The Downward Spiral

A summary of what's in the major U.S. newspapers.
Jan. 12 2008 4:37 AM

 The Downward Spiral

The Los Angeles Times, the Washington Post, the New York Timesand the Wall Street Journalall devote their top news spots to the state of the economy. The papers take on two developments: new signs that the nation's economic woes are getting worse, and Bank of America's announcement that it is buying Countrywide Financial Corporation, a weakened mortgage firm.

The bad news comes first. The Post reports that the subprime mortgage crisis is creeping from home loans to credit cards, "potentially engulfing a far broader segment of Americans." The paper goes on to note that "the U.S. trade deficit soared to a 14-month high, fueled by soaring oil prices," and that "rising concern that U.S. investment houses, particularly Merrill Lynch, may yet suffer far greater losses, helped set up a wide market sell-off." The Dow Jones Industrial Average tumbled nearly 250 points.

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The WSJ brings equally sunny news that consumer spending, which had remained strong through most of the recent housing crisis, may now be weakening. "U.S. consumers have been resilient in past years and have continued spending even as economists have grown worried about the housing downturn," says the WSJ. "But now, evidence is mounting that consumers are curbing their spending as they grapple with a growing load of debt." Treasury Secretary Henry Paulson, meanwhile, said yesterday that the U.S. economy had slowed "rather materially" and that "time is of the essence" in passing an economic stimulus package to ward off recession.

The NYT leads with news that such a stimulus package is in the works between the White House and Congress. No details have been hammered out yet, but both parties seem open to compromise. Surprising no one, the paper also reports that a "Republican familiar with the administration's thinking said Mr. Bush would present ideas to stimulate the economy, most likely in the form of tax relief." We can expect details in Bush's Jan. 28 State of the Union address.

Amid all the economic funk, the papers try their best to divine the meaning of Bank of America's $4 billion Coutrywide buyout. The LAT says  it's probably a good thing that Countrywide isn't going to crash and burn, but goes on to muse that "the merger would reduce competition by consolidating two of the nation's biggest lenders," which would in turn reduce consumer choice. "Bank of America is already the nation's largest bank," says the paper. "If the merger goes through, more than $1 in every $10 deposited in the U.S. will be under the B of A umbrella." The NYT focuses on the various challenges the bank will face in its efforts to make money from Countrywide's financial services, and the WSJ has a detailed, insidery account of how the buyout went down.

One last bit of financial news: The NYT says that a New York state investigation into the mortgage troubles is now considering whether or not "Wall Street banks withheld crucial information about the risks posed by investments linked to subprime loans."

The Post reports that the $736 million embassy complex in Baghdad has fire-safety problems that U.S. officials overlooked "in their rush to declare construction largely completed by the end of last year." The paper says the poor fire planning is representative of the construction effort as a whole, which has been plagued by delays, budget issues. and "shoddy workmanship." According to Post sources, the Justice Department is conducting a criminal investigation into the building contracts.

The NYT reports that last week's encounter between U.S. military ships and Iranian patrol boats in the Strait of Hormuz bears a close resemblance to a 2002 simulated war game, "in which small, agile speedboats swarmed a naval convoy to inflict devastating damage on more powerful warships." U.S. officials tell the Times that they are taking a closer look at the simulation in the wake of the encounter.

The LAT has a good backgrounder on the violence that's followed the Kenyan election crisis, which has left 500 dead and 250,000 without homes. "With a thriving economy and two free, fair elections under its belt, Kenya was supposed to be a model for Africa," says the Times. "Now Kenyans and international observers are wondering whether the nation's promise was merely an illusion. Many express concerns about the long-term effects, not only for Kenya, but for all of East Africa."

And, of course, there is election news closer to home. The NYT says the New York state Democratic primary is shaping up to be surprisingly competitive. The paper semi-convincingly speculates that, while Hillary Clinton is strong on her home turf, a victory in South Carolina could give Barack Obama the momentum and turnout to pose a serious threat.