Treasury to borrow $550,000,000,000 to fund "rescue" plans

WASHINGTON – The government, raising cash to pay for the array of financial rescue packages, said Monday it plans to borrow $550 billion in the last three months of this year — and that's just a down payment.

Treasury Department officials also projected the government would need to borrow $368 billion more in the first three months of 2009, meaning the next president will confront an ocean of red ink.

The nonpartisan Committee for a Responsible Budget estimates all the government economic and rescue initiatives, starting with the $168 billion in stimulus checks issued earlier this year, total even more — an eye-popping $2.6 trillion.

One day before voters set out to elect the 44th president, new economic reports brought more bad news.

The widely watched Institute of Supply Management gauge of manufacturing activity plunged in October to its lowest level since the country's last deep recession, the 1981-82 downturn.

And automakers turned in terrible October sales figures. Sales sank 45 percent at General Motors Corp., 30 percent at Ford Motor Co., 25 percent at Honda Motor Co. and 23 percent at Toyota Motor Corp.

The Commerce Department's report on construction spending Monday showed a 0.3 percent decline in September, the third drop in the past four months.

"We are now deep in the belly of the recession beast," said Bernard Baumohl, managing director of the Economic Outlook Group.

The government reported last week that the overall economy, as measured by the gross domestic product, shrank at an annual rate of 0.3 percent in the July-to-September quarter. Two straight quarters of lower GDP generally mean a recession, and many economists expect the fourth quarter to be worse than the third.

In addition to the borrowing numbers, Treasury released estimates by major Wall Street bond firms projecting that total borrowing for this budget year, which began Oct. 1, will total $1.4 trillion, nearly double the previous record.

Major Wall Street firms were equally pessimistic about the size of the federal deficit this year. They projected it will hit $988 billion for the current budget year, more than twice the record. In July, the administration projected a deficit for this year of $482 billion, but that was before the financial crisis erupted in September.

Supporters of the government rescue packages argue that the ultimate cost to taxpayers should end up being a lot smaller, partly because the Federal Reserve is extending loans to banks that should be paid back.

And in the case of the $700 billion rescue package, the government is buying assets — either bank stock or distressed mortgage-backed assets — that it hopes will rebound in value once the crisis has passed.

But the government still needs to borrow massive amounts to buy the assets, an effort that has driven up borrowing costs to levels never before contemplated.

Meanwhile, the Bush administration is moving to get parts of the rescue package up and running. Two New York law firms — Hughes, Hubbard & Reed and Squire Sanders & Dempsey — were announced to process the mountains of paperwork that banks will be required to file. That will allow the government to monitor the operation of the $250 billion program to buy bank stock. Each law firm will receive up to $5.5 million for its work through April 28.

The law firms will be responsible for monitoring the filings of up to 1,800 eligible banks with publicly traded stock. In addition, 6,000 other banks whose stock is not publicly traded can apply for government purchases of their stock. The government distributed the first $125 billion to nine of the biggest banks in the country last week.

A separate report Monday from the Fed showed banks tightened standards on all sorts of loans, from home mortgages to credit cards and business loans in early October, compared with three months ago, showing the credit squeeze had yet to let up.

The administration is also still working to develop other programs that will be covered by the $700 billion rescue fund, including considering how a proposal to guarantee mortgages held by people facing foreclosures might look.

As described last week, the plan would have the Federal Deposit Insurance Corp. guarantee mortgages that have been reworked by banks to lower the monthly payments for about 3 million homeowners to help them avoid foreclosures.

But presidential press secretary Dana Perino told reporters said officials were focusing on using "the tools that we already have," including programs such as FHA Secure and Hope Now.

"The question on the table is, do we need to do more to help homeowners? If that answer is yes, then there's a lot of other issues that have to be analyzed," Perino said, such as who would get the aid and how that would be determined.

 

whoops

http://news.yahoo.com/s/ap/20081103/ap_on_bi_ge/financial_meltdown

 

clinton did clean up the budget but you also have to remember there was a nice boost from the bubble stock market too. this time around there is only going to be declining tax revenues due to the weak economy. this problem is proving to be increasingly more tricky.