The New York Times, Los Angeles Times, USA Today, and the Wall Street Journal's world-wide newsboxlead with President-elect Barack Obama making it clear that he plans to be ready to tackle the nation's economic woes from his first day in office. At a news conference, Obama instructed his economic team to come up with the details of a new stimulus package large enough to "jolt the economy back into shape." Obama noted that he wants to create 2.5 million jobs and spend big on infrastructure as well as clean energy projects. The incoming and outgoing president both took pains to emphasize that they'll be working together in the coming weeks. "It's important for the American people to know that there is close cooperation," President Bush said. The NYT says the Fed and Treasury will be announcing a new plan today that aims to get the loan markets moving again.
The Washington Postleads with an inside look at the Citigroup bailout that highlights how the three men who got the deal moving "have for years followed one another in and out of jobs." The paper points out that Timothy Geithner, president of the Federal Reserve Bank of New York, was deeply involved in formulating the rescue package but took a step back from dealing with Citigroup's leaders after it became clear that he would be Obama's nominee to head the Treasury Department. As part of the package, Citigroup would be forbidden from paying dividends of more than a penny a share to common shareholders for the next three years, while the government's preferred stock would get a dividend payment of 8 percent.
The NYT points out the new program that will be announced by the Fed and Treasury will essentially "create a government bank to finance hundreds of billions of dollars in commercial debt." Although there had already been some talk about doing something for consumer loans, the program would go beyond that to also include business debt. The program would get started with an infusion of $10 billion to $20 billion, which would come out of the $700 billion bailout package, and the Fed is prepared to lend "as much as 20 times that amount" toward the effort. As designed, the Treasury money would take the hit for most of the losses, while the Fed funds would be used to purchase relatively safe assets. So, for those keeping track at home this marks yet another trackback from Treasury Secretary Henry Paulson's announcement less than two weeks ago that the Troubled Asset Relief Program wouldn't be used to purchase troubled assets. If it works as expected, the new program should make it cheaper to borrow money.
While Obama had previously been careful to say the country has only "one president at a time" he seems to have realized that at a time of crisis he doesn't have the luxury of staying behind closed doors until he's actually sitting in the Oval Office. Indeed, everyone points out that yesterday seemed to mark a new phase in the transition process where Obama will be more visible. Bush appears to have accepted this new reality and emphasized that "anytime we're to make a big decision during the transition, [Obama] will be informed, as will his team." Bush also said he wouldn't shy away from considering new bailouts before he leaves the White House.
At his news conference, Obama was careful not to attach a desired dollar figure to his stimulus package and declined to state whether he would seek to repeal Bush's tax cuts as soon as he takes office or just wait until they expire at the end of 2010. The WSJ highlights that if there's one thing that's clear, it's that Obama plans to kill two birds with one stone and include several of his campaign spending promises in the stimulus package. "Not only do I want the stimulus package to deal with the immediate crisis, I want it also to lay the groundwork for long-term sustained economic growth," Obama said.
Obama officially introduced his economic team to the nation yesterday. As expected, Geithner was selected to lead the Treasury Department, Lawrence Summers will head the White House Economic Council, and Christina Romer will serve as chairwoman of the Council of Economic Advisers. Geithner is expected to sail through confirmation hearings (Romer must also be confirmed), but, as the LAT points out, senators might raise questions about his role in developing all the financial rescue packages in the last few months.
In a piece inside, the NYT's Andrew Sorkin says "a number of Wall Street chieftains" are quietly wondering whether Geithner is really the best choice to deal with the current mess. Of course, Geithner has the advantage that he won't have to be briefed on everything that has happened recently, and no one doubts that he's a "a 47-year-old wonder boy," but some wonder whether his ties to the mistakes of the past shouldn't disqualify him from the position. "We have only two things to say about Tim Geithner, who we do not know: A.I.G. and Lehman Brothers," one analyst said. "Geithner, in our view, deserves retirement, not promotion." Geithner was the leader in putting together the American International Group rescue package, and appears to have been Paulson's strongest backer in the decision to let Lehman Bros. fail, a move that is widely seen as a mistake now. The Obama team and the New York Fed are working hard to distance Geithner from these decisions, but executives who participated in the frantic meetings the weekend of Lehman's fall aren't buying it.
These Wall Street skeptics appear to be in the minority though because the Obama announcement, coupled with news of the Citigroup rescue, sent the stock markets soaring for the second day in a row. Between Friday and Monday the market increased 891 points, which made up the largest two-day surge in percentage terms since October 1987. Citigroup shares soared 58 percent yesterday but, as the WSJ points out on its front page, that hardly means the financial giant's troubles are anywhere near over. Executives at Citigroup said the government wants the financial institution to reduce risk and give serious consideration to a restructuring that could include breaking up the company. There are ongoing talks among executives about the possibility of merging with other financial institutions or selling off major parts of the operation.
The WP off-leads word that Osama Bin Laden's former driver will soon be transferred from Guantanamo to Yemen, his home. The Pentagon has decided to allow Salim Ahmed Hamdan the remainder of his prison sentence in Yemen's capital, where he's expected to arrive within the next two days. The Bush administration has long described Hamdan as a dangerous terrorist, but a military commission found he was a minor player and set Dec. 27 as his release date. The Bush administration had said that regardless of the military commission's decision Hamdan could be held indefinitely. By sending him to Yemen the Pentagon not only avoids what would surely have been "a sticky diplomatic situation," as the Post puts it, but also helps Obama since he won't have to make any decisions about the detainee's fate in the first days of his presidency.
The LAT fronts a startling look at how some injured veterans are falling victim to a "little-noticed regulation change" that took place earlier this year that amended the military's definition of what constitutes a combat-related disability. The regulation seems nothing short of nonsensical, not to mention cruel. The Pentagon now differentiates between those injured during actual combat and service members who are wounded in other situations. So someone who is injured by a roadside bomb in Iraq while not participating in actual combat would be entitled to smaller disability payments. Veterans' groups are lobbying to get the rule changed and are getting some support from lawmakers. "I was blown up twice in Iraq, and my injuries weren't combat-related?" said a Marine who estimates he was denied about $16,000 in benefits before he fought the Pentagon and won a change of his designation. "It's the most imbecile thing I've ever seen."
In the NYT's op-ed page, Daniel Kahneman and Andrew Rosenfield write that while bankruptcy protection can work well for certain companies, it would likely prove to be disastrous for U.S. automakers because of the "uncertainty and stigma" that it would produce with consumers. Businesses have a natural propensity to fight until the bitter end, but the writers suggest that they should give up this instinct and all three companies should file for bankruptcy protection simultaneously. This would send the signal that "the problem is systemic" and that an industrywide solution is in the works. Of course, such coordinated action would have to be facilitated by the government. "Any other form of bailout for Detroit would likely require a long political process, and that would only worsen the economic destruction."