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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