before shareholders are diluted. Currently, the Treasury takes a preferred share and a warrant for common stock.

The plan Geithner is set to outline marks a revamped approach to a $700 billion financial bailout fund approved by Congress last fall.

Officials are not expected to ask immediately for more funds to help rescue the banks, despite signs that future banking sector losses may be huge.

Public opinion has turned against the way the first half of the bailout funds were rushed out to help banks, with little clear impact, and Republicans in Congress have voiced stiff opposition to the size of Obama's economic stimulus plans.

ECONOMY CHOKING

But with banks worldwide laid low by huge losses and a scarcity of credit choking the U.S. economy, Geithner was searching for ways to get at the root of the problem -- a mountain of bad debts tied to U.S. mortgages.

Summers said on Monday the president would announce plans to contain damage to the housing sector within two weeks.

Shares in major U.S. banks such as Bank of America and Citigroup have been volatile in recent weeks on speculation about the contents of the plan.

As part of the bailout revamp, the Treasury is expected to offer government guarantees against losses for distressed assets that would remain on banks' books but that would be separated from the rest of a bank's portfolio.

Geithner is also expected to announce plans to widen the scope of a Federal Reserve program worth up to $200 billion that seeks to encourage private investors to buy consumer-credit backed debt.

The administration is also designing a mortgage rescue program that would see Fannie Mae and Freddie Mac ease payments for hundreds of thousands of borrowers and offer a model for Wall Street to do the same, sources familiar with the plan said.

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Obama says U.S. economy risks "negative spiral"

President Barack Obama said on Monday that if the government failed to act, the U.S. economy risked sinking into a "negative spiral" that could prolong the current recession.

"This is not your ordinary, run-of-the-mill recession. We are going through the worst economic crisis since the Great Depression," Obama told a news conference, citing Japan's "Lost Decade" of the 1990s as an example of what can happen when an economy fails to revive.

"We've lost now 3.6 million jobs. But what's perhaps even more disturbing is almost half of that job loss has taken place over the last three months -- which means that the problems are accelerating instead of getting better," Obama said, repeating his call for swift passage of a roughly $800 billion economic stimulus plan.

"I'm absolutely confident that we can solve this problem but it is going to require that we take some important steps," he said.

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Obama pitches economic plan to American people

President Barack Obama took his case for a massive economic stimulus package directly to the recession-weary American people on Monday as he urged Congress to move swiftly on a final bill before the crisis worsens.

Holding his first news conference since taking office, Obama pressed lawmakers to "act without delay in the coming week" to resolve differences over an $800 billion-plus economic rescue plan expected to help define his young presidency.

"With the private sector so weakened by this recession, the federal government is the only entity left with the resources to jolt our economy back to life," Obama said as he began a televised prime-time appearance in the East Room of the White House 20 days after his historic inauguration

Sandwiched between campaign-style trips to economically blighted areas in Indiana and Florida, it gave Obama a chance to pitch his solutions for confronting the worst financial meltdown since the Great Depression.

The new Democratic president also hoped to regain momentum following a week in which a key cabinet nominee withdrew in a flap over unpaid taxes and his push for the stimulus plan hit unexpected snags in the Democratic-led Congress.

It remained to be seen, however, whether his words -- spoken in the calm, deliberative tone that helped him win the presidency -- would be enough to ease Americans' anxieties and stabilize jittery world markets.

Despite an ideological split along party lines, the House of Representatives approved an $819 billion economic recovery plan last week.

Just hours before Obama stood in front of the cameras, the Senate moved a step closer to passing its own bill, setting up a vote on a $838 billion emergency package on Tuesday.

But delays in fashioning compromise legislation, a mix of government spending and tax breaks, could prevent Congress from delivering a final bill to Obama by his deadline this weekend.

While the economy topped the agenda, Obama was also expected to face questions about his early foray into foreign policy as he seeks to repair America's image abroad. Issues were likely to include the wars in Iraq and Afghanistan and the nuclear standoff with Iran, challenges bequeathed to him by his predecessor, George W. Bush.

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Russia signals new optimism on ties with U.S

Russia on Sunday welcomed a pledge by the United States "to press the reset button" on relations with Moscow, in a sign the former Cold War rivals could repair relations under President Barack Obama.

Vice President Joe Biden, in a speech at a security conference in Munich, said on Saturday it was time to end a dangerous drift in ties and work with Moscow.

Russian Deputy Prime Minister Sergei Ivanov, speaking at a news conference in Munich after meeting Biden on Sunday, said the United States had sent a strong signal about its willingness to cooperate.

"It is obvious the new U.S. administration has a very strong desire to change and that inspires optimism," Ivanov said.

Relations between Russia and the United States have grown increasingly strained in recent years.

Russia's brief war with Georgia last year and its recognition of the breakaway Georgian regions of Abkhazia and South Ossetia were condemned by the United States.

Moscow responded angrily to former President George W. Bush's plans to deploy parts of a missile shield in Poland and the Czech Republic as defense against perceived threats from countries hostile to Washington, chiefly Iran.

It also bristled at Bush's push to bring Russia's neighbors Georgia and Ukraine into the NATO alliance.

Obama promised a more pragmatic and less ideological foreign policy, fanning expectations of a thaw in relations with Russia.

CONCILIATORY COMMENTS

Asked whether Russia would take concrete steps to respond to Washington's overtures, Ivanov was cautious, saying: "It is not an oriental bazaar and we do not trade the way people do in a bazaar."

In some of the most conciliatory comments from Russia for some time, he indicated Moscow was prepared to discuss missile threats with Washington and renewed an offer to use existing Russian radar stations in a future defense system.

Ivanov reaffirmed that, if the United States scrapped plans to deploy the shield in central Europe, Russia would not follow through on a threat to put its own nuclear missiles near the Polish border.

He said he believed the United States was ready to start negotiations soon on disarmament and welcomed Obama's pledge to talk to Iran about its nuclear program.

"We welcome any steps aimed at a political settlement of the Iranian nuclear program," Ivanov said.

Russia holds a permanent seat on the U.N. Security Council and is an important player in Western efforts to curb Iran's nuclear program.

In his Saturday speech to the annual gathering of world leaders and defense experts, Biden acknowledged that Washington and Moscow would not agree on everything.

"But the United States and Russia can disagree and still work together where our interests coincide and they coincide in many places."

Until now, Moscow has sent contradictory signals about the kind of relationship it wants with Obama's administration.

Last week, the former Soviet republic of Kyrgyzstan said it would close down a U.S. air base on its territory that supplies U.S. forces fighting in Afghanistan.

The surprise move coincided with an announcement that Kyrgyzstan would receive more than $2 billion in aid and credit from Russia, raising questions about whether Moscow might have played a role in the decision to close the base.

Ivanov denied that was the case.

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White House seeks final passage of rescue plan

Top aides to President Barack Obama on Sunday urged Democratic and Republican lawmakers to set aside political differences and quickly approve a massive economic stimulus package this week.

"If there was ever a moment to transcend politics, this is that moment," Larry Summers, head of the White House National Economic Council, told "Fox News Sunday."

Yet, with the world watching to see how the new president and Congress respond to the worst U.S. financial crisis in 70 years, more political fireworks were certain at the U.S. Capitol.

Squabbling will resume on Monday when the Democratic-led Senate, with the help of just a few Republicans, votes to end debate on an $827 billion rescue package and clear the way for passage of the measure on Tuesday.

Negotiators will then seek to resolve differences between the Senate bill and an $819 billion version of the measure earlier passed by the House of Representatives without any Republican support.

"Negotiations will be difficult, but fun to watch," a Republican aide said, citing battles on the size and scope of a final package of tax relief and new spending.

Senator Charles Schumer of New York, a member of the Democratic leadership, told CNN's "State of the Union" that the House, Senate and the White House "all agree there has to be some give and take."

Obama has demanded that a final bill be on his desk by next Monday to sign into law.

The president takes his case to the public this week, traveling on Monday to Indiana for a town hall meeting and then returning to the White House for a prime-time news conference. Tuesday he goes to Florida for another town hall meeting.

The political drama is being played out as the Democratic and Republican parties are at odds ideologically, with both claiming popular support.

Republicans stand accused of having driven the country into an economic mess under President George W. Bush, and of pushing a tax-cut agenda that failed to revive the economy and instead helped create a record federal deficit.

Foes accuse Obama's Democrats of seizing on the economic crisis to pump cash into their pet projects and "big government" social agenda under the guise of creating jobs.

The White House itself has been vague about what it wants other than a plan with enough support by Democrats and Republicans to win passage and create jobs.

Appearing on CBS's "Face the Nation," Christina Romer, another top Obama fiscal adviser, said, "If we can get this (rescue) package through, we can turn it (the economy) around and be back on the road to growth."

FAILURE WILL BE "CATASTROPHIC"

Warning that failure is not an option, Romer said if the package falls apart, "I think it would be -- the word the president used was catastrophic."

Seeking to keep Congress focused on the package, the Obama administration on Sunday delayed Treasury Secretary Timothy Geithner's announcement of a keenly awaited and separate bank rescue plan until 11 a.m. EST (1600 GMT) on Tuesday. The announcement had been expected to be made on Monday.

"We need to get the stimulus package through and we do know that any package to get the economy healthy is going to be more effective if we get the banks healthy, because we have got to get them lending again," Romer said.

Summers, appearing on ABC's "This Week," added, "There's a desire to keep the focus right now on the economic recovery program, which is so very, very important."

Democrats seem to have the votes needed to prevail on the economic stimulus package, the centerpiece of Obama's plan to revive the U.S. economy.

Yet Republicans ripped into Obama, charging he has fallen short of his campaign vow to work with them and promote a new spirit of cooperation in Washington.

"This agreement is not bipartisan," scoffed Republican Senator John McCain, who lost the 2008 White House race to Obama.

Appearing on CBS's "Face the Nation," McCain argued that the package is twice as much as needed. He also noted just three Republicans in the 100-member Senate back it.

McCain said he believed the rescue package "may help a bit," but will also saddle future generations with increased federal debt.

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat, appearing on the same show, accused many Republicans of playing politics.

"I think most of them have made a political calculation that it's better to be in opposition. And you can see that on a political basis because, look, this economy is in desperately serious shape," Conrad said.

Republican Senator John Ensign said he expected the Senate bill to pass. But Ensign said he and other Republicans want time to go through the compromise package that was reached late on Friday and put into written legislation late on Saturday.

"This is almost a trillion dollars. You don't get do-overs with a trillion dollars," Ensign told NBC's "Meet the Press."

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Obama takes a break at Kennedy Center show

After a tough week of haggling over an economic stimulus package and cabinet nominee dramas, President Barack Obama took some time to unwind on Friday night and stepped out for a dance show with his family.

Obama, first lady Michelle and daughters Sasha and Malia attended a 50th anniversary celebration performance by the Alvin Ailey American Dance Theater at the Kennedy Center for the Performing Arts in Washington.

The audience at the sold out show greeted the Obamas with raucous applause as the first family waved from a red VIP box decorated with the presidential seal.

The Ailey company is a celebrated predominantly African-American modern dance troop founded in 1958.

The group has performed for estimated 21 million people in 71 countries.

After their date night on Friday, the Obamas will go to Camp David on Saturday for their first visit to the presidential retreat outside Washington.

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Senators reach deal on stimulus bill

Democratic senators agreed on Friday on a scaled-back $780 billion fiscal stimulus package, a potentially big win for President Barack Obama but undercut by scant Republican support.

Democrats said a vote on passage of the measure, drafted by leaders of a group of moderate lawmakers from both parties, and closely watched internationally as a sign of U.S. commitment to help revive the world economy, would be held by early next week.

"We do not want this recession we're in to march into a depression," said Senate Majority Leader Harry Reid, a Nevada Democrat, confident he had the votes for passage.

With the United States in the grip of the worst economic crisis in more than 70 years -- a report on Friday showed nearly 600,000 jobs were lost in December -- Obama has demanded that a bill be put on his desk by February 16.

After five days of negotiations, Democrats agreed to more than $150 billion in cuts to their earlier $937 billion proposal to trim what critics, most of them Republicans, called billions of dollars in unwarranted spending.

"We've got a deal," Senator Sherrod Brown declared after a meeting with fellow Democrats on the measure.

Democratic Senator Ben Nelson, a leader of the group, said the stimulus would help to jolt the struggling economy through middle-class tax cuts and targeted investment.

"We trimmed the fat, fried the bacon and milked the sacred cows," he said on the Senate floor.

The Senate met as official data showed U.S. job losses accelerating in January and the unemployment rate surging to a 16-year high.

Despite that news, U.S. stocks rallied for a second day on Friday partly in anticipation of a possible accord on the stimulus.

If the measure passes, lawmakers would have to resolve differences between it and an $819 billion version of the legislation approved last week by the House of Representatives without a single Republican vote.

Once a final bill is crafted and passed by both chambers, the measure would be sent to Obama to sign into law.

JUST ENOUGH SUPPORT

Senate Finance Committee Chairman Max Baucus said the compromise plan would pass with the support of three or four Republicans in the 100-member chamber -- a far cry from the broad bipartisan backing Obama had originally hoped for.

Senate Minority Leader Mitch McConnell denounced the pact and predicted it would do little to stem the recession.

"No action is not what any of the Republican colleagues that I know are advocating, but most of us are deeply skeptical that this will work," McConnell said.

Republican Senator John McCain, whom Obama defeated in last year's presidential campaign while promising to work with Republicans, scoffed at the measure and Obama's vow.

"You can call it a lot of things but bipartisan isn't one of them," McCain said.

Pennsylvania Republican Senator Arlen Specter also voiced criticism of the measure, but said, "I do believe that we have to act and I believe that under all the circumstances this is the best we can do and we ought to do it."

Massachusetts Democrat John Kerry said the compromise price tag would be made up of 42 percent tax cuts and 58 percent in new spending. "It's a good balance," he said.

While a deal on the measures marks a solid start for Obama, who took office on January 20, the largely party-line support in the House and Senate was a setback in his drive to foster a new spirit of bipartisan cooperation in Washington.

Opponents complained much of the new spending amounted to little more than a liberal wish list, and more should have been devoted to tax relief and job-creating construction projects instead of new rounds of other government spending.

SPENDING LOTS, FAST

Obama had said he could accept a package in the $800 billion range and that failure to act could turn crisis into catastrophe. He rejected demands for wholesale changes by Republicans, saying it was their policies that created the crisis in the first place.

It was unclear how the deal would affect changes already adopted by senators, including adding an $11 billion tax break for automobile sales and a $19 billion tax incentive for homebuyers. Conrad said they would remain but other senators said they were not included.

He also said that some 80 percent of the package would be disbursed over the first two years, higher than the 75 percent Obama had sought. He also said that money for school construction would be eliminated in the legislation.

Details of the administration's other major initiative to address the crisis -- how it will spend the remaining $350 billion of a bank rescue program agreed to under former President George W. Bush -- are due to be announced on Monday.

A source with knowledge of the plan told Reuters the measure would offer to insure some distressed assets held by banks, authorize the government to purchase others and spend up to $100 billion to buy and modify troubled homeowner mortgages.

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Senate to resume stimulus debate on Friday

U.S. Senate Majority Leader Harry Reid abruptly stopped debate on Thursday on a $920 billion economic stimulus bill, but said lawmakers would resume work on Friday in their drive for a bipartisan agreement.

Reid had said earlier in the day that he believed he had the votes to pass the measure and hoped to do so within hours. He said he would try again on Friday and remained hopeful.

"I'm cautiously optimistic," said Reid.

The Nevada Democratic said if there is no progress on Friday, however, he would file a motion to set up a showdown procedural vote for Sunday on the White House-backed measure.

Reid has said he's confident he can muster the 60 votes that would be needed in the 100-member chamber to move to end debate and head toward a vote on passage of the bill.

"I wish I had all the answers, but the answers are not here tonight. I think the answers are coming forth rapidly," Reid said. "I think staying here later tonight would not benefit us."

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Obama CIA pick may back "limited" abuse prosecution

President Barack Obama's choice to head the CIA said on Thursday he would support "limited" prosecution of any agents who deliberately violated the law in interrogating terrorism suspects.

Former White House chief of staff Leon Panetta, in Senate confirmation hearings on his nomination, broke with outgoing CIA Director Michael Hayden to support a congressional inquiry into the agency's detention and interrogation program launched after the September 11 attacks.

He said the Senate Intelligence Committee would be an appropriate place for an inquiry "to learn lessons from what happened" in the program, and said he would do everything he could to cooperate.

Terrorism suspects were subjected to harsh interrogation techniques denounced as illegal torture, including, in three cases, simulated drowning or "waterboarding."

Panetta said he considered "waterboarding" to be torture, but did not support prosecuting agents who relied on high-level legal guidance allowing such techniques.

However, "if there were those who deliberately violated the law, and deliberately took actions which were above and beyond the standards presented to them, then obviously in those limited cases there should be prosecution," he said.

He said he also suspected the United States had sent some terrorism suspects to other countries for interrogation using harsher techniques that violated U.S. standards.

Hayden has opposed any inquiry into the interrogation program, saying that if agents were to feel legally vulnerable, they would be intimidated in their future work.

Panetta said he would if necessary ask Obama to allow harsher interrogations than those covered by the Army Field Manual, which the president last month set as the government standard. The manual bans techniques such as waterboarding.

"I would not hesitate," to seek broader interrogation authority, Panetta said, adding "I think that this president would do nothing that would violate the laws that are in place."

He promised to tell Congress if Obama were to authorize a departure from standards the president imposed last month.

Panetta is a former U.S. congressman and White House chief of staff under former President Bill Clinton. He is expected to win easy confirmation, despite his lack of professional experience and some questions from Republicans concerned over his denunciations of torture.

Panetta also said as CIA director he would seek to identify risks related to the global economic crisis. "What are the consequences of that in terms of stability in the world?" he said.

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Obama labor secretary-nominee faces tax questions

U.S. President Barack Obama's pick for Labor secretary faced questions over her husband's unpaid business taxes on Thursday, the latest in a string of embarrassing tax revelations that have hampered Obama's efforts to seat a cabinet.

A U.S. Senate panel delayed its vote on Labor Secretary-designate Hilda Solis after the newspaper USA Today reported that her husband paid about $6,400 on Wednesday to settle tax liens that had been outstanding against his business for as long as 16 years.

The Senate Labor Committee's Democratic chairman and its top Republican made no mention of the USA Today report but said the vote was indefinitely delayed to "allow members additional time to review documentation submitted in support" of Solis, a Democratic member of the House of Representatives from California.

Solis was the fourth member of the new administration to run into trouble over unpaid taxes. Treasury Secretary Timothy Geithner was confirmed by the Senate after paying $34,000 in late self-employment taxes.

Health Secretary-designate Tom Daschle withdrew from consideration this week after paying $140,000 in back taxes and penalties, and Nancy Killefer, Obama's choice to oversee budget and spending reform, also withdrew over tax issues.

EMBARRASSING DELAYS

The withdrawal of Daschle, a key Obama campaign adviser and former Senate Democratic leader, was particularly difficult and threatened to delay the president's efforts to reform the costly U.S. healthcare system, one of his campaign pledges.

Obama said "I think I screwed up" over the Daschle nomination by sending a signal that powerful people could fail to pay taxes without serious consequences while ordinary people could not.

The White House indicated Solis was in a different category, with spokesman Robert Gibbs saying she was not involved in her husband's business and should not be punished for the tax lapse.

"We reviewed her tax returns and her tax returns are in order," Gibbs said. "She's not a partner in that business, so we're not going to penalize her for her husband's business mistakes."

Asked if Solis' husband paid the taxes at the prompting of the White House, Gibbs said: "I think he paid the liens back because he owed the taxes. ... The White House believes that if you owe taxes, you should pay them. But at the same time, this obviously is a business that she's not a partner in and we're not going to hold her responsible for."

In their joint statement, Labor Committee Chairman Ted Kennedy, a Massachusetts Democrat, and the panel's top Republican, Michael Enzi of Wyoming, indicated Solis might survive the vote.

"Members on both sides of the aisle remain committed to giving her nomination the fair and thorough consideration that she deserves," they wrote. "We will continue to work together to move this nomination forward as soon as possible."

John Sweeney, president of the AFL-CIO trade union federation, urged the panel to reschedule her confirmation vote quickly, saying: "It is crucial that the American people have a strong and dynamic Department of Labor. We have confidence that Congresswoman Hilda Solis is the right person to lead that charge."

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Obama evokes church/state divide at National Prayer Breakfast

Religion’s role in U.S. politics was on full display on Thursday as President Barack Obama spoke and prayed at the annual National Prayer Breakfast.

Obama, an adult convert to Christianity, used the occasion to announce that he will be establishing a White House Office of Faith-Based and Neighborhood Partnerships. This will replace or be an extension of the Office of Faith-Based and Community Initiatives established by former President George W. Bush, who was strongly supported by conservative Christians.

Some of Obama’s remarks about the new office are sure to raise eyebrows in those conservative Christian circles. For example:

“The goal of this office will not be to favor one religious group over another – or even religious groups over secular groups. It will simply be to work on behalf of those organizations that want to work on behalf of our communities, and to do so without blurring the line that our founders wisely drew between church and state.”

For many conservative U.S. Christians, it is an article of faith that the founding fathers in the late 18th century did not erect a wall to separate church and state. Many religious and secular liberals contest that view, making it one of America’s never-ending culture war battles.

Obama also let it be known that while he is a Christian he is not about to favor one religious group over another. In his prepared remarks, he said:

“Jesus told us to ‘love thy neighbor as thyself.’ The Torah commands, ‘That which is hateful to you, do not do to your fellow.’ In Islam, there is a hadith that reads ‘None of you truly believes until he wishes for his brother what he wishes for himself.’ And the same is true for Buddhists and Hindus; for followers of Confucius and for humanists. It is, of course, the Golden Rule – the call to love one another; to understand one another; to treat with dignity and respect those with whom we share a brief moment on this Earth.”

Americans may debate the walls between their church and state; but there is little doubt that religion and U.S. politics are often joined at the hip.

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Obama admission of mistake rare for presidents

Presidents do not like to admit mistakes. They see it as a sign of weakness. That is why it was noteworthy that Barack Obama publicly admitted making a mistake only two weeks after taking power.

Obama's slang admission that "I screwed up" in pushing ahead with Tom Daschle as U.S. health care chief despite a controversy over unpaid taxes was a sign of the new style he brings to the White House.

The last president, George W. Bush, struggled to identify a mistake when given an opportunity to list some at a 2004 news conference. It was only when he was exiting the White House after eight years that he was comfortable naming several.

Presidents rarely admit errors "because they think they're right. It's pretty simple," said Shirley Anne Warshaw, a presidential scholar at Gettysburg College.

Sometimes an admission of a mistake can help a president clear the air after making a bad stumble.

John Kennedy's 1961 acceptance of responsibility over the bungled Bay of Pigs invasion of Cuba was welcomed by Americans, as was Ronald Reagan's 1987 acknowledgment that "serious mistakes were made" in the Iran-contra affair.

But Richard Nixon's baritone insistence that "I am not a crook" over the Watergate scandal did not stop his political slide and Bill Clinton's finger-waving claim that "I did not have sexual relations with that woman, Miss Lewinsky," became a public laughingstock.

"It's more important to admit mistakes than to make them," said presidential scholar Stephen Hess, a professor at George Washington University. "That's what people are looking for, and how you do it, and if you do it fast and honorably."

Obama's admission of guilt, a mea culpa he played out over the course of five back-to-back television interviews on Tuesday, put an end to the worst day of his young presidency, and allowed him to refocus attention on his efforts to revive the gasping U.S. economy.

LEARNING CURVE

It may have been part of a learning curve for the former senator from Illinois.

"Obama comes to the White House literally with no executive experience," said Merle Black, a political science professor at Emory University in Atlanta. "He's never been in charge of anything before. And now he's in charge of the most important office in the world, so there's bound to be mistakes."

Douglas Brinkley, a presidential historian, said there are reasons presidents try to avoid admitting mistakes -- because political opponents can use them against him.

"If you admit a mistake 10 different times, the Republicans will raise the question, 'Is Obama's whole administration a mistake?'" Brinkley said.

For the past two weeks Americans have seen the 47-year-old president adjust to the mantle of power and are getting familiar with a more relaxed style than that of Bush.

Bush insisted any man in the Oval Office had to be wearing a coat and tie and stuck to his schedule with military precision.

Obama has shed the coat for shirtsleeves, did an NBC interview in an open-necked shirt and no necktie. He frequently runs a few minutes late.

Where Bush surrendered email to avoid having his electronic musings compiled as presidential documents, Obama has clung fiercely to his BlackBerry to stay in touch with top aides and close friends although not to conduct official business.

Brinkley said the admission of a mistake may well be seen in the context of a new president, who brings members of the opposite political party into his Cabinet and seeks political consensus even at the risk of angering members of his own party, as he has been doing on the more than $800 billion economic stimulus plan.

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Supreme Court Justice Ginsburg has cancer surgery

Liberal U.S. Supreme Court Justice Ruth Bader Ginsburg, 75, had surgery on Thursday for pancreatic cancer, raising questions about her future and whether President Barack Obama might get his first appointment to the country's highest court.

Ginsburg, the court's lone female and only the second woman member in its history, was operated on for "apparently early-stage" pancreatic cancer at the Memorial Sloan-Kettering Cancer Center in New York City, the court announced.

Ginsburg, who was appointed to the court in 1993 by Democratic President Bill Clinton, had colon cancer in 1999. But she has showed no further signs of that disease after surgery, followed by chemotherapy and radiation.

Court spokeswoman Kathy Arberg said Ginsburg showed no symptoms of pancreatic cancer before the initial discovery of a lesion during a routine annual check-up in late January. A CAT scan revealed a small tumor, approximately one centimeter across, in the center of the pancreas, she said.

Ginsburg will likely remain in the hospital about 7 to 10 days, said Dr. Murray Brennan, the attending surgeon.

If Ginsburg, who has previously said she hoped to stay on the court into her early 80s, were to leave the nine-member court, Obama would pick her successor.

Ginsburg is a liberal on a court that has often split in a 5-4 vote between conservative and liberal factions. The court has been closely divided on issues like the death penalty, the rights of foreign terrorism suspects held at the U.S. military prison at Guantanamo Bay in Cuba and abortion.

During the presidential campaign Obama praised the court's liberal-leaning members while criticizing the conservatives.

If liberals like Ginsburg or Justices John Paul Stevens or David Souter depart over the next four years, Obama might not shift the balance of power on the court.

But he could replace older justices with younger ones who could serve for decades -- beyond his own presidency even if that turned into two terms, or eight years.

Asked about a year ago for the factors he would consider in selecting a Supreme Court justice, Obama said: "Somebody with integrity, somebody with academic experience. Finally somebody who has a bias toward the little person."

Obama, a Democrat, took office on January 20, replacing Republican George W. Bush.

White House spokesman Robert Gibbs said Obama had not spoken to Ginsburg but his "thoughts and prayers are with her and her family right now, and we hope for and wish her a speedy recovery."

Ira Forman of the National Jewish Democratic Council called Ginsburg a strong supporter of women's rights and civil liberties. "Ginsburg, one of our nation's brightest legal minds, is the first Jewish woman to serve on our country's highest court," he added.

PANCREATIC CANCER

The American Cancer Society wished Ginsburg well.

"Justice Ginsburg's success in beating back a diagnosis of colon cancer nearly ten years ago has inspired and given hope to many in the cancer fight, said the society's chief medical officer, Otis Brawley.

"This new diagnosis is unfortunate, and we take hope in reports that this was apparently an early stage of disease, and wish her well, offer our support and prayers, and want to encourage her in what we know is going to be a challenging course of therapy."

Pancreatic cancer is one of the deadliest forms of cancer.

The American Cancer Society says the five-year survival rate for pancreatic cancer patients is about 5 percent. Most patients die within six months because the cancer shows few symptoms until it is too advanced to be helped by treatment.

If the tumor looks like it can be removed, a complex surgical procedure can help patients live longer, with the overall five-year survival about 20 percent.

Patients whose cancer is caught before it spreads into their lymph nodes may have up to a 40 percent survival rate.

The American Cancer Society estimates that 37,680 Americans get pancreatic cancer each year and 34,290 die of it.

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Democrats push vote on huge stimulus plan

With President Barack Obama saying "the time for action is now," his fellow Democrats in the Senate on Thursday pushed toward passage of a huge economic stimulus package despite scant Republican support.

More than a dozen moderate Democratic and Republican senators argued the $920 billion package should be cut by $50 billion to $100 billion, as they sought a compromise amid complaints the bill was too big and contained spending that would not boost the struggling U.S. economy.

Obama said an $800 billion price tag might be acceptable even though Senate Democrats warned earlier in the day that might be inadequate.

"Our original figure was roughly in the 800 range. There have been some changes to our framework ... but that's, I think, the scale that we need to deliver for the American people," Obama told reporters en route to a meeting in Williamsburg, Virginia.

Earlier, Senate Democratic Leader Harry Reid indicated he might be able to win passage of the package even without Republican backing. Aides said Reid bet he could win approval with limited reductions and feared slashing the proposal by $100 billion could backfire and cost him Democratic votes.

"Our number one goal is to pass this bill," Reid told reporters. "They (the Republicans) cannot hold the president of the United States hostage."

Obama had sought bipartisan support for the stimulus plan as part of his promise to change the tone in Washington. But partisan bickering quickly resumed, and Democrats in the House of Representatives passed their version of the stimulus package last week with no Republican support at all.

In the Senate, Democrats need 60 votes in the 100-member chamber to override any Republican roadblocks. Reid said he believed he had enough support to muscle the measure through.

Senior Republicans aides said Reid might get 60 votes, provided he permitted at least some cuts.

If Democrats fail to finish considering a long list of amendments on Thursday, Reid could file a motion to force a showdown vote that would clear the way for an overall vote on passage within the next few days.

SEARCHING FOR A COMPROMISE

Senate Minority Leader Mitch McConnell has sought cuts, but he and fellow Republicans do not want to be seen as obstructing efforts to stem the worst economic crisis since The Great Depression, party aides said.

"Republicans are no less interested in doing what is right for our country than Democrats are," McConnell said. But, he added, "we have very serious differences."

Republican Sen. Susan Collins of Maine and Democratic Sen. Ben Nelson of Nebraska were leading the drive by moderates to find a compromise.

"I don't know that we can get it done tonight, but I'm hopeful that we can get it done tomorrow," Collins said.

Nelson said White House officials still hoped for a bipartisan solution, but Obama, taking a tougher tone, warned that "time for talk is over."

"The time for action is now, because we know that, if we do not act, a bad situation will become dramatically worse," Obama said in a speech at the Energy Department.

Obama said Republican ideas were "rooted in the idea that tax cuts alone can solve all our problems, that government doesn't have a role to play, that half-measures and tinkering are somehow enough ...."

Referring to eight years under Republican President George W. Bush, Obama said, "Those ideas have been tested, and they have failed. They've taken us from surpluses to an annual deficit of over $1 trillion. And they've brought our economy to a halt."

Republican Sen. John McCain, who lost to Obama in the November presidential election, criticized what he called a Democratic rush to pass the bill. "They are establishing a very partisan approach to the greatest domestic challenge we face," he said.

Obama, who set a February 16 deadline for a bill to reach his desk, has sought to reinforce public backing for the plan through interviews with all the main television stations and in an op-ed piece in The Washington Post on Thursday.

"If nothing is done, this recession might linger for years .... our nation will sink deeper into a crisis that, at some point, we may not be able to reverse," he wrote.

JOBS DISAPPEARING FAST

In his speech at the Energy Department, Obama seized on data that showed new jobless claims at a 26-year high as evidence that time was of the essence.

"But these numbers that we're seeing are sending an unmistakable message, and so are the American people, that time for talk is over," he said.

About a third of the existing Senate package is composed of tax relief, with the rest devoted to spending on such projects as rebuilding roads and bridges and schools.

Republicans want more tax relief and less spending. They complain some projects would do little to stimulate the economy or create jobs. Democrats say the spending that Republicans call wasteful amounts to less than 1 percent of the package.

Senate Democrat Dick Durbin said of Republicans: "They're carping over trifles."

Reid said he planned to confer with Collins and Nelson. "I think they are very close to coming up with their proposal," Reid said. "I take very seriously what they are trying to do."

Once the Senate passes its bill, differences between the two measures must be ironed out before a final measure can be sent to Obama to sign into law.

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