German tycoon Adolf Merckle commits suicide

German billionaire Adolf Merckle has committed suicide, in despair over the huge losses suffered by his business empire during the financial crisis, his family said on Tuesday.

The media-shy billionaire, whose family controls some of Germany's best-known companies, was hit by a train on Monday evening, local officials said.

"The desperate situation of his companies caused by the financial crisis, the uncertainties of the last few weeks and his powerlessness to act, have broken the passionate family entrepreneur and he took his own life," a family statement said.

State prosecutors from the southern city of Ulm said Merckle, 74, left work on Monday and died after being hit by a train near the town of Blaubeuren. He left behind a suicide note to his family, they added.

There was no sign of anyone else being involved, they said.

In 2008 Merckle was ranked as the world's 94th-richest person and Germany's fifth-wealthiest by Forbes magazine.

On Tuesday pale blood stains still dotted the snow along the railway track where he died. The area looked deserted apart from a police car nearby.

Merckle, a father of four, inherited the basis of his fortune from his Bohemian grandfather, but went on to build up the chemical wholesale company into Germany's largest drugs wholesaler.

The passionate skiier and mountain climber assembled a business conglomerate with about 100,000 employees and 30 billion euros ($40.45 billion) in annual sales.

His family controls a number of German companies including cement maker HeidelbergCement and generic drug company Ratiopharm.

But the empire was rocked last year by wrong-way bets made on shares in Volkswagen after a surprise stakeholding announcement from Porsche sent the VW share price rocketing as short sellers scrambled to cover their positions.

Banking sources had told Reuters the family lost hundreds of millions of euros on investments, with about 400 million euros lost on Volkswagen shares alone.

Since then the family has been in talks for weeks with banks to renegotiate loans. Banking sources said on Tuesday his death was not expected to affect loan agreements with the family.

Shares in HeidelbergCement fell as much as 12.5 percent following the news of Merckle's death and ended the day down 6.2 percent at 31.25 euros.

"Some investors are afraid that there will be no one to lead negotiations during this sensitive situation for the company," one trader in Frankfurt said.

Psychologists and other mental health experts have said suicide rates could creep up as a result of the financial crisis.

Last month Frenchman Thierry Magon de la Villehuchet, 65, a co-founder of money manager Access International, was found dead in a New York office building, reportedly distraught over losing up to $1.4 billion in client money to Bernard Madoff's alleged fraud. He slit his wrists with box cutters.

SEC chief defends response to economic turmoil

U.S. Securities and Exchange Commission chairman Christopher Cox, responding to heavy criticism, said in an interview published on Wednesday he takes pride in his response to the U.S. financial crisis.

"What we have done in this current turmoil is stay calm, which has been our greatest contribution -- not being impulsive, not changing the rules willy-nilly, but going through a very professional and orderly process that takes into account unintended consequences and gives ample notice to market participants," Cox told The Washington Post.

This caution "has really been a signal achievement for the SEC," said Cox.

"When these gale-force winds hit our markets, there were panicked cries to change any and every rule of the marketplace: 'Let's try this. Let's try that.' What was needed was a steady hand," he said.

The SEC, created after the 1929 stock market crash to police markets and restore investor confidence, has come under heavy criticism after the Wall Street meltdown and financial scandals exposed lapses in its oversight.

Cox last week acknowledged that the SEC had failed to detect the alleged $50 billion fraud by disgraced Wall Street investment manager Bernard Madoff, despite many warnings.

Cox told The Washington Post the biggest mistake of his tenure was agreeing in September to an extraordinary three-week ban on short selling of financial company stocks.

Cox told the newspaper he had been under intense pressure from Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke to take this action and did so reluctantly.

They "were of the view that if we did not act and act at that instant, these financial institutions could fail as a result and there would be nothing left to save," Cox said.

Cox, a former California Republican congressman, argued that the SEC has carefully defined responsibilities and that it was unfair to blame it for every problem on Wall Street.

Cox became SEC chairman in mid-2005. He plans to step down early next year before his five-year term expires.

President-elect Barack Obama has chosen Mary Schapiro, chief executive of the Financial Industry Regulatory Authority and a former SEC commissioner, to replace him.

New unemployment claims surge unexpectedly

The Labor Department reported Thursday that initial applications for jobless benefits in the week ending Dec. 6 rose to a seasonally adjusted 573,000 from an upwardly revised figure of 515,000 in the previous week. That was far more than the 525,000 claims Wall Street economists expected.

Elsewhere, the U.S. trade deficit rose unexpectedly in October as a spreading global recession dampened the once-strong sales of American exports and the volume of oil imports surged by a record amount, the Commerce Department said.

More layoffs were announced Thursday. New Britain, Conn.-based tool maker Stanley Works said it plans to cut 2,000 jobs and close three manufacturing facilities, while Sara Lee Corp., known for food brands such as Jimmy Dean and Hillshire Farm, said it will cut 700 jobs as the Downers Grove, Ill.-based company outsources parts of its business.

New jobless claims last week reached their highest level since November 1982, though the labor force has grown by about half since then.

The trade deficit rose to $57.2 billion in October, from an imbalance of $56.6 billion in September. Analysts had been looking for the deficit to decline to $53.5 billion on lower oil prices. Oil prices did drop by a record amount, but that was offset by a record surge in the volume of oil imports.

The reports, along with investor concerns that an auto bailout bill may not pass the Senate, sent stock markets slightly lower. The Dow Jones industrial average fell about 15 points in morning trading.

The jump in initial jobless claims is partly due to a rebound in claims from the previous week, which included the Thanksgiving holiday, a Labor Department analyst said. Government offices were open for fewer days that week.

Still, the four-week average, which smooths out fluctuations, was a seasonally-adjusted 540,500, the highest since December 1982, when the economy was emerging from a steep recession.

"Stepping back from the short-term noise ... it is very clear that the underlying trend in claims is still rocketing, as companies throw in the towel and prepare for a long, deep recession," Ian Shepherdson, chief U.S. economist for High Frequency Economics, wrote in a note to clients.

The number of people continuing to claim jobless benefits also jumped much more than expected, increasing by 338,000 to 4.4 million, the Labor Department said. Economists expected a small increase to 4.1 million. The figure for continuing claims lags initial claims by one week.

As a proportion of the work force, the number of people continuing to receive benefits is the highest since August 1992, when the U.S. was recovering from a relatively mild recession. The increase in continuing claims was the largest jump since November 1974, the department said.

Economists consider jobless claims a timely, if volatile, indicator of the health of the labor markets and broader economy. Last year, initial claims were 337,000.

The figures come a day after the Treasury Department reported a record budget deficit for November, driven by lower tax revenues and higher spending on programs such as unemployment insurance and food stamps.

In just the first two months of the budget year that started Oct. 1, the budget deficit totaled $401.6 billion, nearly matching the record gap of $455 billion posted for all of last year, the department said Wednesday.

Economists expect the deficit will top $1 trillion in the current budget year, which would be a post-World War II high when measured as a percentage of the economy.

The economy has been hit hard by the ongoing housing slump and financial crisis, which have sharply reduced household wealth as stock prices and home values have declined. Consumers and businesses have dramatically cut back their spending. The National Bureau of Economic Research said this month that the economy fell into a recession in December 2007.

The Labor Department said last week that employers cut a net total of 533,000 jobs in November and the unemployment rate reached 6.7 percent, a 15-year high. The rate would have been higher, except that more than 400,000 Americans gave up looking for a new job and weren't counted in the labor force.

The latest jobless claims figures indicate that the December unemployment report could be at least as bad as November's, Abiel Reinhart, an analyst at JPMorgan Chase Bank, wrote in a client note.

Companies have eliminated a net total of 1.9 million jobs this year, and some economists project the total cuts could reach 3 million by the spring of 2010.

A number of large U.S. employers announced layoffs this week, including Dow Chemical Co., 3M Co., Anheuser-Busch InBev, National Public Radio and the National Football League.

Congress sends White House auto aid proposal

Congressional Democrats have sent the White House a draft of a roughly $15 billion auto bailout that's expected to come to a vote this week. According to a draft obtained by The Associated Press, the measure would rush bridge loans to Detroit's struggling Big Three and put an overseer chosen by President George W. Bush in charge of monitoring an auto industry restructuring.

The overseer could recall the loans as early as February if the carmakers weren't doing enough to reinvent themselves and become viable. And if the Big Three didn't come up with suitable restructuring plans by the end of March, the "car czar" would have to submit his own blueprint to Congress for a government-mandated overhaul.

Dow Chemical to slash 5,000 jobs, close 20 plants

Dow Chemical Co. said Monday it will slash 5,000 full-time jobs -- about 11 percent of its total work force -- close 20 plants and sell several businesses to rein in costs amid the economic recession.

The company, one of the largest chemical makers in the world, expects the moves to save about $700 million per year by 2010. Dow also will temporarily idle 180 plants and prune 6,000 contractors from its payroll.

"We are accelerating the implementation of these measures as the current world economy has deteriorated sharply, and we must adjust ourselves to the severity of this downturn," Chief Executive and Chairman Andrew N. Liveris said in a statement.

Last month, Dow Chemical had said it would review all options to reduce costs and eliminate or defer capital spending. "We are going to take necessary, bold and proactive measures to manage our transformation through these extremely challenging times," Liveris said at the time.

The company said it will take a fourth-quarter charge of $700 million, or 50 cents to 60 cents per share, to cover $350 million in severance payments and $350 million worth of plant shutdown costs.

But the company denied it will suspend dividend payments as a way to conserve cash. In a conference call Monday, Liveris said Dow has paid a dividend each quarter for nearly 100 years, and has no plans to stop that trend.

"We will not break that string...not on my watch," he said.

The Midland, Mich.-based company expects "the new Dow" to be comprised of three units: joint ventures; performance products; and health and agriculture, advanced materials and other market-facing businesses.

The reorganization comes just days after the company closed on its K-Dow Petrochemicals joint venture with a company controlled by the Kuwait government. The K-Dow venture, which both companies estimate will be worth about $17.4 billion, is slated to open by Jan. 1 and will market plastics and other related products. Dow and Kuwait's Petrochemical Industries Co. hope the venture will help them capture a larger share of the global chemicals market and boost profitability.

Dow also is slated to close on its $15.3 billion buyout of Rohm & Haas Co. early next year, a deal it hopes will help it grow into the high-margin specialty chemicals market. The company expects that deal to results in about $800 million in savings over time.

The joint venture and Rohm & Haas deal come as the global credit markets have all but ground to a halt, leading some to question the validity of high-priced deals amid the economic turmoil.

Dow Chemical's latest actions follow those of rival DuPont, who last week said it would cut 2,500 jobs and warned it won't turn a profit in the fourth quarter due to a severe slowdown in the automotive and construction markets.

Wilmington, Del.-based DuPont also is releasing 4,000 contractors by the end of this year, with additional contractor reductions expected in 2009, and will implement work schedule reductions and redeploy more than 400 employees on projects to reduce working capital and operating costs.

DuPont, one of the world's largest chemicals makers, is stopping all discretionary spending, slowing or halting noncritical projects, and temporarily idling more than 100 manufacturing units. The year-long restructuring plan will affect about 4,200 employees, or roughly 7 percent of DuPont's work force.

Shares of Dow Chemical jumped $1.24, or 6.5 percent, to $20.24 in morning trading. The stock is still worth less than half of its 52-week high of $45.50, set nearly a year ago. Shares of DuPont rose $1.17, or 4.9 percent, to $25.29, as the broader markets rallied early in the session.

Car dealers get creative as brethren shutter shopsStory Highlights

A newspaper advertisement for a Miami car dealership reads more like a coupon for bags of potato chips: "Buy one, get two!"

The ad speaks to the desperation of car dealers as Big Three auto manufacturers beg Washington for billions in bailout dollars to combat sales that keep dipping to all-time lows.

"The first thing people think when they come in is, 'It's a fake ad. It's a normal car dealer ad. It's a gimmick.' But it's not," said Ali Ahmed, sales manager at Rob Lambdin's University Dodge in Miami.

Get a new car or truck at 75% off

To be fair, there is a catch to the buy-one-get-one-free offer: You must first buy a new Dodge truck at full retail price before you're eligible to receive a second truck for about $3,000 in tax, tags and dealer fees.

"We've been fielding phone calls and e-mail inquiries from every state in the country looking to get this buy-one-get-one deal," Ahmed said.

About 700 dealerships, most of them selling cars from U.S. automakers, have shut their doors since the beginning of the year. The number is expected to hit 900 by year's end.

Last month, National Automobile Dealers Association Chairwoman Annette Sykora told the House Financial Services Committee some 19,700 dealerships will still be around by the end of 2008, compared with 50,000 in the 1940s.

Auto sales are at a 15-year low, she said, which affects more than the Big Three automakers. Dealers are slashing personnel and expenses. Sykora herself has had to cut staff by about 20 percent at her dealerships, she said. iReport.com: Ask the automakers your questions

Sykora, a third-generation car saleswoman who sells Big Three automobiles at dealerships in Slaton and Levelland, Texas, said she recently sat down with the superintendent of Slaton schools.

"We started discussing what would happen if the dealerships in my hometown were to close," she said during her November 19 testimony. "The loss of tax revenue would force them to cut programs and teachers.




"Many displaced dealership families might have to leave town in search of work in other places, compounding the loss. This same scene would play out in hundreds of communities in the U.S."

Dealerships, Sykora explained, are independent businesses, not arms of the automakers. They invest in land, equipment, buildings and take out millions of dollars in loans to put the vehicles on their lots and showroom floors.

She also said car dealerships are a prime source of advertising revenue for local media, they support charities and Little League teams and they are integral to the tax base, she said.

"One-fifth of the nation's retail purchases are automobiles. By getting automotive retailing back on track, Congress can effectively leverage the economic engine of the automobile industry to get this economy running on all cylinders again," she said, pleading with Congress not to let the Big Three file for bankruptcy.

With the world's economy reeling, expensive items like cars are not high priorities for families and businesses. It doesn't help that the credit crunch is making it difficult to get loans, which the majority of U.S. consumers need to purchase vehicles.

Also compounding matters is consumer confidence, which hit an all-time low in October and didn't improve much in November, according to the nonprofit Conference Board, which maintains indices on consumers' trust in the marketplace.

According to Autodata, car sales have plummeted since last year. In the United States, the number of sales of passenger cars and light trucks in November 2008 was down 36.7 percent from November 2007 -- from about 1.18 million to 747,000.

Also, as of November 2008, automakers had sold about 12.35 million cars and light trucks, compared with 14.76 million during the same time period last year -- a drop of 16.3 percent, according to Autodata's summary of U.S. light vehicle retail sales.

Comparing November 2008 sales with those in November 2007, Autodata reported that General Motors saw a 41.3 percent drop, Ford a 30.5 percent drop and Chrysler 47.1 percent.

But it's not just U.S. automakers taking a hit: Toyota's vehicle sales declined 33.9 percent, Honda's dipped 31.6 percent and Nissan's dropped 42.2 percent during that time period, Autodata reported.

"It's definitely a tough climate right now," said Matt Lee, floor manager for Major World Auto in New York. "A lot of people are saying it's a perfect storm of gas prices and financing and consumer confidence."

Major World Auto used to sell about 150 cars a month. It now sells about half that, Lee said. And of the 15 to 20 salespeople who used to roam the salesroom floor, about 10 are left, he said.

"Salesmen actually just walked out because they're not making enough money to support their family," he said.

Major World has stopped bringing in new models because it can't sell the cars it has. Like University Dodge in Miami, it is resorting to some creative sales pitches, including zero-percent financing for 72 months and rebates of up to $7,500.

But even with the bargains, car dealers are having trouble getting customers into the showrooms. In a recent CNN visit to Major World, which lasted about two hours, only one customer walked onto the lot -- to browse.

"Where you would see five people a day coming in to at least look at a car per salesmen, you're getting maybe one person a day or two people a day," salesman Jamie Krinsky said.

If the Big Three file for bankruptcy, Sykora told Congress last month, sales and confidence will continue to plummet.

"Imagine how banks would react to a dealer who has asked for millions of dollars to finance new and used inventories from an automaker going through 'reorganization,' " she said.

The government can help boost auto sales in many ways, Sykora said, citing two proposed tax incentives: one that would make interest payments on car loans tax deductible and another that would encourage consumers to upgrade their older cars for more fuel-efficient models. "Cash for clunkers" programs are in place in Texas and California, she said.

"Whether it's my dealerships in Texas or it's the dealership in your community, the fact is local dealerships will be a major factor in our economic recovery," she told the House committee. "To get the economy back on track, we must restore consumer demand, and the only way to do that is to restore consumer confidence."

Credit Suisse cuts 5,300 jobs worldwide

Credit Suisse Group said Thursday it is cutting 5,300 jobs — about 11 percent of its global work force — in a bid to reduce costs and take its business back into the black.

Jobs will be lost in all parts of the world, said spokesman Marc Dosch, including in New York, London and Switzerland.

Switzerland's second biggest bank predicted another loss-making quarter, saying it was 3 billion francs ($2.5 billion) in the red by the end of November because of adverse market conditions and expenses associated with the job cuts.

A fourth-quarter loss would be the third this year, following losses totaling over $3 billion in the first and third quarter.

Credit Suisse said it hopes the cull, which should be completed by mid-2009 and will primarily affect its ailing investment banking business, will save 2 billion francs ($1.65 billion) a year.

"These actions will better position us to weather the continuing challenging market conditions, capture opportunities that arise amid the continuing disruption, and prosper when markets improve," chief executive Brady Dougan said in a statement.

In line with other banks, Credit Suisse said Dougan and other senior officials will not receive salary bonuses for 2008 because of the bank's bad performance during the year.

The Zurich-based bank did not say whether it would follow its cross-town rival UBS AG by instituting a so-called "bonus-malus" system under which executives would see even their basic pay package cut if they produce poor results.

UAW to renegotiate labor terms, suspend jobs bank

The United Auto Workers said Wednesday it is willing to change its contracts with U.S. automakers and accept delayed payments of billions of dollars to a union-run health care trust to do its part to help the struggling companies secure $34 billion in government loans.

United Auto Workers President Ron Gettelfinger said the union will suspend the jobs bank, in which laid-off workers are paid up to 95 percent of their salaries while not working, but he did not give specifics or a timetable of when the program will end.

"We're going to sit down and work out the mechanics," Gettelfinger said at a news conference after meeting with local union officials. "We're a little unclear on some of the issues."

Members of Congress criticized the automakers last month for paying workers who are not on the job. About 3,500 auto workers across the three companies are currently in jobs bank programs.

One local union member who was in the meeting said the changes to the jobs bank would nearly eliminate the program. The member asked not to be identified because the details had not been made public.

Gettelfinger stopped short of saying the union would reopen contract talks with General Motors Corp., Chrysler LLC and Ford Motor Co. but said it would be willing to return to the bargaining table to change some terms.

Talks with GM will begin immediately, but additional bargaining officials must be elected for Ford and Chrysler, Gettelfinger said, and any modifications would still have to be ratified by local union members.

He also said the union will run a television ad in Maine, Kentucky, Indiana and Minnesota to put the faces of union workers on the controversy over the loans, and explain how the auto industry differs from the banking industry. The ads presumably are designed to pressure Congressional opponents of the loans.

"There's a perception problem," Gettelfinger said, stressing that the automakers' woes have painted a negative view of the union. "Yes, we have lost some clout."

Delaying the health care trust payments will help the companies survive their cash shortages, which they say were brought on by the severe economic downturn and the worst U.S. sales climate in more than a quarter century.

GM had been scheduled to pay more than $7.5 billion early next year to the union-administered fund which will take over retiree health care payments on Jan. 1, 2010. Ford owes $6.3 billion to its trust fund at the end of this year. Chrysler figures were unavailable.

The delay will have to be approved by federal courts, which already have blessed the trusts' formation.

All three companies agreed to fund the trusts, called voluntary employee beneficiary associations or VEBAs, as part of the landmark 2007 contract reached with the UAW. By doing so they move billions in liabilities off their books.

When they go into effect, the trusts will pay health care bills for about 800,000 UAW retirees, spouses and dependents at the three companies. GM expects to save about $3 billion a year when the expenses are moved, while Ford says it will save $1 billion.

The CEOs of all three automakers are heading to Washington for more hearings Thursday and Friday on their loan requests after an abysmal showing before lawmakers last month. Gettelfinger will also attend.

Congressional leaders demanded business plans from all three that include a reduction in labor costs so Detroit is more competitive with foreign automakers with U.S. factories. The companies submitted their plans to Congress on Tuesday.

"I don't think Congress is out for blood," Gettelfinger said of the criticism the union received during his previous testimony last month. "There will be more pressure on us to do this. We're going to step up and do it."

That sentiment was echoed by several union representatives at the news conference.

"Everybody has to give a little bit," said Rich Bennett, an official for Local 122 in Twinsburg, Ohio, representing Chrysler workers. "We've made concessions. We really feel we're doing our part."

But a retired GM worker said the union might be acting hastily out of fear that one of the automakers could shut down.

"Fear is a bad basis on which to make decisions," said Frank Hammer, of Local 909 in Warren, Mich. "I think they're making another mistake."

Members at Local 122 are fearful of losing their jobs, said Bennett's associate, Ken Walters. They're seeing nearby plants shut down on regular basis.

General Holliefield, the UAW vice president representing Chrysler workers, said union members "historically do the right thing" in terms of making concessions during tough times, although the moves outlined Wednesday came to fruition following last month's congressional thrashing.

"Washington didn't ask us for concessions," he said. "It wasn't anything we were thinking about."

The president of Chrysler said the UAW's willingness to change the union's contract is a good step.

Chrysler LLC President Tom LaSorda said during a Toledo rally for the industry on Wednesday that both sides need to go back and review the entire framework of the contract. He said if the union would surrender job security protections it would help the Detroit Three in the long run.

General Motors sales plunge 41 pct.

Detroit-based General Motors Corp. reported a 44 percent drop in demand for cars, while light truck sales dropped 39 percent.

A dreary economy, swooning consumer confidence and tight credit markets have combined to keep consumers out of vehicle showrooms this year. On Monday, the National Bureau of Economic Research said the U.S. entered a recession in December 2007, much earlier than most predictions.

Many analysts had expected November sales to come in slightly better, noting that aggressive incentive spending and the plunge in gasoline prices may have put a floor under sales. But GM, Ford, Toyota and Honda Motor Co. all posted month-over-month sales declines, pointing to a potential industrywide drop.

Toyota Motor Corp., Japan's No. 1 automaker, said truck sales plummeted 36 percent, while demand for passenger cars fell 32 percent, despite the automaker's extension of zero-percent financing on a dozen vehicles through the end of the month.

Automakers' sales reports are coming in the same day the U.S.-based automakers were scheduled to present plans to Congress for how they expect to return to profitability. Ford, GM and Chrysler LLC will go before lawmakers this week to ask a second time for a combined $25 billion federal loan to stave off bankruptcy.

GM shares traded in positive territory most of Tuesday morning but fell 31 cents, or 6.8 percent, to $4.28 after its sales report. Ford shares rose 5 cents, or 2 percent, to $2.60 in afternoon trading, while Toyota's U.S. shares rose $1.76, or 3 percent, to $60.32, and Honda gained 44 cents, or 2.2 percent, to $20.38.

Dow ends up nearly 400 after bailout of Citigroup

Wall Street barreled higher Monday for the second straight session, this time in a relief rally over the government's plan to bail out Citigroup Inc. — a move it hopes will help quiet some of the uncertainty hounding the financial sector and the overall economy. The Dow Jones industrials soared nearly 400 points and the major indexes all jumped more than 4.5 percent.

The advance gave the market its first two-day advance since Oct. 30-31. Although investors sensed last week that a rescue of Citigroup was forthcoming, investors nonetheless were heartened, even emboldened, by the U.S. government's decision late Sunday to invest $20 billion in Citigroup and guarantee $306 billion in risky assets.

Wall Street's enthusiasm surged not only because the bailout answered questions about Citigroup but also because many observers saw the move as offering as a model for how the government might carry out other bank stabilizations.

"This could be the template for saving the banks," said Scott Bleier, founder of market advisory service CreateCapital.com.

"The government has taken a new quill out, they've gone to where they didn't go before in terms of trying to secure the system," Bleier said. "Some of that vulnerability seems to be gone now."

Still, the market remains wary, especially with the economy in a serious downturn. The Dow was up more than 500 points in the last hour before giving up some of its gains — many investors wanted to take some money off the table before the next bit of bad news arrives. And the market has frequently done sharp reversals since the start of the credit crisis 15 months ago.

The efforts from the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp. to help stabilize Citigroup are only the latest this year to support a banking system troubled by bad debt and flagging confidence. Besides implementing its $700 billion bailout plan for the overall financial industry, the government has bailed out insurance giant American International Group Inc. and taken over lenders Fannie Mae and Freddie Mac.

"You're definitely seeing relief," said Anthony Conroy, managing director and head trader for BNY ConvergEx Group. "More than anything, the Fed repaired some of the psychological damage that was being done to the sector. I think the Fed is poised to do whatever they possibly can to help the financials get through the current turmoil."

"Not all banks are unhealthy, so knowing that the Fed is there is enough," Conroy said.

According to preliminary calculations, the Dow rose 396.97, or 4.93 percent, to 8,443.39.

Broader stock indicators also jumped. The Standard & Poor's 500 index advanced 51.78, or 6.47 percent, to 851.81, and the Nasdaq composite index rose 87.67, or 6.33 percent, to 1,472.02.

The Russell 2000 index of smaller companies rose 30.25, or 7.44 percent, to 436.79.

Government unveils bold plan to rescue Citigroup

The government unveiled a bold plan Sunday to rescue Citigroup, injecting a fresh $20 billion into the troubled firm as well as guaranteeing hundreds of billions of dollars in risky assets.

The action, announced jointly by the Treasury Department, the Federal Reserve and the Federal Deposit Insurance Corp., is aimed at shoring up a huge financial institution whose collapse would wreak havoc on the already crippled financial system and the U.S. economy.

The sweeping plan is geared to stemming a crisis of confidence in the company, whose stock has been hammered in the past week on worries about its financial health.

"With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy," the three agencies said in a statement issued late Sunday night. "We will continue to use all of our resources to preserve the strength of our banking institutions, and promote the process of repair and recovery and to manage risks."

The move is the latest in a string of high-profile government bailout efforts. The Fed in March provided financial backing to JPMorgan Chase's buyout of ailing Bear Stearns. Six months later, the government was forced to take over mortgage giants Fannie Mae and Freddie Mac and throw a financial lifeline — which was recently rejiggered — to insurer American International Group.

Critics worry the actions could put billions of taxpayers' dollars in jeopardy and encourage financial companies to take excessive risk on the belief that the government will bail them out of their messes.

The Citigroup rescue came after a weekend of marathon discussions led by Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke. Timothy Geithner, president of the Federal Reserve Bank of New York, who is being tapped by President-elect Barack Obama as his Treasury chief also participated.

Investors reacted cautiously to the plan. Most Asian stock markets retreated when they opened Monday, weighed down by worries about Citigroup. However, losses were pared after the government announcement.

Vikram S. Pandit, Citi's chief executive officer, welcomed the action. "We appreciate the tremendous effort by the government to assure market stability," he said in a statement.

The $20 billion cash injection by the Treasury Department will come from the $700 billion financial bailout package. The capital infusion follows an earlier one — of $25 billion — in Citigroup in which the government also received an ownership stake.

As part of the plan, Treasury and the FDIC will guarantee against the "possibility of unusually large losses" on up to $306 billion of risky loans and securities backed by commercial and residential mortgages.

Under the loss-sharing arrangement, Citigroup Inc. will assume the first $29 billion in losses on the risky pool of assets. Beyond that amount, the government would absorb 90 percent of the remaining losses, and Citigroup 10 percent. Money from the $700 billion bailout and funds from the FDIC would cover the government's portion of potential losses. The Federal Reserve would finance the remaining assets with a loan to Citigroup.

In exchange for the guarantees, the government will get $7 billion in preferred shares of Citigroup.

As a condition of the rescue, Citigroup is barred from paying quarterly dividends to shareholders of more than 1 cent a share for three years unless the company obtains consent from the three federal agencies. The bank is currently paying a dividend of 16 cents, halved from a 32-cent payout in the previous quarter. The agreement also places restrictions on executive compensation, including bonuses.

Importantly, the agreement calls on Citigroup to take steps to help distressed homeowners.

Specifically, Citigroup will modify mortgages to help people avoid foreclosure along the lines of an FDIC plan that was put into effect at IndyMac Bank, a major failed savings and loan based in Pasadena, Calif.

Under the IndyMac plan, struggling home borrowers pay interest rates of about three percent for five years. Rates are reduced so that borrowers aren't paying more than 38 percent of their pretax income on housing.

The IndyMac plan also was used as a model for a new program by mortgage finance companies Fannie Mae and Freddie Mac and for two other failed thrifts taken over by the government on Friday. FDIC Chairman Sheila Bair has been pressing Treasury to use $24 billion from the $700 billion bailout program to put the mortgage modification program on national footing, but Paulson is opposed to that idea.

The once mighty Citigroup, which had at one time been the largest U.S. bank by assets, has seen its shares lose 60 percent of their value in the past week, reflecting a crisis of confidence among skittish investors. They are worried all the risky debt on Citigroup's balance sheet will turn into losses as the economy worsens and the markets stay turbulent — losses that could be nearly impossible to reverse.

Citigroup is such a large, interconnected player in the financial system that it is seen by Washington policymakers as too big to fail. The company has operations stretching around the globe in more than 100 countries.

Analysts consider Citigroup the most vulnerable among the major U.S. banks — especially after it failed to nab Wachovia Corp., which was bought instead by Wells Fargo & Co. That was a missed opportunity for Citi to gets its hands on much-needed U.S. deposits that would bolster its cash position.

Citigroup was especially hard hit by the meltdown in risky, subprime mortgages made to people with tarnished credit or low incomes. Foreclosures on those mortgages spiked, leaving Citi and other financial companies wracking up huge losses on the soured investments. The company has failed to turn a profit during the past four quarters and has announced plans to slash thousands of jobs.

Dow ends up nearly 500 on Geithner treasury report

Wall Street staged a surprising comeback Friday, with the major indexes jumping more than 5 percent and the Dow Jones industrials surging nearly 500 points in a late afternoon rally, ending another volatile week that saw stocks reach six-year lows.

Stocks erased about half of the losses that came in steep selling Wednesday and Thursday after investors got an unexpected jolt of confidence late Friday following an NBC News report that President-elect Barack Obama plans to name New York Federal Reserve President Timothy Geithner as Treasury secretary.

Investors have been looking for a clear message from Obama on who will lead his economic brain trust at a time when the country is facing its biggest financial crisis since the Great Depression. In addition, some on Wall Street have grown frustrated with outgoing Treasury Secretary Henry Paulson over his handling of the government's effort to rescue the banking system.

A senior Democratic official familiar with the deliberations confirmed to The Associated Press that Geithner is likely to be named as Treasury secretary. The official requested anonymity because the nomination hasn't been formally announced.

The advance in stocks also came as the FDIC said it would guarantee up to $1.4 trillion in U.S. banks' debt for more than three years as part of the government's financial rescue plan. The directors of the Federal Deposit Insurance Corp. voted Friday to approve the plan, which is meant to break the crippling logjam in bank-to-bank lending.

Stocks fluctuated throughout most of trading Friday, as fresh concerns over the stability of the financial sector prevented the market from establishing any sustainable gains. But stocks moved sharply higher in the final half hour after the report on Geithner.

Despite Friday's gains, stocks are still down sharply for the week. The Dow has lost 5.31 percent, while the S&P 500 fell 8.39 percent and the Nasdaq lost 8.74 percent.

According to preliminary calculations, the Dow rose 494.13 points, or 6.54 percent, on Friday to settle at 8,046.42. The benchmark Standard & Poor's 500 index jumped 47.59, or 6.32 percent, to 800.03, and the Nasdaq composite advanced 68.23, or 5.18 percent, to 1,384.35.

Jobless claims jump unexpectedly to 16-year high

New claims for unemployment benefits jumped last week to a 16-year high, the Labor Department said Thursday, providing more evidence of a rapidly weakening job market expected to get even worse next year.

The government said new applications for jobless benefits rose to a seasonally adjusted 542,000 from a downwardly revised figure of 515,000 in the previous week. That's much higher than Wall Street economists' expectations of 505,000, according to a survey by Thomson Reuters.

That is also the highest level of claims since July 1992, the department said, when the U.S. economy was coming out of a recession.

The four-week average of claims, which smooths out fluctuations, was even worse: it rose to 506,500, the highest in more than 25 years.

In addition, the number of people continuing to claim unemployment insurance rose sharply for the third straight week to more than 4 million, the highest since December 1982, when the economy was in a painful recession.

The financial markets fell on the news. The Dow Jones industrial average dropped about 160 points in morning trading, and broader indexes also fell.

The jobless figures come as the Senate is expected to vote Thursday on legislation that would extend unemployment benefits. The White House said President George W. Bush would quickly sign the bill.

The measure would provide seven additional weeks of payments to those who have exhausted their benefits. Those in states where the unemployment rate is above 6 percent would be eligible for an additional 13 weeks beyond the 26 weeks of regular benefits. Benefit checks average about $300 a week nationwide.

Without the legislation, its proponents say, 1.1 million people will have exhausted their unemployment insurance by the end of the year.

Elsewhere Thursday, the New York-based Conference Board said its monthly forecast of economic activity declined 0.8 percent in October, worse than the 0.6 percent decrease analysts expected. The economy's health worsened last month as stocks, building permits and consumer expectations all fell, the private research group said. Over the last seven months, the index declined at a 4.7 percent annual rate, faster than any decline since 2001.

The high level of continuing unemployment claims partly reflects growth in the labor force, which has increased by about half since the early 1980s. The percentage of workers continuing to receive benefits — which is different from the unemployment rate — increased to 3 percent, the highest since June 2003. Less than half of unemployed workers receive unemployment insurance.

Joshua Shapiro, chief U.S. economist at MFR Inc., a consulting firm, said the four-week average of continuing claims is 49 percent higher than it was a year ago. That "indicates that those who are unemployed are finding it increasingly difficult to get re-employed."

Shapiro wrote in a note that the number of claims indicates that net job reductions by employers could top 400,000 this month, up from 240,000 in October, when the unemployment rate reached 6.5 percent. Companies have cut 1.2 million jobs so far this year.

Many economists expect unemployment to reach 7 percent by early next year and 8 percent by the end of 2009. Last year the rate averaged 4.6 percent.

The Federal Reserve on Wednesday released projections that the jobless rate will climb to between 7.1 percent and 7.6 percent next year, according to documents from the Fed's Oct. 29 closed-door deliberations on interest rate policy.

Initial claims have been driven higher in the past several months by a slowing economy hit by the financial crisis, and cutbacks in consumer and business spending.

Economists consider jobless claims a timely, if volatile, indication of how rapidly companies are laying off workers. Employees who quit or are fired for cause are not eligible for benefits.

Companies from a wide range of sectors have announced layoffs recently, including Citigroup Inc., Union Pacific Corp., Boeing Co., Wyeth, Sun Microsystems Inc., and poultry maker Pilgrim's Pride Corp.

Best Buy cuts fiscal 2009 profit outlook

Electronics retailer Best Buy Co. says it is sharply cutting its fiscal 2009 earnings outlook below analyst estimates amid what the company called the toughest retail environment it has ever seen.

Richfield, Minn.-based Best Buy expects earnings per share between $2.30 and $2.90 for the fiscal year ending in February, down from a prior estimate between $3.25 and $3.40 per share.

The retailer forecast revenue between $43.7 billion and $45.4 billion, as well as 1 percent decline in same-store sales, or sales at stores open at least 14 months.

Analysts expect earnings of $3.02 per share and sales of $46.23 billion for fiscal 2009, according to a Thomson Reuters survey.

Best Buy's same-store sales dropped 7.6 percent in October. Same-store sales are a closely watched performance indicator because they measures sales at existing locations rather than newly opened ones.

Chief Executive Brad Anderson said "seismic" changes in consumer behavior have created "the most difficult climate" ever seen by the company.

Best Buy also says the stronger dollar will weaken revenue and profit from its international segment more than previously expected.


Macy's swings to $44 million loss in 3rd quarter

Macy's Inc. swung to a loss in the third quarter as sales dropped more than 7 percent amid a sharp slowdown in consumer spending.
The department store operator -- one of the nation's biggest -- also said Wednesday it slashed its budget for 2009 capital expenditures by almost half as it navigates the deteriorating economy.

Still, the Cincinnati-based chain reiterated its profit outlook, adding it would be at the lower end of the range if current sales trends continue.

Macy's said it lost $44 million, or 10 cents per share, in the quarter, after a profit of $33 million, or 8 cents per share, a year earlier.

Excluding costs related to the consolidation of three regional divisions that totaled $16 million -- $10 million after tax or 2 cents per share -- the third-quarter loss was 8 cents per share.

The company said sales fell to $5.49 billion from $5.9 billion a year earlier. Analysts surveyed by Thomson Reuters were expecting, on average, a loss of 19 cents on $5.49 billion in sales.

"Macy's Inc. remains financially healthy,with strong cash flow, a solid balance sheet and ample borrowing capacity. We are committed to continuing to aggressively manage expenses and inventories consistent with planned sales levels," said Terry J. Lundgren, chairman, president and chief executive in a statement.

Lundgren added that even in what he describes as a "poor economic environment," he's confident in the company's strategies for gaining market share, particularly as its effort to localize stores more is yielding "promising early results." He expects that strategy to have a more profound impact in 2009.

Macy's announced a reorganization in February that dispersed more managers to local markets. As part of the plan, the company combined three regional divisions and slashed about 2,300 management jobs. Meanwhile, to differentiate itself from its rivals, Macy's is expanding its offerings in exclusive merchandise.

This past fall, it became the exclusive department store retailer for Tommy Hilfiger U.S.A. men's and women's sportswear. It also has a partnership with FAO Schwarz to open toy stores in close to 700 Macy's stores across the country; about 75 full-size FAO toy stores have opened in the department store chain this fall.

Macy's has reduced its budget for 2009 capital expenditures from approximately $1 billion to a range of $550 million to $600 million. That compares with about $950 million in 2008.

Macy's expects earnings in the range of $1.30 to $1.50 per share this year, and $1.10 to $1.30 per share in the fourth quarter. Analysts surveyed by Thomson Reuters forecast $1.37 per share for the year, and $1.24 per share in the fourth quarter.

American Express seeks $3.5B from feds

American Express Co. is seeking $3.5 billion in funds under the government's plan to directly invest in financial firms, according to a Wednesday report in The Wall Street Journal citing unnamed sources.

Earlier this week, American Express (AXP, Fortune 500) received approval from the Federal Reserve to become a bank holding company, which is a similar structure to traditional commercial banks. The credit card company now has access to financing from the Fed and the ability to grow a large deposit base.

The increased funding opportunities through government programs, including the potential $3.5 billion investment, could be a huge boost to American Express as one of its primary sources of funding has nearly disappeared amid the ongoing credit crisis.

Credit crisis
American Express relied on packaging pools of credit card debt and selling them to investors in the securitization market. As investors have shied away from purchasing all but the safest forms of debt, the market for credit card-backed securities has dwindled.

American Express is also facing a slowdown in the broader economy, which has led to more customers missing payments and cutting back on spending, hurting the company's profitability.

Shrinking profit
Third-quarter profit at American Express fell 24% to $815 million, or 70 cents a share, the company said last month. The card company took a $1.36 billion provision for loan losses, 51% higher than the year-ago quarter.

The $3.5 billion from the government could help alleviate some of the company's funding problem and help bolster reserves to protect against future losses.

Last month, the government approved a $700 billion bailout package that allows it to directly invest in financial firms. The companies can apply for a certain amount of cash based on their assets and in return the government receives preferred stock in the company and warrants to purchase common shares.

The government set up the plan in an effort to thaw the nearly frozen credit markets, which come under even more pressure in September when investment bank Lehman Brothers Holdings Inc. (LEHMQ) filed for bankruptcy protection and Washington Mutual Inc. (WAMUQ) failed.

Shortly after that time, investment banks Goldman Sachs Group Inc (GS, Fortune 500). and Morgan Stanley (MS, Fortune 500) received approval to change to bank holding companies in a similar move to what American Express just completed.

American Express did not immediately return calls seeking confirmation of the plan.

Fed refuse to identify 2 trillion dollars in bank loans

The Federal Reserve is refusing to identify the recipients of almost $2 trillion of emergency loans from American taxpayers or the troubled assets the central bank is accepting as collateral.

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would comply with congressional demands for transparency in a $700 billion bailout of the banking system. Two months later, as the Fed lends far more than that in separate rescue programs that didn't require approval by Congress, Americans have no idea where their money is going or what securities the banks are pledging in return.

``The collateral is not being adequately disclosed, and that's a big problem,'' said Dan Fuss, vice chairman of Boston- based Loomis Sayles & Co., where he co-manages $17 billion in bonds. ``In a liquid market, this wouldn't matter, but we're not. The market is very nervous and very thin.''

Bloomberg News has requested details of the Fed lending under the U.S. Freedom of Information Act and filed a federal lawsuit Nov. 7 seeking to force disclosure.

The Fed made the loans under terms of 11 programs, eight of them created in the past 15 months, in the midst of the biggest financial crisis since the Great Depression.

``It's your money; it's not the Fed's money,'' said billionaire Ted Forstmann, senior partner of Forstmann Little & Co. in New York. ``Of course there should be transparency.''

Treasury, Fed, Obama

Federal Reserve spokeswoman Michelle Smith declined to comment on the loans or the Bloomberg lawsuit. Treasury spokeswoman Michele Davis didn't respond to a phone call and an e-mail seeking comment.

President-elect Barack Obama's economic adviser, Jason Furman, also didn't respond to an e-mail and a phone call seeking comment from Obama. In a Sept. 22 campaign speech, Obama promised to ``make our government open and transparent so that anyone can ensure that our business is the people's business.''

The Fed's lending is significant because the central bank has stepped into a rescue role that was also the purpose of the $700 billion Troubled Asset Relief Program, or TARP, bailout plan -- without safeguards put into the TARP legislation by Congress.

Total Fed lending topped $2 trillion for the first time last week and has risen by 140 percent, or $1.172 trillion, in the seven weeks since Fed governors relaxed the collateral standards on Sept. 14. The difference includes a $788 billion increase in loans to banks through the Fed and $474 billion in other lending, mostly through the central bank's purchase of Fannie Mae and Freddie Mac bonds.

Sept. 14 Decision

Before Sept. 14, the Fed accepted mostly top-rated government and asset-backed securities as collateral. After that date, the central bank widened standards to accept other kinds of securities, some with lower ratings. The Fed collects interest on all its loans.

The plan to purchase distressed securities through TARP called for buying at the ``lowest price that the secretary (of the Treasury) determines to be consistent with the purposes of this Act,'' according to the Emergency Economic Stabilization Act of 2008, the law that covers TARP.

The legislation didn't require any specific method for the purchases beyond saying mechanisms such as auctions or reverse auctions should be used ``when appropriate.'' In a reverse auction, bidders offer to sell securities at successively lower prices, helping to ensure that the Fed would pay less. The measure also included a five-member oversight board that includes Paulson and Bernanke.

At a Sept. 23 Senate Banking Committee hearing in Washington, Paulson called for transparency in the purchase of distressed assets under the TARP program.

`We Need Transparency'

``We need oversight,'' Paulson told lawmakers. ``We need protection. We need transparency. I want it. We all want it.''

At a joint House-Senate hearing the next day, Bernanke also stressed the importance of openness in the program. ``Transparency is a big issue,'' he said.

The Fed lent cash and government bonds to banks, which gave the Fed collateral in the form of equities and debt, including subprime and structured securities such as collateralized debt obligations, according to the Fed Web site. The borrowers have included the now-bankrupt Lehman Brothers Holdings Inc., Citigroup Inc. and JPMorgan Chase & Co.

Banks oppose any release of information because it might signal weakness and spur short-selling or a run by depositors, said Scott Talbott, senior vice president of government affairs for the Financial Services Roundtable, a Washington trade group.

Frank Backs Fed

``You have to balance the need for transparency with protecting the public interest,'' Talbott said. ``Taxpayers have a right to know where their tax dollars are going, but one piece of information standing alone could undermine public confidence in the system.''

The nation's biggest banks, Citigroup, Bank of America Corp., JPMorgan Chase, Wells Fargo & Co., Goldman Sachs Group Inc. and Morgan Stanley, declined to comment on whether they have borrowed money from the Fed. They received $120 billion in capital from the TARP, which was signed into law Oct. 3.

In an interview Nov. 6, House Financial Services Committee Chairman Barney Frank said the Fed's disclosure is sufficient and that the risk the central bank is taking on is appropriate in the current economic climate. Frank said he has discussed the program with Timothy F. Geithner, president and chief executive officer of the Federal Reserve Bank of New York and a possible candidate to succeed Paulson as Treasury secretary.

``I talk to Geithner and he was pretty sure that they're OK,'' said Frank, a Massachusetts Democrat. ``If the risk is that the Fed takes a little bit of a haircut, well that's regrettable.'' Such losses would be acceptable, he said, if the program helps revive the economy.

`Unclog the Market'

Frank said the Fed shouldn't reveal the assets it holds or how it values them because of ``delicacy with respect to pricing.'' He said such disclosure would ``give people clues to what your pricing is and what they might be able to sell us and what your estimates are.'' He wouldn't say why he thought that information would be problematic.

Revealing how the Fed values collateral could help thaw frozen credit markets, said Ron D'Vari, chief executive officer of NewOak Capital LLC in New York and the former head of structured finance at BlackRock Inc.

``I'd love to hear the methodology, how the Fed priced the assets,'' D'Vari said. ``That would unclog the market very quickly.''

TARP's $700 billion so far is being used to buy preferred shares in banks to shore up their capital. The program was originally intended to hold banks' troubled assets while markets were frozen.

AIG Lending

The Bloomberg lawsuit argues that the collateral lists ``are central to understanding and assessing the government's response to the most cataclysmic financial crisis in America since the Great Depression.''

The Fed has lent at least $81 billion to American International Group Inc., the world's largest insurer, so that it can pay obligations to banks. AIG today said it received an expanded government rescue package valued at more than $150 billion.

The central bank is also responsible for losses on a $26.8 billion portfolio guaranteed after Bear Stearns Cos. was bought by JPMorgan.

``As a taxpayer, it is absolutely important that we know how they're lending money and who they're lending it to,'' said Lucy Dalglish, executive director of the Arlington, Virginia- based Reporters Committee for Freedom of the Press.

Ratings Cuts

Ultimately, the Fed will have to remove some securities held as collateral from some programs because the central bank's rules call for instruments rated below investment grade to be taken back by the borrower and marked down in value. Losses on those assets could then be written off, partly through the capital recently injected into those banks by the Treasury.

Moody's Investors Service alone has cut its ratings on 926 mortgage-backed securities worth $42 billion to junk from investment grade since Sept. 14, making them ineligible for collateral on some Fed loans.

The Fed's collateral ``absolutely should be made public,'' said Mark Cuban, an activist investor, the owner of the Dallas Mavericks professional basketball team and the creator of the Web site BailoutSleuth.com, which focuses on the secrecy shrouding the Fed's moves.

GM reports $2.5B 3Q loss, says running out of cash

General Motors Corp. says it lost $2.5 billion in the third quarter and warned that it could run out of cash in 2009.

GM also said it has suspended talks to acquire Chrysler. While it didn't specifically name the automaker, GM said it was setting aside considerations for a "strategic acquisition."

The automaker also said its cash burn for the quarter accelerated to $6.9 billion due to a severe U.S. auto sales slump.

The company on Friday reported a net loss of $4.45 per share during the quarter, compared with a record-setting loss of $39 billion, or $68.85 per share, a year ago.

Revenue fell to $37.9 billion from $43.7 billion, due largely to credit freezing across the globe.

The loss exceeded Wall Street estimates. Analysts surveyed by Thomson Reuters predicted a loss of $3.70 per share on sales of $39.4 billion.

The struggling company announced it would improve liquidity by $5 billion by the end of next year by cutting capital spending, reducing sales promotions, and further cutting production in the first quarter. It also suspended the company match for its stock savings (401k) plan in the U.S.

"Even if GM implements the planned operating actions that are substantially within its control, GM's estimated liquidity during the remainder of 2008 will approach the minimum amount necessary to operate its business," the company said in a news release.

"Looking into the first two quarters of 2009, even with its planned actions, the company's estimated liquidity will fall significantly short of that amount unless economic and automotive industry conditions significantly improve" or it receives government funding, the news release said.

GM shares fell 53 cents, or 11 percent, to $4.27 in morning trading.

What Obama's Top Priorities Mean for Your Finances

As America's 44th president, Barack Obama will have one of the most challenging “to do” lists of any new Oval Office occupant in at least a generation. But before Obama can begin implementing the key aspects of his campaign's domestic agenda -- increasing healthcare insurance coverage, improving education, dealing with climate change -- he must try to kick-start a struggling economy that’s sinking into a terrible recession.

And he must do it as quickly as possible, given the worsening job market. Some sort of fiscal stimulus package might get passed when Congress returns from its autumn recess. But that will probably be merely an appetizer before the Democratic majorities in Congress send up a full-course meal of government aid to the new president soon after Obama takes the oath of office on Jan. 20, 2009.

“Although our recommendation is a $300 to $500 billion package, our current expectation is only about $200 billion,” explains economist Jan Hatzius of Goldman Sachs in a recent analysis. Such a package would most likely include infrastructure spending, financial aid to state and local governments struggling with lower property tax revenue, and tax rebates to middle- and lower-income individuals. Would President Obama sign such a pricey bill, with Uncle Sam already facing a budget deficit of $1 trillion or more next year because of the $700 billion bank bailout? You bet. A rotting economy can be poison to any new administration, sapping it of public support.

But stimulus is only one of many economic issues on Obama’s presidential priority list. Others include:

Helping homeowners. Wall Street got its megabailout, but what about Main Street? Many economists say that the plunging housing market and the deluge of foreclosures remain at the core of America’s economic troubles and the credit crisis. During the campaign, Obama favored a 10 percent universal mortgage credit, but Daniel Clifton, an analyst with the Strategas Group, expects Obama to consider a range of options to bolster falling prices, such as an expanded home purchase tax credit, a moratorium on foreclosures, and “and potentially a large-scale refinancing housing proposal.” Among the various refinancing possibilities: using Fannie Mae and Freddie Mac to refinance the mortgages of all the “underwater” homeowners whose homes are now worth less than their mortgages. That could cost $50 billion or more. Others have suggested refinancing everyone into mortgages with a low, low rate. That could have a $300 billion tab. Expect Obama do something, though. Word has it that his advisers have been reading up on the New Deal. One of FDR's first moves during the Great Depression was helping homeowners avert foreclosure.

Cutting some taxes, raising others. Back in 1992, candidate Bill Clinton promised a big middle-class tax cut, but President Clinton never delivered. He instead focused on cutting the deficit. Don't expect such a switcheroo this time around. One of Obama's key criticisms of the Bush administration was that the middle class has seen a decline in its standard of living. With incomes flat or falling, the Democratic nominee explained, Americans were forced this decade to run up big credit card bills and borrow against their homes. Of course, who gets a tax cut -- actually a refundable tax credit -- is in dispute, with several different income ceilings being mentioned during the closing days of the campaign. One group that won't get a cut is households making $250,000 or more. Obama has promised to roll back the 2001 and 2003 investment- and income-tax cuts for those folks. Keep in mind, though, that a weak economy could provide reason to leave upper income-tax rates where they are until the Bush tax cuts expire at the end of 2010.

Creating jobs. With the unemployment rate currently at 6.1 percent and predicted to rise to 7 percent or higher, Obama will also move fast to implement his energy and infrastructure spending program, which is supposed create 5 million green jobs and ensure stronger economic growth into the future. He wants, for example, to invest $150 billion over 10 years to advance clean energy technology, as well as $10 billion per year for five years in a government-run, energy-themed venture capital fund. Then there is a $60 billion effort to shore up America’s crumbling roads, bridges, and electricity grid. Obama advisers promise that, despite the big budget shortfall, the jobs program will stay intact.

Fixing healthcare. Like the previous Democratic president, Obama has made healthcare reform a key part of his agenda. Though it may be one of the most complicated and politically dicey issues he has to tackle, look for Congress to quickly give him the opportunity to sign a renewal of an expanded version of the popular children's health insurance program. That would a first big step toward the full-scale revamp of the health insurance system that he has promised.

Picking an economic team. Who is going to help President Obama turn the economy around? Among his possible picks for Treasury secretary are former Clinton Treasury Secretary Lawrence Summers, former Federal Reserve Chairman Paul Volcker, New York Federal Reserve Bank President Timothy Geithner, and JPMorgan Chase CEO Jamie Dimon. Also expect his current top adviser on money matters, Jason Furman, to lead the White House economic team.

Australia cuts rates, glimmers of hope from banks

Australia cut interest rates sharply on Tuesday, presaging likely reductions in Europe later this week, and evidence of recession mounted despite glimmers of hope from major banks.

For investors, the worst financial crisis in 80 years has all but eclipsed Tuesday's U.S. presidential election although the result may offer some market relief with the promise of more fiscal stimulus.

Whether Democrat Barack Obama or Republican John McCain wins, he will face a huge challenge in reviving the world's largest economy, which is already contracting.

Australia's bigger-than-expected 75 basis point rate cut followed cuts in the United States, China and Japan last week. Britain and the euro zone are expected to follow suit on Thursday with half point reductions, or maybe more.

The recession that central banks and governments around the world have tried to ward off with trillions of dollars in bank bailouts, liquidity pumped into frozen money markets and economic pump-priming measures, looms ever larger.

The Australian central bank said there was "significant weakness" in major industrial economies in explaining why it cut rates to 5.25 percent, the lowest since March 2005.

"Each of the big developed economies now is either in a severe recession or well on the way," said Rory Robertson, interest rate strategist at Macquarie in Sydney.

There were glimmers of better news from banks.

UBS AG, one of Europe's hardest-hit banks, said accounting effects would weigh on fourth quarter results but it had seen some encouraging signs in client flows in October.

Royal Bank of Scotland, which is taking 20 billion pounds of emergency UK government funds, reported a lower-than-expected writedown of 206 million pounds ($334 million) for toxic assets in the third quarter, although it said tough markets would have an adverse effect on full-year results.

U.S. ELECTION BOUNCE?

Obama leads McCain in five of eight key battleground states as Americans prepare to vote in the White House race, according to a series of Reuters/Zogby polls released on Tuesday.

Experts say trends could become clear soon after the first polls close at 2300 GMT in Indiana.

Obama advocates a second stimulus package to jump-start the U.S. economy. Valued at $175 billion, the plan would include funding for infrastructure and another round of tax rebates.

McCain advocates a $300 billion housing plan that would use some of the funds from the recent $700 billion Wall Street bailout package to buy up troubled mortgages.

"Depending on the actual results, the U.S. election may provide some support to markets globally as it may be seen as the promise of more fiscal stimulus, particularly if Obama wins," currency strategists with Calyon in Hong Kong said.

Money market rates declined in Asia, indicating a gradual easing in the strains of the credit crisis. But analysts said that still reflected central bank efforts to add liquidity rather than commercial banks lending to each other.

The credit crunch, which stemmed from a collapse in the U.S. housing market, has prompted banks to clam up on lending to each other, businesses and households for over a year now.

RECESSION A REALITY

Synchronised rate cuts by central banks and emergency government packages worth some $4 trillion may have prevented a banking sector meltdown but the world economy is in poor shape.

Fears about the shrinking U.S. economy knocked stock markets on Tuesday, with Asia-Pacific stocks falling 0.8 percent. [ID:nL4380534]. European stocks were virtually flat.

U.S. vehicle sales plunged in October, with General Motors Co down 45 percent, Ford Motor Co off 30 percent and Toyota Motor Co down 23 percent.

Marks & Spencer Plc, Britain's biggest clothing retailer, posted a 34 percent drop in first-half profit, hit by a deepening consumer downturn.

The European Commission said the 15-nation euro zone was in a technical recession and economic growth would come to a virtual standstill next year.

South Korea, which has announced an $11 billion stimulus package to bolster its economy, said a $4 billion currency swap deal with neighboring China would likely be expanded.

Policymakers were set to gather again to plot their next moves. Euro zone finance ministers meet on Tuesday in Brussels to discuss reform of institutions that manage the global financial market and bodies such as credit rating agencies, accounting rules-setters, banks and their management.

"We can no longer trust self regulation on financial markets. Both supervisors and regulators have to take responsibility," Dutch Finance Minister Wouter Bos said in Brussels. "That's something to be achieved in Washington."

Washington will host a summit of world leaders on November 15 to chart a way out of the crisis. The president-elect will attend.

Fed is expected to cut interest rates by half-point

All eyes will be on the federal reserve today as investors look to see if they will be cutting interest rates by a half-point. Last time this happen I thought the stock market would rally, only to see it fall. We'll see what happens today, especially after yesterday's rally on Wall Street. The Dow closed yesterday with a rally of almost 1,000 points. Sure would love to see a follow-thru today.

As investors wait for the market to open in about another hours, everyone will have there attention on what the fed will do with interests rates. They are expected to slash a key interest rate by a half-point, pushing the federal funds rate down to 1 percent, as they wrap up a two-day meeting.

The worst financial crisis in 70 years has forced the Fed to employ all the weapons in its arsenal — including cutting interest rates to near historic lows — to try to keep the country from plunging into a deep recession.

A new cut would put the Fed's target for the interest banks charge each other on overnight lows down at level last seen during a 12-month period from June 2003 to June 2004. Before that period, the funds rate had not been that low in 45 years, since Dwight Eisenhower was president.

Economists believe the Fed is prepared to cut rates that low because of the rising fears that the financial turmoil of the past two months is raising the specter of a deep and prolonged recession.

"The Fed is going to send a very strong signal that they will do whatever it takes to restore stability to the economy," predicted Mark Zandi, chief economist at Moody's Economy.com.

The prospect of another sizable rate cut, coming just three weeks a half-point move that was coordinate with a number of countries, sent the stock market soaring on Tuesday, pushing the Dow Jones industrial average up by 889.35 points, its second-biggest point gain in history.

Even if the Fed does fulfill the desires of investors with its action Wednesday, it is not likely to end the turbulence on Wall Street. Analysts are cautioning to be prepared for more stomach-churning days ahead as investors struggle to deal with a severe credit crisis and what could be the worst recession in at least two decades.

A half-point rate cut on Wednesday would push borrowing costs lower for millions of consumer and business loans with banks moving quickly to match the Fed's action by lowering their benchmark prime lending rate from 4.5 percent, where it has been for the past three weeks, down to 4 percent.

The Fed is hoping that the sharply lower rates will help boost economic growth going forward. The government will release its first look at economic activity in the July-September quarter on Thursday and that is expected to show that the gross domestic product shrank at a rate of 0.5 percent in the third quarter.

Many analysts believe the GDP — the measure of the value of all the goods and services produced in the country — is falling further in the current quarter and will also fall in the first three months of next year.

That pattern would meet the classic definition of a recession as at least two consecutive quarters of declining GDP. Many economists think that when the National Bureau of Economic Research, the official arbiter of when recessions begin and end in this country, makes its decision, it will date this downturn to the beginning of 2008, when the labor market started shedding jobs.

The country has lost jobs every month this year and the unemployment rate now stands at 6.1 percent. Economists forecast that it could hit 8 percent by the spring of next year due to the severity of the shutdown of bank lending, a credit crisis triggered by billions of dollars of losses in mortgage lending as defaults soared to record levels.

That has jolted banks, resulted in government takeovers of the nation's two biggest mortgage companies and the biggest shakeup on Wall Street since the Great Depression. Banks have become fearful about making new loans, a development that has had ripple effects on American businesses trying to get loans for normal operations, and on American consumers, who are having trouble getting car loans and home loans.

"The credit squeeze has moved from Wall Street to Main Street and it is seriously affecting the real economy and now it has gone global," said Sung Won Sohn, an economist at the Smith School of Business at California State University, Channel Islands.

Many analysts believe a rate cut in the United States will be followed by cuts in other major economies as central banks around the world try to inject confidence into a badly shaken financial system.

Analysts are split, however, on whether a Fed rate move this week will be followed by another rate cut at the central bank's last meeting of the year on Dec. 16.

Some analysts think the Fed could drive the funds rate as low as 0.5 percent and might even go to zero, which the Bank of Japan did in an effort to combat a decade-long bout of malaise in the 1990s caused by a real estate bust in that country.

Other analysts believe the Fed will be content to lower the funds rate to 1 percent and leave it there, partly because pushing it any lower would remove any cushion to cut the rate further should the economy fail to respond and the downturn worsen.

These analysts believe the Fed will depend on its other efforts to battle the credit crisis, which involve supplying massive resources to the banking system.

David Jones, chief economist at DMJ Advisors, said that Fed officials will probably decide that all the global efforts to fight the credit squeeze, including a $700 billion rescue fund in this country, should be given time to work.

But Jones, who thinks the economy will remain in a recession until the middle of next year, said he believes that the Fed will signal that it is prepared to leave the funds rate at 1 percent for some time to come.

When the Fed under former Chairman Alan Greenspan "cut the funds rate to 1 percent and left it there for a year, they kept saying rates would remain low for a considerable period of time," Jones said. "I think this time rates will stay at 1 percent for a longer period."