Consumer spending up for second straight month

WASHINGTON (AP) -- The government says consumers increased spending for a second straight month in February even though their incomes slipped due to continuing massive layoffs.
The Commerce Department reported Friday that consumer spending edged up 0.2 percent in February, in line with expectations. That follows a huge 1 percent jump in January that was even better than the 0.6 percent rise originally reported.

But the report says incomes fell by 0.2 percent in February, the fourth drop in the past five months, declines that reflected the sizable number of job layoffs that have been occurring because of the recession.

After-tax incomes also fell in February, edging down by 0.1 percent. With incomes down while spending rose, the personal savings rate dipped slightly to 4.2 percent in February, compared to 4.4 percent in January. Still, the latest two-month performance marked the first time that the savings rate has been above 4 percent for two consecutive months in more than a decade.

Economists believe that the deep recession, already the longest in a quarter-century, will continue prompting consumers to do more to trim spending and boost their savings. However, that development could make it more difficult for the country to pull out of the recession since consumer spending accounts for about 70 percent of economic activity.

The back-to-back increases in consumer spending in January and February had followed six straight declines in spending that occurred from July through December. Consumer spending in the fourth quarter fell at an annual rate of 4.3 percent, the biggest decline in 28 years, and was the major factor pushing overall economic activity down by 6.3 percent during that period.

Many economists believe that the gross domestic product will drop by around that amount in the current January-March period and will continue falling in the spring although at a slower pace. Many analysts are not looking for the current recession, which began in December 2007, to end until the second half of this year.

A price gauge tied to consumer spending rose by 0.3 percent in February and was up 0.2 percent excluding food and energy, indicating that the recession has contributed to a significant moderate in inflation pressures.

Obama says automakers need 'drastic changes'

WASHINGTON (AP) -- President Barack Obama plans to announce a new aid package for General Motors and Chrysler in the coming days and says the carmakers must make "pretty drastic changes" to save their industry.
Obama gave a preview of his administration's approach to fixing the struggling U.S. auto industry during an online town hall meeting Thursday, promising additional aid only if the Detroit change its ways and receives concessions from stakeholders.

"We will provide them some help," Obama said. "I know that it is not popular to provide help to auto workers -- or to auto companies. But my job is to measure the costs of allowing these auto companies just to collapse versus us figuring out -- can they come up with a viable plan?"

He added: "If they're not willing to make the changes and the restructurings that are necessary, then I'm not willing to have taxpayer money chase after bad money."

General Motors Corp. and Chrysler LLC have received $17.4 billion in federal loans since December and are seeking billions more to stay afloat. A task force created by Obama has been meeting with industry officials and studying restructuring plans submitted by the companies, which employ thousands in Ohio, to put them on the path to long-term profitability through tough concessions.

"Everybody is going to have to give a little bit -- shareholders, workers, creditors, suppliers, dealers -- everybody is going to have to recognize that the current model, economic model, of the U.S. auto industry is unsustainable," Obama said.

The president said he agreed with a questioner at the town hall -- a Maryland woman with family members who work for GM and Ford Motor Co. -- that "there's been a lot of mismanagement of the auto industry over the last several years."

Obama stressed that the industry must be preserved, not only symbolically but because of the large number of jobs connected to the companies and suppliers. Obama said his job was to protect U.S. taxpayers and he wouldn't spend federal dollars on "a model that doesn't work."

"A lot of it's going to depend on their willingness to make some pretty drastic changes. And some of those are still going to be painful," he said.

The government can recall its loans to GM and Chrysler if they fail to sign deals for debt restructuring and other concessions from stakeholders, including the United Auto Workers union, by March 31. But the administration has not indicated it plans to do so. Efraim Levy, an auto analyst with Standard & Poor's Equity Research, said the companies likely will need to come close to the terms of the loans.

"There's going to be grading on a curve," Levy said. "They've got to show a plan that's close enough to get it."

The loan terms call for debt holders to accept equity in the companies for two-thirds of the automakers' debt. GM owes roughly $28 billion to bondholders, while Chrysler owes about $7 billion in first and second-term debt, mainly to banks.

Also, the UAW needs to swap equity in the companies for 50 percent of the companies' cash contributions into a union-run trust fund for retiree health care. GM owes roughly $20 billion to its trust, while Chrysler owes $10.6 billion.

Bondholders have been reluctant to go along with the cuts, saying they're being required to sacrifice more than other parties, but have been holding discussions about the changes.

The union has agreed to other terms of the loans, including work rule changes and reducing total hourly labor costs to be comparable to those at Japanese automakers with U.S. factories.

On Capitol Hill, lawmakers who have talked to members of the task force in recent days said they expected the administration to provide additional loans to GM and Chrysler, but it would be the first in a series of announcements and would carry strict conditions.

"I expect them to support additional funding related to specific actions," said Sen. Debbie Stabenow, D-Mich. "I think it will be tied to specific actions that need to be taken."

The president said the industry has been hamstrung by the sharp decline in auto sales. Last year the industry sold 13.2 million new vehicles in the U.S., but the annual sales rate has dropped to around 9 million for both January and February. Obama said many Americans are struggling to get auto loans and are wary of big-ticket purchases as jobs disappear.

The president said that even as the economy bounces back, Detroit can't focus on "trying to build more and more SUVs and counting on gas prices being low."

In that vein, the administration on Friday is expected to announce plans to raise fuel efficiency standards by 2 miles per gallon to 27.3 mpg for new cars and trucks in the 2011 model year, an administration official said Thursday. That would be the first increase in passenger car standards in more than two decades.

Under the changes, new passenger cars will need to meet 30.2 mpg for the 2011 model year and pickup trucks, sport utility vehicles, and minivans will need to reach 24.1 mpg, according to the official, who spoke on condition of anonymity because the person was not authorized to speak in advance of the announcement.

White House spokesman Robert Gibbs said Obama will announce his strategy for the auto industry before he leaves for Europe on Tuesday. The announcement is likely to come on Monday.

Gibbs said Obama still thinks U.S. automakers build cars that Americans want to buy. Both he and the president own Ford Escape hybrids. "It's a nice car," Gibbs said. "It really is."

Associated Press writers Ben Feller and Philip Elliott contributed to this report. AP Auto Writer Tom Krisher reported from Detroit.

KB Home reports loss in 1Q

LOS ANGELES (AP) -- KB Home is reporting a narrower-than-expected net loss for its fiscal first quarter as the homebuilder cut costs and took smaller accounting charges.
The Los-Angeles based homebuilder reported a fiscal first quarter net loss of $58.1 million, or 75 cents a share, compared with a net loss of $268.2 million, or $3.47 a share, in the same period the year before.

Total revenues were $307.4 million, down 61 percent from $794.2 million in the year-ago period.

Included in the net loss charges for inventory and joint venture impairments, and abandoned land option contracts, totaling $32.3 million.

Analysts polled by Thomson Reuters predicted a loss of 81 cents per share on revenue of $348 million.

Stocks point to lower open after week's big rally

NEW YORK (AP) -- Wall Street was set to pare its huge gains Friday after a dip in personal incomes and gloomy news from Google Inc. and Johnson Controls Inc.
The Commerce Department said personal spending rose 0.2 percent in February, as expected, but personal incomes fell 0.2 percent. Economists surveyed by Thomson Reuters/IFR had predicted an income drop of 0.1 percent.

Signals out of the corporate world, meanwhile, were downbeat.

Auto parts maker Johnson Controls said it will cut jobs and close 10 manufacturing plants. And late Thursday, Internet powerhouse Google said it is laying off nearly 200 workers, while technology consulting and outsourcing firm Accenture lowered its outlook for the quarter and the year.

The negative announcements sapped strength from technology companies in particular. Tech stocks had surged Thursday and pushed the Nasdaq composite index into positive territory for the year.

Given that the Dow Jones industrial average has soared 21 percent in fewer than three weeks. investors appeared eager to cash in gains. But they were also showing some caution -- while more positive news fed the market's huge rally, many investors are well aware that the economy and also the banking system still have many trouble spots.

Ahead of the market's open, Dow Jones industrial average futures fell 65, or 0.8 percent, to 7,784. Standard & Poor's 500 index futures fell 6.80, or 0.8 percent, to 820.50, and Nasdaq 100 index futures fell 9.50, or 0.8 percent, to 1,263.50.

Investors are awaiting the University of Michigan's final reading on March consumer sentiment.

And President Barack Obama will be meeting at the White House with chief executives of the nation's largest banks. Obama and Treasury Secretary Timothy Geithner are preparing to launch a partnership with private investors to buy banks' toxic assets.

The discussion also comes as Congress works on a bill to curb Wall Street bonuses, and Geithner plans to regulate the hedge fund industry more heavily.

In earnings news, homebuilder KB Home reported a narrower-than-expected quarterly loss thanks to cost cuts and smaller accounting charges.

The dollar was mixed against other major currencies, while gold prices fell.

Crude oil fell $1.68 to $52.66 a barrel in electronic trading on the New York Mercantile Exchange.

Government bonds rose in early trading. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 2.73 percent from 2.74 percent.

Overseas, Japan's Nikkei stock average fell 0.11 percent. In afternoon trading, Britain's FTSE 100 fell 0.32 percent, Germany's DAX index fell 1.02 percent, and France's CAC-40 fell 1.07 percent.

Obama seeks input of bank CEOs on recovery plans

The president was set to take the temperature of the bank CEOs on Friday at the White House. The session will be the latest in a series of such meetings Obama has had with financial industry representatives and business executives since taking office amid the worst economic downturn since the Great Depression.

The meeting follows a period marked by Obama's sharp language, and public outrage, over Wall Street excesses and $165 million in employee bonuses by American International Group, the large but troubled insurance company that has taken more than $170 billion in federal bailout funds.

It also comes days before Obama attends his first international summit, a meeting in London next week of the world's 20 major and developing economies, all struggling with the global recession.

This week, the administration unveiled its program to help banks clear their balance sheets of so-called "toxic assets," bad investments that are tying up capital and making it difficult for them to lend money. The administration also outlined its proposals to impose tighter regulations on the financial sector in an effort to avoid a repeat of the industry meltdown that contributed to the recession.

Obama in recent days has dialed down his rhetoric against AIG and Wall Street. The administration needs the industry's cooperation for its financial stability and financial regulation plans to work.

White House officials said Obama likes to hear directly from those who will be affected by his decisions.

"Our future is inextricably linked to these financial institutions, and their future is linked to the economic health of the country," said Valerie Jarrett, a senior adviser to Obama.

Press secretary Robert Gibbs said Obama looked forward to getting an update from the bankers on the activity they are seeing in real estate and commercial loans. They also are likely to discuss "stuff that's been in the news" in the past few weeks, including executive compensation, bonuses and "the notion that ... we have to change the culture of the way Wall Street works," he said.

Asked whether Obama would deliver as tough a message in private as he has in public, Gibbs replied, "Yes."

"The president isn't going to say one thing out here and a different thing in there," he said. "We're not going to get out of this financial crisis and we're not going to stabilize our financial system without healthy banks. That's part of what he hopes to talk to them about."

Larry Summers, Obama's chief economic adviser, said the meeting will focus on a broad approach to restoring the economy.

This week, the administration announced a plan to partner with private investors, the Federal Reserve and the Federal Deposit Insurance Corp. to take over up to $1 trillion in sour mortgage securities from banks. The goal is to help jump-start lending.

The administration also has proposed tighter regulation of the financial system, including giving the government broad power to take over major financial institutions that are not banks, such as insurance companies, like AIG, and hedge funds teetering on the brink of collapse.

Last week, Obama assailed AIG for "recklessness and greed" in its business practices.

He softened his tone a bit during a nationally televised news conference Tuesday night, saying the country "can't afford to demonize" every profit-seeking investor or entrepreneur because that is what fuels prosperity, and is what will get banks lending and the economy moving again.

Charter files for prearranged bankruptcy

ST. LOUIS (AP) -- Charter Communications Inc. said Friday that it filed a prearranged Chapter 11 bankruptcy in the United States Bankruptcy Court for the Southern District of New York.
The nation's fourth-largest cable operator, which is based in St. Louis and is controlled by Microsoft Corp. co-founder Paul Allen, had planned to file a prearranged Chapter 11 bankruptcy by April 1.

For years the company has ducked insolvency, but it is now coming up against tight credit and billions of dollars of debt coming due.

Charter had about $21.7 billion in debt at the end of 2008. Holders of $8 billion of the debt agreed to exchange it for almost full ownership in the new company, and some old debt was exchanged for new debt. After the bankruptcy, the company will have $13 billion mainly in bank debt, which expires from 2013 to 2016.

In a prearranged bankruptcy, a company enters into reorganization with a plan to emerge that has the approval of major stakeholders. The rest of the creditors will be dealt with through bankruptcy court.

In a statement, Charter Chief Executive and President Neil Smit said the restructuring "is good news" for the company and its customers.

"We look forward to an expeditious restructuring, and once completed, we believe that Charter will be a stronger company," Smit said.

Charter said that along with the bankruptcy filing it filed motions requesting permission to keep employee wage and benefits programs running and to continue customer programs without interruptions.

The company also named Gregory L. Doody as Chief Restructuring Officer. Doody has worked on restructurings for companies including Calpine Corp. and HealthSouth Corp.

Kirkland & Ellis LLP is serving as Charter's legal counsel, Lazard as its financial adviser and AlixPartners LLP as restructuring advisor.

Oil down below $54 amid concern over price outlook

Oil prices fell below $54 a barrel Friday, after this week hitting a high for the year, on concerns about the sustainability of recent gains and lingering doubts about the recovery of the global economy and oil demand.

Benchmark crude for May delivery fell 82 cents to $53.52 a barrel by midday in European electronic trading on the New York Mercantile Exchange.

In London, Brent prices fell 70 cents to $52.76 a barrel on the ICE Futures exchange.

Oil prices hit a new high for the year Thursday as investors wagered there would be a new run on crude supplies. The contract rose $1.57 to settle at $54.34 a barrel.

But those gains have left room for declines amid a volatile outlook, said Victor Shum, an energy analyst at consultancy Purvin & Gertz in Singapore.

"Do expect a bumpy ride in the near term. There could be some selling to take profits," Shum said.

He attributed crude's recent gains to "spillover from the equities market with no change in fundamentals."

Energy prices have been surging despite reports that continue to show the U.S. economy is shrinking and oil inventories are bloated with surplus crude.

Crude in storage last week rose 3.3 million barrels to 356.6 million barrels, according the Energy Information Administration announced Wednesday. The increase was much higher than expected.

Investors, however, have bid up prices on the expectation of a future shortage of oil, analysts including Stephen Schork have said. Schork, in his daily oil report Thursday, called the gains "an aberration" given the state of global demand.

The U.S. economy, the world's biggest oil consumer, shrank at a 6.3 percent pace at the end of 2008, the worst showing in a quarter-century, government data showed Thursday. And in Japan, exports fell by nearly half in February from a year earlier -- a record drop.

Oil prices have mostly gotten support from the advance in global stock markets this month. In New York Thursday, the Dow gained 2.3 percent to reach its highest close in six weeks amid surprisingly good earnings from some major consumer brands. Asian markets closed mostly modestly higher Friday, while in Europe most indexes were in the red by 1 percent or less in early trading.

"The Dollar Index has been consolidating all week and is not providing anymore a sustained support to oil bulls so this leaves it to the stock markets," said Olivier Jakob at Petromatrix in Switzerland. "They have been able to maintain a positive momentum so far this week but this leaves only one leg of support for an attempt at $55 per barrel."

The strength in oil has also come as the Organization of the Petroleum Exporting countries has been trying for several months to squeeze off crude production in hopes of driving up prices. Members want to cut production by 4.2 million barrels per day.

In other Nymex trading, gasoline for April delivery fell 2.97 cents to $1.5014 a gallon, while heating oil dipped 1.86 cents to $1.4627 a gallon. Natural gas for April delivery fell 2.2 cents to $3.925 per 1,000 cubic feet.

Johnson Controls to cut jobs, close 10 plants

MILWAUKEE (AP) -- Johnson Controls Inc. said Friday it will cut jobs and close 10 manufacturing plants as part of a restructuring effort that it said will cost between $200 million and $215 million.

The company, whose products include automotive parts, batteries and building systems, did not say how many employees will be affected or which plants it will close. A company spokeswoman was not immediately available for comment early Friday.

The announcement marks the second recent restructuring effort at Johnson Controls, which has been hit hard by the downturn in global vehicle production. In September, the company announced a $495 million program of plant closures and job cuts, which it said is now two-thirds complete.

Johnson Controls said it expects the most recent restructuring effort to be complete by 2010. The company, which posted a $608 million fiscal first-quarter loss in January, said it expects to return to profitability by the second half of its fiscal year ending September.

It said it does not foresee any further restructuring efforts.

"While we don't expect near-term recoveries in our markets, we believe we can manage through this environment from a position of strength," Johnson Controls Chief Executive Stephen Roell said in a statement.

The company said 80 percent of the restructuring charges announced Friday will affect the company's automotive segment. It said will take the charges in its second fiscal quarter, which ends on Tuesday, and report earnings for the quarter April 21.

Shares of Johnson Controls closed Thursday at $12.90.

WaMu holding company sues FDIC over bank seizure

Saturday March 21, 7:05 pm ET
WaMu holding company sues FDIC, saying bank's assets worth more than $1.9B JPMorgan paid

SEATTLE (AP) -- Washington Mutual's holding company is suing federal regulators for billions of dollars, saying the firesale of the bank's assets to JPMorgan Chase violated its rights.

The lawsuit was filed Friday in federal court against the Federal Deposit Insurance Corp., which seized the Seattle-based savings and loan in September. It was the largest bank failure in U.S. history.

Lawyers for the holding company, Washington Mutual Inc., argue that the bank was worth more than the $1.9 billion JPMorgan paid for it in a deal arranged by the FDIC. The lawsuit argues that if WaMu's assets had been liquidated prudently, they would have been worth more than that.

An FDIC spokesman did not immediately return a call seeking comment Saturday.

Administration wants to buy up banks' toxic assets

Saturday March 21, 6:16 pm ET
By Martin Crutsinger, AP Economics Writer
Sources say Geithner has plan to attack toxic assets with Fed and FDIC help

WASHINGTON (AP) -- Struggling to contain the worst financial crisis in seven decades, the Obama administration wants to buy billions of dollars of toxic assets from banks to ease borrowing for consumers and businesses.
Some industry officials familiar with the details said Saturday they expected the approach would try to remove as much as $1 trillion from banks' books. An announcement from Treasury Secretary Timothy Geithner could come as early as Monday.

If banks are not burdened by the soured loans, then they would be in better shape to resume more normal lending.

According to administration and industry officials, the plan would rely on the Federal Reserve and the Federal Deposit Insurance Corp. to supplement the government's $700 billion bailout fund. The uproar over the millions of dollars in bonuses for employees at troubled insurance giant American International Group Inc. has dimmed prospects for getting more bailout money from Congress.

The officials, who spoke on condition of anonymity because the details have not been announced, said Geithner's plan will have three major parts:

--a public-private partnership to back private investors' purchases of bad assets. The $700 billion bailout fund would provide the backing. The government would match private investors dollar for dollar and share any profits equally.

--expanding a recent Fed program that provides loan for investors to buy securities backed by consumer debt. It's an effort to make it easier for people to get auto, student and credit card loans. The Term Asset-Backed Securities Loan Facility (TALF) program is getting up to $100 billion from the bailout fund; that money then is being leveraged to support up to $1 trillion in Fed loans. Under Geithner's plan for the toxic assets, part of that $1 trillion would now go to support purchases of banks' troubled assets.

--using the FDIC, which guarantees bank deposits, to purchase toxic assets. Officials said the agency would create special investment partnerships and then lend them money to buy up troubled assets.

Industry officials said the administration had not disclosed to them the exact amounts of money to be devoted to the effort.

"The key is going to be if the government buys these assets quickly," said Mark Zandi, chief economist at Moody's Economy.com. "The sooner they get these assets off banks' balance sheets, the quicker the system will find its footing and get the economy moving again."

Geithner's announcement last month of the financial rescue overhaul was widely panned by investors. The Dow Jones industrial average plunged by 380 points in large part because investors were disappointed that Geithner did not have more details.

Some analysts worry the market may once again be underwhelmed, in part because not enough resources will be devoted to the problem.

"The market is looking for a `wow' factor where they can see the administration is finally doing enough," said Sung Won Sohn, an economics professor at the Smith School of Business at California State University.

The administration had said in February it needed more time to work out thorny problems that former Treasury Secretary Henry Paulson and the Bush administration had been unable to resolve.

Geithner's new plan is meant to attack what is widely viewed as the major failure of the bailout program so far: the inability to rid banks of a mountain of soured loans and troubled mortgage-backed securities.

Some industry officials said that participation by the private sector may be harmed because potential investors will now be worried that the government will change the terms of the deal or impose new restrictions because of the current political backlash against Wall Street.

Hedge funds and other big investors are likely to be more leery of accepting the government's enticements to purchase these assets, fearing tighter government restraints in such areas as executive compensation.

The effort to deal with toxic assets is the administration's latest initiative to tackle the financial crisis.

Other programs cover mortgage foreclosures; lending to small businesses; unfreezing the markets that support credit card, student loan and auto debt; and testing of the 19 largest banks to ensure they have enough reserves to withstand an even more severe recession.

In addition to unveiling his plan for toxic assets, Geithner, who came under criticism for his handling of the AIG bonus issue, is expected to put forward next week the administration's proposals to overhaul the government's current financial regulatory structure.

President Barack Obama said this past week that this plan will include a proposal to give the administration expanded authority to take control of major troubled institutions that are deemed too big to fail because their collapse would pose a risk to the entire financial system.

Activists protest bonuses at AIG executives' homes

Saturday March 21, 2:27 pm ET
By John Christoffersen, Associated Press Writer
Dozens of activists visit AIG executives' homes to protest bonuses from federal funds

FAIRFIELD, Conn. (AP) -- A busload of activists -- outnumbered 2-to-1 by reporters and photographers -- are paying visits to the homes of American International Group Inc. executives in Connecticut to protest tens of millions in bonuses awarded by the company.

About 40 protesters parked at a cul-de-sac Saturday afternoon and walked to the Fairfield home of Douglas Polling. They were met on the curb by two security guards, and one activist read a letter detailing the financial struggles that many Connecticut residents have faced. The group then left the note in Polling's mailbox.

Polling already agreed to forfeit his bonus, but the protesters want AIG executives to do more to help working families.

AIG has received more than $182 billion in federal aid.

Obama pursues agenda despite bonus brouhaha

Saturday March 21, 7:31 pm ET
By Lolita C. Baldor, Associated Press Writer
Obama ready to press ahead with ambitious agenda, depite bonus squabbles

WASHINGTON (AP) -- Knocked off balance by the bonuses brouhaha, President Barack Obama is relying on direct appeals to the public to refocus attention on his ambitious agenda and drive the debate.

The president has shouldered responsibility for the mess and, in his radio and Web address Saturday, sought to put the financial finger-pointing behind in favor of his policy pillars -- deficit cutting, overhauling health care and energy, improving education.
He will use a flurry of events to make his case, including a network television interview airing Sunday and a prime-time news conference Tuesday. The administration also is expected, as early as Monday, to roll out its plan to rid banks of their toxic assets and speed the flow of loans.

Being heard above the din may prove difficult. Lawmakers are wrangling over taxing people who got big bonuses and worrying the president's budget could generate $9.3 trillion in red ink over the next decade.

"I realize there are those who say these plans are too ambitious to enact," Obama said in his weekend address. "To that I say that the challenges we face are too large to ignore. I didn't come here to pass on our problems to the next president or the next generation -- I came here to solve them."

Over the past week, Obama sought to spread his message unfiltered to people, tapping his massive e-mail list to promote his agenda one on one and speaking to enthusiastic supporters at town hall meetings in California. But dominating all else was the disclosure that American International Group Inc. had paid out $165 million in bonuses to employees, including to traders in the financial unit that nearly collapsed the insurer.

Later, the president scrambled to say he was sorry for an offhand remark on NBC's "Tonight Show" in which he compared his inept bowling with "the Special Olympics or something." By Friday evening, the White House was fending off the new dismal deficit estimates from congressional auditors.

Republicans seized on the missteps and used their Saturday address to condemn Obama's budget as a breathtaking spending spree. As states and families are struggling to cut spending, the president's budget "spends too much, taxes too much and borrows too much," said Gov. Haley Barbour, R-Miss.

"Absolutely it was a bad week for the president," said Thomas Mann, a Brookings Institution congressional scholar. "But, he's not someone to shy away from an ambitious agenda. He's aiming very high and he's not going to trim his ambitions in response to this."

It's also not the first time a president has been knocked off course soon after taking office.

President Bill Clinton won the White House with this campaign mantra: It's the economy, stupid. But he stumbled early on as he tried to fulfill a pledge to lift the ban on gays serving openly in the military. His compromise, "don't ask, don't tell" policy still draws criticism from all sides.

It's important for Obama to understand the public's anger over the bonuses and channel it, using his leadership skills and high approval ratings to regain people's confidence, Mann said.

Obama said Saturday that people are more concerned about having a paycheck and being able to pay college or medical bills than they are about "the news of the day in Washington."

Those are the concerns, he said, that he addresses in his budget, which he calls an economic blueprint for the future. It is "a vision of America where growth is not based on real estate bubbles or over-leveraged banks, but on a firm foundation of investments in energy, education and health care that will lead to a real and lasting prosperity," Obama said.

He also took the opportunity in an interview with CBS' "60 Minutes" to affirm his support for beleaguered Treasury Secretary Timothy Geithner, roundly criticized over the bonus flap and steps to revive the economy.

In an interview set to air Sunday, Obama said that if Geithner offered his resignation, the answer would be, "Sorry buddy, you've still got the job." CBS released excerpts Saturday.

With a nod to Capitol Hill, he said the specific dollar amounts in his budget plan probably will change, but in the end his four priorities must be met.

Those are plans to boost investments in clean energy technologies, including wind and solar power; more money for childhood education programs, affordable college costs and higher standards for schools; a health care overhaul that will lower costs, including Medicare and Medicaid; and a scrutiny on domestic spending that will lead to cuts in the deficit.

"The American people sent us here to get things done, and at this moment of great challenge, they are watching and waiting for us to lead," Obama said. "Let's show them that we are equal to the task before us."

US Post Service looks for new ways to cut losses

Saturday March 21, 5:33 am ET
By Randolph E. Schmid, Associated Press Writer
US Postal Service announces early retirements, management cuts, office closings

WASHINGTON (AP) -- The U.S. Postal Service has already suggested dropping a day of mail delivery to save money. Now, with economic gloom everywhere, it's turning to early retirements, management cutbacks and office closings.
Not so long ago, the picture was far different. The USPS finished fiscal 2005 with a $1.4 billion surplus.

Postal officials were already struggling with a sharp decline in first-class mail as letters and many bills moved to the Internet. Then the flagging economy devastated advertising mail, which had become the agency's largest volume. At the same time, the number of delivery points -- homes and offices where it must bring mail, was continuing to increase.

The Postal Service lost $2.8 billion last year and is facing even larger losses this year, despite a rate increase -- to 44 cents for first-class mail -- scheduled to take effect May 11.

The service said Friday it will offer early retirement to 150,000 workers across the country. In addition the agency said it will eliminate 1,400 management jobs and close six of its 80 district offices.

Postmaster General John Potter has even asked Congress to consider allowing the agency to cut mail delivery back to five days a week to save money.

"We are in uncharted waters," Potter told a Senate subcommittee in January. "But we do know that mail volume and revenue -- and with them the health of the mail system -- are dependent on the length and depth of the current economic recession."

"It is possible that the cost of six-day delivery may simply prove to be unaffordable," he said.

In its announcement Friday, the post office said it will cut management staff nationwide by 15 percent, eliminating more than 1,400 processing, supervisor and management posts at 400 facilities. And another 150,000 postal workers will be offered early retirement.

The agency also made early retirement offers last year but unions discouraged their members from accepting the offers and they were not widely used. The post office did not say if the new proposal would include financial incentives.

The American Postal Workers Union issued a statement Friday saying: "Retirement is a personal matter, and the union defers to the decisions of employees who meet the qualifications."

However, the union said it continues to challenge the Postal Service's authority to offer voluntary early retirement without including severance pay.

The district offices being closed are in Lake Mary, Fla.; North Reading, Mass.; Manchester, N.H.; Edison, N.J.; Erie, Pa.; and Spokane, Wash.

District offices handle administrative functions and officials said the closing should not affect local mail delivery. The closings were expected to take about five months.

The first quarter of the fiscal year -- October through December -- is usually the post office's busiest, but it still posted a loss of $384 million for the period.

Officials said the economic recession contributed to a 5.2 billion piece mail volume decline compared to the same period last year. If there is no economic recovery, the USPS projects volume for the year will be down by 12 billion to 15 billion pieces of mail.

The post office said that over the past year it had cut 50 million work hours, stopped construction of new postal facilities; froze salaries for postal executives, began selling unused facilities and cut post office hours.

In addition, it is negotiating an agreement with the National Association of Letter Carriers to adjust carrier routes to reflect diminished volume.

Last year's high fuel prices also sucked funds away from the post office, which operates more than 200,000 vehicles. Every one-cent increase in the price of fuel costs the post office $8 million.

The post office's annual report for 2008 lists 765,088 employees.

Changes in the law also are forcing the agency to pre-fund retiree medical benefits. A bill currently in Congress would reduce cost.

The USPS does not receive a taxpayer subsidy for its operations.

Union of film, TV workers approve new contract

Saturday March 21, 1:13 am ET
Union representing film, TV workers approves 3-year contract with Hollywood producers

LOS ANGELES (AP) -- A union that represents more than 35,000 film and television workers has approved a three-year contract with Hollywood producers.

Officials from the International Alliance of Theatrical Stage Employees said Friday the contract was unanimously endorsed by all 15 Hollywood local groups.

The contract, which goes into effect Aug. 1, includes some modest pay hikes but also cuts in health and pension benefits.

An opposition campaign by some union members accused their leaders of selling them short at the bargaining table. But a majority of members were swayed by leaders' argument that the contract was the best that could be expected given the industry's recent struggles.

Word of a potential deal with the Alliance of Motion Picture and Television Producers was first announced in November.

Cos. looking at options to union organizing bill

Saturday March 21, 12:41 am ET
By Sam Hananel, Associated Press Writer
Starbucks, other companies talking about alternatives to union organizing bill

WASHINGTON (AP) -- Starbucks Corp. and other companies are exploring alternatives to a bill that would make it easier for workers to unionize, but the idea of any compromise drew the wrath of business groups lobbying furiously to defeat the measure.
Officials at the coffee giant would not discuss exactly what alternatives to the Employee Free Choice Act the companies are considering, but confirmed late Friday that the company is "engaged in dialogue" on the topic.

"We have had conversations with like-minded companies and are open to exploring alternative solutions to the legislation as it is currently written," Starbucks spokeswoman Deb Trevino said.

A person familiar with the discussions said the other companies exploring alternatives include food seller Whole Foods Market Inc. and retailer Costco Wholesale Corp. The person spoke only on condition of anonymity because of the sensitivity of the negotiations.

The labor-friendly bill, one of the most vigorously debated in Congress this year, would take away the right of employers to demand secret-ballot elections by workers before unions could be formed. Instead, unions could gain representation if a majority of workers sign cards authorizing it.

Business groups have mobilized like never before to lobby against the bill -- also known as card check -- with Congress expected to consider the measure later this summer. Word that one of the most recognizable companies in the nation is even thinking about compromise provoked a wave of outrage from opponents of the legislation.

Stefan H. Gleason, vice president of the National Right to Work Legal Defense Foundation, called Starbucks' position "totally unacceptable."

"There can be no compromise whatsoever on the card-check bill," Gleason said. "For any company to cut a deal with big labor is to support passage of card check."

Whole Foods spokeswoman Libba Letton said the companies have been talking about "finding fair alternatives" to the current bill.

The news prompted Michael Eastman, a labor law policy specialist at the U.S. Chamber of Commerce, to fire off an e-mail to supporters late Friday, assuring them it is not a sign of cracks in the business position.

"It should not be surprising that some very small number of companies, out of the hundreds of thousands concerned with EFCA, may be exploring other options," Eastman said. "However, these companies are not representative of any true division in the business community."

Eastman urged the bill's opponents "to stay on course and on message and not get distracted by talk of alternatives."

The bill passed the House two years ago, but failed to gain 60 votes in the Senate to defeat a GOP filibuster. Labor leaders believe Democratic gains in the last election could give them the votes they need for passage.

While it is not clear what alternatives Starbucks may be considering, Washington labor lawyer Jay Krupin said he has been working with several "service industry" companies -- not including Starbucks -- to line up support for a possible compromise.

Krupin's compromise plan -- known as the 70-50-30 proposal -- would allow employees to organize without a secret ballot if 70 percent of workers sign cards. If only 50 percent sign cards, there would be a quick election within 15 days instead of the usual minimum of 42 days. If just 30 percent of employees sign cards, union officials would be allowed on the company property to garner more support.

Rhonda Bentz, of the anti-card-check Coalition for a Democratic Workplace, said that or any other plan doesn't represent the will of business community which opposes any compromise on card check.

"This is a non-starter," Bentz said. "This is worse for workers because even more will be exposed to union intimidation."

2 corporate credit unions taken over by government

Friday March 20, 9:59 pm ET
By Marcy Gordon, AP Business Writer
Regulators take over 2 big wholesale credit unions, seek to stabilize corporate credit unions

WASHINGTON (AP) -- Federal regulators on Friday seized control of two large institutions that provide wholesale financing for U.S. credit unions, a move they say was needed to stabilize the credit union system.
The National Credit Union Administration said it has taken over and put into conservatorship the two corporate credit unions, U.S. Central Federal Credit Union, based in Lenexa, Kan., and Western Corporate Federal Credit Union, in San Dimas, Calif. U.S. Central has about $34 billion in assets while Western Corporate, known as WesCorp, has an estimated $23 billion in assets.

A conservatorship enables the government to operate a financial institution. Corporate credit unions provide financing and investment services to the much larger population of retail credit unions. Some of the 28 corporate credit unions in the U.S. have sustained steep losses on paper from the depressed value of the mortgage-linked securities they hold.

The NCUA, which oversees some 7,800 federally insured credit unions, said it "will continue to take any and all steps necessary to preserve a well-functioning system of corporate credit unions and to protect the assets of (retail credit unions) and their members during the ... financial market dislocation."

The financial services provided by the two corporate credit unions "will continue uninterrupted" and there will be no direct impact on the 90 million members of retail credit unions nationwide, the NCUA said in a news release.

It said retail credit unions, which are cooperatives owned by their members, remain financially strong -- with net worth exceeding 10 percent of assets, and sustained growth in assets and membership despite the deep recession.

The NCUA staff recently completed a "stress test" of the mortgage- and other asset-backed securities held by all corporate credit unions, including U.S. Central and WesCorp, and found that "an unacceptably high concentration of risk" was contained in those two institutions, the agency said Friday. Securities held by the two have continued to lose value since late January, reducing their available cash and worsening a "loss of confidence" on the part of their member credit unions, the NCUA said.

In January, the NCUA injected $1 billion of capital into U.S. Central. At the same time, the agency moved to guarantee tens of billions of dollars in uninsured deposits at corporate credit unions overall, the latest in a series of actions to shore them up in the face of financial stress.

The NCUA said it would automatically guarantee uninsured deposits at all corporate credit unions through February and then on a voluntary basis through Dec. 31, 2010.

The agency's insurance fund is financed by fees paid by credit unions. As is the case with banks and thrifts, regular deposit accounts in federally insured credit unions are covered up to $250,000.

In December, the agency made more than $40 billion available to support several corporate credit unions with a new borrowing from the Treasury Department and provided another $2 billion to help struggling homeowners.

The NCUA also has proposed restructuring the corporate credit union system with an eye to enhancing its stability.

U.S. Central has said it expected to report a substantial loss for 2008, due to around $1.2 billion in charges for impairments in its holdings of mortgage-backed securities.

Stock rally fades as investors assess Fed moves

NEW YORK (AP) -- Investors had a change of heart about the Federal Reserve's plans to buy Treasury bonds and doused Wall Street's two-week-old rally.
Banking and other financial shares pulled the market lower Thursday as investors worried the the Fed's plan would hurt the dollar and revive inflation. But energy stocks rose, getting a lift from soaring crude oil prices.

The retreat came a day after stocks surged in reaction to the Fed's aggressive plans to pump more than $1 trillion into the financial system by buying Treasury bonds and stepping up its purchases of other debt securities. The aim is to lower borrowing rates and stimulate lending.

But investors began to digest the possible downsides of the Fed's program, such as a potentially weaker dollar that can lead to higher prices for commodities such as oil and grains. And, eventually, staples like gas and food.

"After the initial euphoria surrounding the surprise announcement yesterday, there's a little more analysis of this going on and it's leading to some questions," said Todd Salamone, senior vice president of research at Schaeffer's Investment Research.

Skepticism about how long it would take for the effects of the Fed's program to take hold also weighed down shares, particularly those of banks. Investors have been hungry for any signs that confidence may finally return to battered U.S. banks, and the market has had a generally dim view of the government's efforts to date to get lending moving again.

The Dow Jones industrial average fell 85.78, or 1.2 percent, to 7,400.80.

The broader Standard & Poor's 500 index fell 10.31, or 1.3 percent, to 784.04, while Nasdaq composite index fell 7.74, or 0.5 percent, to 1,483.48.

Declining issues narrowly outnumbered advancers on the New York Stock Exchange, where consolidated volume came to 8.8 billion shares compared with 9 billion shares Wednesday.

Wall Street's move lower ended, at least for now, a buying spree that has driven stocks sharply higher since last week. Even with Thursday's slide, the Dow is still up 13 percent and the S&P 500 index is up 15.9 percent over the past eight days. The gains are impressive considering that only a few weeks ago the market was trading at levels not seen in more than a decade.

Some analysts warned at the start of the rally that it could turn out to be the type of short-lived boost that comes about during bear markets, which are generally defined as a drop of at least 20 percent. The market is still about half below its peak in October 2007.

Joe Balestrino, a portfolio manager at Federated Investors Inc., said he doesn't expect the Fed's new money-injection program will be enough on its own to support an extended stock market advance.

"We're in a very weak environment," Balestrino said. "We don't see anything sustainable here."

Stephanie Giroux, chief investment strategist at retail brokerage TD Ameritrade, said she was optimistic that the Fed's latest medicine would work, but that any rebound is likely to be "slow and muted."

Some of traders' jitters Thursday came ahead of a quarterly expiration of options contracts on Friday. The sudden settling of many of those transactions can cause a surge in trading volume and more volatility in stock prices.

Energy stocks bucked the market's slide as oil surged above $50 a barrel. Oil jumped as the dollar sank against other major currencies in response to the Fed announcement. When the greenback weakens it essentially makes crude cheaper in other currencies.

Chevron Corp. gained 54 cents, or 0.8 percent, to $67.13, while Occidental Petroleum Corp. rose $2.14, or 3.8 percent, to $59.98.

Light, sweet crude rose $3.47, or 7 percent, to settle at $51.61 a barrel on the New York Mercantile Exchange.

Investors got a dose of good news Thursday from General Electric Co., which forecast a profitable first quarter and full year for its struggling finance unit. Fears that falling real estate values and unpaid credit card debt could further damage GE Capital have sent its stock price down 37.5 percent this year. GE's slipped 19 cents to $10.13.

Stocks rose early in the day Thursday after a report on jobless claims gave mixed messages about the state of the economy.

The number of initial requests for unemployment insurance last week dropped to a seasonally adjusted 646,000 from the previous week's revised figure of 658,000, which exceeded economists' estimates. But the number of people continuing to receive benefits set a new record for the eighth straight week, jumping 185,000 to a seasonally adjusted 5.47 million.

Financial stocks, which led the rally that began last week, couldn't hold their gains and dragged the market lower. Some investors were selling to lock in profits after several of those stocks doubled or tripled in a matter of weeks.

Citigroup fell 48 cents, or 15.6 percent, to $2.60, while JPMorgan Chase & Co. dropped $2.16, or 8 percent, to $24.95. Citigroup had traded just under $1 early last week.

Analysts also said short-selling was likely at play on Thursday, as investors placed bets that stocks would fall further.

In corporate news, FedEx Corp. said it plans to cut more jobs and trim wages again, as the company reported its fiscal third-quarter profit tumbled 75 percent. The shipping company is often seen as a bellwether for the economy. FedEx jumped $2.05, or 4.8 percent, to $45.10.

The Russell 2000 index that tracks small company stocks fell 4.37, or 1 percent, to 413.26.

Bond prices were mixed a day after steep gains because of news from the Fed.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 2.60 percent from 2.50 percent late Wednesday. The yield on the three-month T-bill, considered one of the safest investments, slipped to 0.18 percent from 0.20 percent late Wednesday.

The dollar mostly fell against other major currencies, while gold prices soared.

Overseas, Britain's FTSE 100 rose 0.3 percent, Germany's DAX index gained 1.2 percent, and France's CAC-40 rose 0.6 percent. Japan's Nikkei stock average fell 0.3 percent.

House passes bill taxing bonuses for AIG, others

WASHINGTON (AP) -- Denouncing a "squandering of the people's money," lawmakers voted decisively Thursday to impose a 90 percent tax on millions of dollars in employee bonuses paid by troubled insurance giant AIG and other bailed-out companies.
The House vote was 328-93. Similar legislation has been introduced in the Senate and President Barack Obama quickly signaled general support for the concept.

"I look forward to receiving a final product that will serve as a strong signal to the executives who run these firms that such compensation will not be tolerated," the president said in a statement.

House Speaker Nancy Pelosi, D-Calif, told colleagues, "We want our money back now for the taxpayers. It isn't that complicated."

The outcome may not have been complicated. But the lopsided vote failed to reflect the contentious political battle that preceded it.

Republicans took Democrats to task for rushing to tax AIG bonuses worth an estimated $165 million after the majority party stripped from last month's economic stimulus bill a provision that could have banned such payouts.

"This political circus that's going on here today with this bill is not getting to the bottom of the questions of who knew what and when did they know it," said House Republican Leader John Boehner of Ohio.

He voted "no," but 85 fellow Republicans joined 243 Democrats in voting "yes." It was opposed by six Democrats and 87 Republicans.

The bill would impose a 90 percent tax on bonuses given to employees with family incomes above $250,000 at American International Group and other companies that have received at least $5 billion in government bailout money. It would apply to any such bonuses issued since Dec. 31.

The House vote, after just 40 minutes of debate, showed how quickly Congress can act when the political will is there.

It was only this past weekend that the bailed-out insurance giant paid bonuses totaling $165 million to employees, including traders in the Financial Products unit that nearly brought about AIG's collapse.

AIG has received $182.5 billion in federal bailout money and is now 80 percent government owned.

Disclosure of the bonuses touched off a national firestorm that both the Obama administration and Congress have scurried to contain.

In a statement issued by the White House late Thursday, Obama said the House vote "rightly reflects the outrage that so many feel over the lavish bonuses that AIG provided its employees at the expense of the taxpayers who have kept this failed company afloat."

"In the end, this is a symptom of a larger problem -- a bubble-and-bust economy that valued reckless speculation over responsibility and hard work," he said. "That is what we must ultimately repair to build a lasting and widespread prosperity."

In his statement, Obama did not explicitly endorse the House bill. Instead, he was careful to take a wait-and-see attitude on the details of the final legislation while making clear that he supports the effort to get the bonus money back for taxpayers.

Topic No. 1 raised by Republicans during the House debate was the last-minute altering of a provision in Obama's $787 billion stimulus law to cap executive compensation for firms receiving government bailouts.

The measure might have forestalled payment of the AIG bonuses.

But Senate Banking Committee Chairman Chris Dodd, a Connecticut Democrat and the author of the provision, says the administration insisted that he modify his proposal so that it would only apply to payments agreed to in the future.

That, critics claim, cleared the way for the AIG payouts.

"The idea came from the administration," Dodd said Thursday

Dodd said he was not aware of any AIG bonuses at the time the change was made.

Treasury Secretary Timothy Geithner confirmed such conversations with Dodd. He said the administration was worried about possible legal challenges to the provision.

"We expressed concern about this specific version," Geithner said in an interview with CNN. "But we also worked with him to strengthen the overall bill."

The treasury secretary, who has been criticized for not learning of the AIG bonus payments sooner since he helped orchestrate the bailout last year as president of the New York Fed, said anew in the interview that he was not informed of the bonuses until last week.

"And as soon as I heard about the full scale of these things, we moved very actively to explore every possible legal avenue to address this problem," Geithner said.

A similar -- but not as punitive -- bill to recoup bonus payments with taxes was gaining support in the Senate.

It would impose a 35 percent excise tax on the companies paying the bonuses and a 35 percent tax on the employees receiving them. The taxes would apply to all companies receiving government bailout money, but they are clearly geared toward AIG.

"This is not just another case of runaway corporate greed and arrogance, ripping off shareholders by excesses lavished around the executive suite," said Rep. Earl Pomeroy, D-N.D. "These bonuses represent a squandering of the people's money. ... Starting right here, right now, we are saying no more."

The Senate measure is sponsored by Sen. Max Baucus of Montana, the chairman of the Senate Finance Committee, and the panel's senior Republican, Chuck Grassley of Iowa. It was expected to be brought to the Senate floor next week.

Meanwhile, New York's attorney general, Andrew Cuomo, said AIG has given him the list of employees who received a total of $165 million in retention bonuses.

Cuomo said he won't release any employees' names until his office has answered any security concerns raised by the AIG employees.

He also said he will work with AIG in the coming days to determine which workers have decided to return the payments.

Cuomo had sought the names from AIG chief executive Edward Liddy through a subpoena. The deadline was Thursday.

About 400 AIG employees and future employees received bonuses, but not all of them earned over the $250,000 family income threshold specified by the House bill.

Obama administration special envoy Richard Holbooke was on AIG's board of directors in early 2008, when the insurance company committed to the bonuses, and during the previous years of aggressive investment strategies that brought the firm to brink of collapse. White House spokesman Tommy Vietor said Thursday: "Mr. Holbrooke had nothing to do with and knew nothing about the bonuses."

While the House legislation calls for a 90 percent tax, Rep. Charles Rangel, D-N.Y., chairman of the tax-writing House Ways and Means Committee, said he expected local and state governments to take the remaining 10 percent of the bonuses.

Rangel said the bill would apply to mortgage giants Fannie Mae and Freddie Mac, among others, while excluding community banks and other smaller companies that have received less bailout money.

"The American people demand protection and that's what we're doing today," he told the House.

The bill is HR 1586

NY AG expects Merrill bonus names tonight

NY attorney general expects list of Merrill bonus recipients from Bank of America tonight

* Thursday March 19, 2009, 8:09 pm EDT
NEW YORK (AP) -- New York's attorney general expects to receive the names of Merrill Lynch employees who got millions in bonuses before Bank of America Corp. bought the brokerage.
Alex Detrick, spokesman for New York Attorney General Andrew Cuomo, said Cuomo expected the names Thursday evening.

Cuomo is investigating whether Charlotte, N.C.-based Bank of America and Merrill failed to provide proper disclosures to shareholders about the bonuses, which came just as Bank of America requested more federal aid to help it absorb losses linked to the investment bank.

Bank of America spokesman Scott Silvestri also said he expects the details of the Merrill bonuses will be delivered to Cuomo's office Thursday night.

Earlier Thursday, Cuomo's office also received a list of American International Group Inc. employees who received a total of $165 million in retention bonuses.

Obama asks patience, guarantees better days ahead

Asking for patience, Obama promises better times ahead and highlights aid for homeowners

* Charles Babington, Associated Press Writer
* Thursday March 19, 2009, 7:59 pm EDT
LOS ANGELES (AP) -- Buoyed by adoring crowds far from Washington's political wars, President Barack Obama guaranteed Americans on Thursday that the nation's economy will recover, though he asked them for patience.
Obama looked every bit the campaigner as he sometimes mocked his GOP critics, and sometimes asked people to forgive his shortcomings. In general, his demeanor and message were more upbeat than in recent days when public fury over executive bonuses dominated Congress.

"We will come out on the other side stronger and a more prosperous nation," he said, acknowledging the nation's economic crisis. "That I can guarantee you. I can't tell you how long it will take, what obstacles we'll face along the way, but I promise you this: There will be brighter days ahead."

The comments brought another roar of approval from about 1,000 people at a town hall forum in Los Angeles, where questions were more fawning than pressing. "I'm very glad and thankful that you are our president," the first questioner began. The second said, "thank God for you."

In his second California town hall in as many days, Obama asked Americans to back his plans to overhaul health care, change energy policies, and spend more on roads, education and many other areas to boost the stalled economy. The resulting large deficits will be temporary and justified, he said.

He told Americans not to expect "something for nothing" from their government. Improvements to the economy and medical care will take time, he said.

"Nothing is free," the president said. Responding to a woman's complaint about cuts in jobs and salaries for California teachers, Obama urged people not to ask the federal and state governments to cut taxes and improve services at the same time.

"At some point you've got to make some choices," he said.

"We are not always going to be right," he said. "And I don't want everybody disappointed if we make a mistake here or there."

The important questions, he said, are whether things are moving "in the right direction" and whether he is keeping his main campaign promises.

Obama mocked Republican officials who call his plans too costly even though they presided over huge deficits while they controlled Congress and the White House.

"Where have you been?" he said. "What have you been doing?"

Obama also announced fresh aid to struggling homeowners in California. He said the state would receive $145 million to help communities hardest hit by the home foreclosure crisis. He said the money would be used to buy up and rehabilitate vacant homes, and provide loans to poorer and middle-income families to help with home assistance.

He announced a new Web site to help people around the nation: http://www.makinghomeaffordable.gov/.

California's GOP governor, Arnold Schwarzenegger, gave the president a far warmer greeting than Obama has received from Republicans in Congress. "It's great to have him here," Schwarzenegger said in introducing Obama to the crowd. He thanked Obama for "courageous leadership."

Obama called the governor "one of the great innovators of state government" and "an outstanding partner with our administration."

The president capped his day on comedian Jay Leno's late-night talk show, taping his appearance at NBC's Burbank, Calif., studios a few hours in advance of its airing.

California Republican Party Chairman Ron Nehring was not amused. While the two "swap jokes," Nehring said in a statement, "hardworking California families continue to struggle to keep their homes and jobs."

Associated Press writer Mark S. Smith contributed to this report.

Fed drives down mortgage rates; inflation may loom

WASHINGTON (AP) -- Mortgage rates tumbled to historic lows Thursday after the Federal Reserve's sudden decision to print $1.2 trillion and pump it into the economy, a move that also triggered warning signs of inflation -- a weaker dollar and the highest oil prices of the year.
The national average rate on a 30-year, fixed-rate mortgage fell to 4.94 percent, down nearly a quarter of a percentage point from a day earlier, according to financial publisher HSH Associates.

It was the first time the average had fallen below 5 percent since the publisher began keeping records in 1979. But mortgages were not exactly being passed out freely. Lenders remain extremely strict about who qualifies.

"The real story here is that the low rates are available only to solid gold borrowers," said Don Fader, a North Carolina mortgage broker who was quoting a rate just above 4.6 percent for mortgages Thursday.

The Fed announced Wednesday it would buy $750 billion in mortgage-backed securities and $300 billion in Treasury debt. It also will double its purchases of debt issued by Fannie Mae and Freddie Mac to $200 billion.

Because spending that kind of money requires the Fed essentially to print money, it meant risking inflation -- and on Thursday there were early indicators that was exactly what was happening.

It cost more than $1.36 to buy a euro, more than 2 cents higher than the previous day -- an unusually large leap. And the British pound gained 3 cents against the dollar, which fell sharply against the Japanese yen.

The jump in oil prices was even more dramatic. The price of a barrel of crude oil went up nearly $3.50, or 7 percent, on the New York Mercantile Exchange, to its highest level since early December.

That doesn't mean inflation is a sure thing, by any means. In fact, most economists think high unemployment and sluggish consumer spending will keep inflation in check as businesses hold down prices in order to maintain sales.

And given the poor shape of the economy, the Fed made clear that -- for now -- it isn't worried about inflation. It's more concerned about falling prices, or deflation. The country's last serious bout of deflation came in the 1930s.

The move was notable for its immediacy. Seemingly at the flick of a switch, the Fed was able to train a $1.2 trillion fire hose on the economy -- a sharp contrast to the slower, messier wrangling in Congress over the $787 billion stimulus plan.

"While Washington watches the economy burn, the Fed is fighting the financial fires," said economist Ethan Harris at Barclays Capital.

By snapping up Treasury securities, the Fed boosts their prices, and that drives down the yield, or interest rate. The 10-year Treasury bond dropped by the biggest one-day amount since 1981 Wednesday. It rebounded slightly Thursday.

Analysts expected mortgage rates to follow suit, and they did come down Wednesday and Thursday. But many mortgage brokers remain frustrated by the tight lending standards that make it much harder for all but the most creditworthy borrowers to qualify. Lenders already have more business than they can handle and seem reluctant to pass on lower rates.

"They're all backed up," said Douglas Braden, a broker in Fort Collins, Colo. "It's taking a lot longer to get the loans through."

Robert Gross, managing director of a financial advisory firm in Burlingame, Calif., hopes to refinance and lock in a rate as low as 4.5 percent within the next two weeks. To get ready, he provided his mortgage broker with two years of tax returns, plus copies of bank accounts, brokerage accounts and pay stubs.

"They're not taking your word for anything nowadays," he said.

The Fed move won't mean your car loans and credit cards will get any cheaper. Those are tied to short-term interest rates, and the Fed has already lowered them to nearly zero.

The deepening recession, now in its second year, is shuttering banks and other businesses and driving up home foreclosures. It has left 12.5 million people searching for work and sent unemployment to a 25-year high.

The convergence of housing, credit and financial crises -- the worst since the 1930s -- has clobbered the economy. By pumping $1.2 trillion into the economy, the Fed hopes to spur lending and get Americans spending again.

And even if the dollar loses value over the short term, it could bounce back once the economy starts to recover, said Jay Bryson, global economist at Wachovia.

Buying government bonds and expanding its purchases of mortgage-backed securities and debt from Fannie Mae and Freddie Mac will further swell the Fed's balance sheet. It has already mushroomed to more than $2 trillion, more than double what it was last year, and some economists think it could grow to $5 trillion.

Once the economy appears back on firm footing, Bernanke has said, the Fed is prepared to pull the extra money out by boosting its key short-term interest rate and by ending its various loan and debt-buying programs.

"At that time when the economy begins to grow again, we're going to have to shrink the balance sheet and ... we're watching that very, very carefully," Bernanke told lawmakers this month.

New jobless claims fall more than expected to 646K

WASHINGTON (AP) -- New jobless claims fell more than expected last week, but continuing claims set a new record for the eighth straight week and few economists expect the labor market to improve anytime soon.
The Labor Department said Thursday that initial requests for unemployment insurance dropped to a seasonally adjusted 646,000 from the previous week's revised figure of 658,000. That was better than analysts' expectations.

But continuing claims jumped 185,000 to a seasonally adjusted 5.47 million, another record-high and more than the roughly 5.33 million that economists expected.

Other economic news was slightly more upbeat. A private sector group's index of leading economic indicators dropped less than expected in February, although growth is not expected before next year. On the housing front, rates on 30-year mortgages dipped below 5 percent, and may fall further after the Federal Reserve launched a new effort to prop up that flailing market.

But on Wall Street, where the market has advanced six of the past seven sessions, stocks fell Thursday as investors scrutinized the latest Fed actions. The Dow Jones industrial average lost nearly 86 points to close at 7,400.80, and broader indicators also dropped.

The four-week average of jobless claims rose to 654,750, the highest since October 1982, when the economy was emerging from a steep recession, though the labor force has grown by about half since then.

Economists said the signs of life that have cropped up in other areas of the economy in the past week, such as upticks in retail sales and housing starts, aren't yet apparent in the labor market.

"There is no sign of even a temporary easing in the downward pressure on employment," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a client note.

Initial claims have topped 600,000 for seven straight weeks, a level that many economists say is consistent with another huge drop in net payrolls when the Labor Department issues its monthly employment report next month.

Net job losses could top 700,000 in March, Shepherdson said, which would bring total losses to above 5 million jobs since the recession began in December 2007.

Meanwhile, the New York-based Conference Board's monthly forecast of economic activity fell 0.4 percent last month, slightly better than the 0.6 percent decline economists expected. The index is designed to forecast economic activity in the next three to six months, based on 10 components that include stock prices, money supply, jobless claims and building permits.

Despite beating expectations, the index's broad decline of the past 19 months persisted and is unlikely to end until next year, economists said.

Elsewhere, government-controlled mortgage finance company Freddie Mac said Thursday that average rates on 30-year fixed-rate mortgages dropped to 4.98 percent this week, down from 5.03 percent last week. It was the lowest since the week of Jan. 15, when it was at 4.96 percent, the record low for Freddie Mac's survey that dates to 1971.

The rate quotes included in Freddie Mac's survey were taken before the Fed said Wednesday it will pump $1.2 trillion into the economy in an effort to lower rates on mortgages and other and loosen credit. That could drive mortgage rates down even further, perhaps past record lows.

But layoffs are still piling up. More job cuts were announced Thursday when FedEx Corp. said it's planning an undisclosed number of layoffs as the company reported its fiscal third-quarter profit dropped 75 percent amid severe weakness in the global economy. The Memphis, Tenn.-based company, often seen as a bellwether for the U.S. economy, also plans to scale back some workers' hours and wages.

In a separate report Thursday, the Labor Department said unemployment rose in all but one of the 372 metropolitan areas tracked by the government in January.

The job market has been hammered as employers, squeezed by reductions in consumer and business spending, cut their work forces. The unemployment rate reached 8.1 percent last month, the highest in more than 25 years. Many economists expect the rate could reach 10 percent by the end of this year.

As a proportion of the work force, the number of Americans on the jobless benefit rolls is the highest since June 1983. The 5.47 million continuing claims also were up substantially from a year ago, when only about 2.85 million people were continuing to receive unemployment checks.

The increase in continuing claims is an indication that many newly laid-off workers are having difficulty finding jobs.

And even that number is deceptively low: an additional 1.5 million people were receiving benefits under an extended unemployment compensation program approved by Congress last year. That tally was as of Feb. 28, the latest data available.

Among the states, Indiana reported the biggest increase in new claims for the week ending March 7 with a jump of more than 5,500, which it attributed to layoffs in the auto and manufacturing industries. The next largest increases were in Pennsylvania, Texas, Florida and Michigan.

The biggest drop was in New York, which had 11,218 fewer claims as a result of fewer layoffs in the service and transportation industries. Connecticut, Tennessee, California and Oregon had the next largest declines.

AP Business Writers Alan Zibel in Washington and Tali Arbel in New York contributed to this report.

Auto suppliers to get $5 billion in aid

WASHINGTON (AP) -- The Treasury Department will pump up to $5 billion in financing into troubled auto parts suppliers to prevent an auto industry collapse that could undermine the government's work to restructure General Motors and Chrysler.
The funds, announced Thursday, will be made available from the government's Troubled Assets Relief Program, or TARP, in a financial entity similar to a revolving credit. Large suppliers would be eligible for financing auto parts they have shipped to the Detroit carmakers but have not yet received payment.

U.S. automakers -- General Motors Corp., Chrysler LLC and Ford Motor Co. -- will have the option of using the program and designate the companies that need financing, giving them a large role in determining which parts suppliers will survive.

The program could have a significant impact in Ohio, which ranks first in the United States in the number of auto suppliers.

GM and Chrysler, which have received $17.4 billion in government loans, said they would use the program. Ford, which has not sought the government aid, said in a statement it would not participate "as we remain viable and expect no issue with continued payments to our suppliers."

The action was intended to help with the cash flow needs and stability of distressed auto suppliers, whose collapse could lead to the disruption of car production by the Big Three and inflict more damage on the economy.

Members of the auto task force, who spoke on condition of anonymity because their discussions have been private, said the financing was a first step in restructuring the car industry. They expect to provide a framework for revamping GM and Chrysler by March 31.

"The program will provide supply companies with much needed access to liquidity to assist them in meeting payrolls and covering their expenses, while giving the domestic auto companies reliable access to the parts they need," Treasury Secretary Timothy Geithner said in a statement.

Officials said foreign automakers with U.S. operations would not be eligible to use the so-called "supplier support program."

Lawmakers from Michigan and other states with auto manufacturing cheered the announcement, but it was met with resistance from some Republicans who said the TARP funding should not be used to prop up manufacturers.

"The administration needs to work with Congress instead of running the country by executive fiat without checks and balances on the use of taxpayer money," said Sen. Bob Corker, R-Tenn.

Auto suppliers have sought up to $25 billion to stabilize the beleaguered U.S. auto industry and have met with members of President Barack Obama's auto industry panel, which is trying to restructure GM and Chrysler. The two companies want an additional $21.6 billion in aid.

Neil De Koker, president of the Original Equipment Suppliers Association, said he was "very optimistic that this will provide many companies with the relief they need."

But the program was not intended to save company in the supply chain. Treasury officials said certain suppliers would still fail as part of the natural business cycle and analysts expect some suppliers to collapse because the industry has too much manufacturing capacity for current sales levels.

David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., said the financing will likely be used for suppliers that make complex engineered components that are made by few companies. Suppliers that manufacture body side moldings and other parts that can be duplicated elsewhere will not likely receive the aid, he said.

In a statement, General Motors said the program could "reduce the risk of vehicle production disruptions that would occur if auto suppliers were unable to produce due to lack of access to working capital liquidity." Chrysler spokeswoman Shawn Morgan declined to comment.

Suppliers who ship parts to car companies typically receive payment for those shipments about 45 to 60 days later. Under normal credit conditions, suppliers sell or borrow against those commitments to pay their workers and fund their operations.

But banks have been unwilling to extend credit to suppliers because of the uncertainty of the auto companies, so the government entity will help parts suppliers access financing.

Under the program, auto companies will be required to pay a 5 percent fee of up to $250 million to join. Suppliers will have to agree to terms of the government-backed protection and pay a small fee to participate. Suppliers will be able to sell parts that they have not yet been paid for into the government program at a modest discount.

Parts makers employ about 600,000 people nationwide and many of the nation's roughly 5,000 suppliers have been cash-strapped for several years as GM, Chrysler and Ford have reduced car and truck production because of falling sales. Their outlook has deteriorated with the economic downturn, a steep decline in auto sales and prolonged car plant shutdowns in December, January and part of February.

Suppliers in Ohio have been in downward spiral the past five years, long before the economic meltdown, sandwiched by rising costs for raw materials and automakers increasing pressure to sell them parts at lower prices.

Several already have gone through bankruptcy protection, including Toledo-based Dana Holding Corp., which this week said it will cut 5,800 people worldwide, taking it down to 23,000 employees by year's end. But the company has no plans to participate in a bailout program.

"We're not seeking any federal assistance," said Dana spokesman Chuck Hartlage. "We think we have sufficient liquidity on our own."

Cleveland-based Eaton Corp. said last month it expects a 10 percent decline in its markets this year

There are dozens of other small suppliers in the state that make everything from leather seat covers to shock absorbers.

Elsewhere, American Axle & Manufacturing Holdings Inc., Visteon Corp. and Lear Corp. have all warned in recent weeks that they could be forced to file for bankruptcy protection if business didn't pick up soon.

Meanwhile, Delphi Corp., GM's former parts division, is still trying to restructure itself after more than three years under Chapter 11 bankruptcy protection.

In all, auto suppliers have said that more than 40 major suppliers have filed for Chapter 11 bankruptcy protection and more could collapse if the government does not act.

Parts suppliers told Treasury that the estimated March 2009 payments to suppliers from the Big Three automakers are $2.4 billion, compared with an average of $8.4 billion per month in the fourth quarter of 2008, threatening their industry.

"This aid comes at a critical time for this vital industry," said Rep. John Dingell, D-Mich. "I am pleased the program will be able to keep the doors open and lines operating at many U.S. auto suppliers."

Federal appeals court hears Madoff jail argument

NEW YORK (AP) -- An appeals court considering whether Bernard Madoff should remain jailed pending sentencing grilled lawyers for both sides Thursday, noting to prosecutors that Madoff could have fled the country before his massive Ponzi scheme was uncovered.

The judges were equally skeptical about arguments put forward by Madoff defense lawyer Ira Sorkin. One judge suggested Madoff was sneaky, noting that nearly all of his property was in his wife's name and that he had mailed jewelry to relatives and friends over the holidays even though he was under a court order not to move any assets.

The three-judge panel of the 2nd U.S. Circuit Court of Appeals heard arguments for a half hour from Sorkin and Assistant U.S. Attorney Marc Litt but did not immediately rule. Madoff did not appear at the hearing.

Madoff was jailed at the Metropolitan Correctional Center last week after confessing to U.S. District Judge Denny Chin that he had defrauded thousands of investors of billions of dollars for at least two decades. Chin, citing Madoff's age of 70, said he was a flight risk because he faced 150 years in prison at a June sentencing.

Sorkin appealed, saying Madoff should be allowed to remain under house arrest because he was being so closely monitored it would be impossible to flee. But Litt said Madoff has both the incentive to flee and the money and connections abroad to carry it out.

At one point during the hearing, appellate Judge Dennis Jacobs noted that Madoff could have fled in early December before he revealed his fraud to his sons and later to the FBI.

He said Madoff could have taken "$100 million and settled in some tropical republic, yet he didn't do that."

He added: "He was a respected citizen who could travel as he liked. Why isn't that really a powerful argument against your position?"

Litt answered: "It's an argument, not a powerful one."

In arguing for the court to reinstate Madoff's bail conditions, Sorkin noted that his client had been confined to his Manhattan apartment with electronic monitoring and two security guards watching video images of his building's exits. Before his plea last week, Madoff was free on $10 million bail.

Litt told the judges the measures were no guarantee, especially since the guards could fall asleep or be bribed to look the other way.

Madoff pleaded guilty to securities fraud, perjury and other charges last Thursday. On Wednesday, Madoff's longtime accountant, David Friehling, was arrested on fraud charges for allegedly failing to make the basic auditing checks that would have exposed the epic fraud.

Friehling was the first person arrested in the scandal since Madoff turned himself in last December. His prosecution signaled the government's intention on bringing Madoff's associates to justice.

Prosecutors say the 49-year-old Friehling, who was employed as Madoff's auditor from 1991 through last year, essentially rubber-stamped Madoff's books for 17 years.

Though Madoff in November reported to 4,800 investors that they had $65 billion in assets, investigators have found only about $1 billion.

Fed launches bold $1.2T effort to revive economy

Fed launches $1.2 trillion effort to revive economy; keeps key rate at record low

WASHINGTON (AP) -- With the country sinking deeper into recession, the Federal Reserve launched a bold $1.2 trillion effort Wednesday to lower rates on mortgages and other consumer debt, spur spending and revive the economy. To do so, the Fed will spend up to $300 billion to buy long-term government bonds and an additional $750 billion in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac.
Fed Chairman Ben Bernanke and his colleagues wrapped a two-day meeting by leaving a key short-term bank lending rate at a record low of between zero and 0.25 percent. Economists predict the Fed will hold the rate in that zone for the rest of this year and for most -- if not all -- of next year.

The decision to hold rates near zero was widely expected. But the Fed's plan to buy government bonds and the sheer amount -- $1.2 trillion -- of the extra money to be pumped into the U.S. economy was a surprise.

"The Fed is clearly ready, willing and able to be the ATM for the credit markets," said Terry Connelly, dean of Golden Gate University's Ageno School of Business in San Francisco.

Wall Street was buoyed. The Dow Jones industrial average, which had been down earlier in the day, rose 90.88, or 1.2 percent, to 7,486.58. Broader indicators also gained.

And government bond prices soared. Heralding a coming drop in mortgage rates, the yield on the benchmark 10-year Treasury note dropped to 2.50 percent from 3.01 percent -- the biggest daily drop in percentage points since 1981.

The dollar, meanwhile, fell against other major currencies. In part, that signaled concern that the Fed's intervention might spur inflation over the long run.

If the credit and financial markets can be stabilized, the recession could end this year, setting the stage for a recovery next year, Bernanke has said in recent weeks. The Fed chief and his colleagues again pledged to use all available tools to make that happen, and economists expect further steps in the months ahead.

Since the Fed last met in late January, "the economy continues to contract," Fed policymakers observed in a statement they issued Wednesday.

"Job losses, declining equity and housing wealth and tight credit conditions have weighed on consumer sentiment and spending," they said.

The Fed's announcement that it will spend up to $300 billion over the next six months to buy long-term government bonds was something that in January it had hinted it would do. But some officials had seemed to back off from the idea in recent weeks.

Such action is designed to boost Treasury prices and drive down their rates, as it did Wednesday. Rates on other kinds of debt are likely to fall as well.

"This is going to help everybody," said Sung Won Sohn, economist at the Martin Smith School of Business at California State University. "This might help the Fed put Humpty Dumpty back together again."

The last time the Fed set out to influence long-term interest rates was during the 1960s.

The Fed's decision to buy an additional $750 billion in mortgage-backed securities guaranteed by Fannie and Freddie comes on top of $500 billion in such securities it's already buying. It also will double its purchases of Fannie and Freddie debt to $200 billion.

Since the initial Fannie-Freddie program was announced late last year, mortgage rates have fallen. Rates on 30-year mortgages now average 5.03 percent, down from 6.13 percent a year ago, according to Freddie Mac. The Fed's decision to expand the program could further reduce rates, analysts said.

"This is not only going to keep mortgage rates low for a long period of time," said Greg McBride, a senior financial analyst at Bankrate.com. "The mere announcement may produce a honeymoon effect and bring mortgage rates down to even lower levels in the coming days."

The goal behind all the Fed's moves is to spur lending. More lending would boost spending by consumers and businesses, which would revive the economy.

The Fed also said it would consider expanding another $1 trillion program that's being rolled out this week. That program aims to boost the availability of consumer loans for autos, education and credit cards, as well as for small businesses.

Where does the Fed get all the money? It prints it.

The Fed's series of radical programs to lend or buy debt has swollen its balance sheet to nearly $2 trillion -- from just under $900 billion in September. Sohn believes the Fed's balance sheet could grow to $5 trillion over the next two years.

The Fed has said it's mindful of the risks of pumping more money into the economy, bailing out financial institutions and leaving a key rate near zero for too long. There's the potential to plant the seeds for higher inflation, put ever-more taxpayer money at risk and encourage "moral hazard." That's when companies make high-stakes gambles knowing the government stands ready to rescue them.

Across the Atlantic, the Bank of England last week began buying government bonds from financial institutions as it turned to new ways to help revive Britain's moribund economy. The Bank of England, like the Fed, already had lowered its key interest rate to a record low of 0.5 percent.

Finance leaders from top economies have discussed coordinating actions from their governments and central banks to provide a more potent punch against the global financial crisis.

The Fed is taking the new steps as the U.S. economy sinks deeper into recession. Businesses are facing weaker sales prospects as customers in the United States and abroad cut back, the policymakers said.

Still, the Fed said it hoped its actions, the government's bank rescue effort and President Barack Obama's $787 billion stimulus of increased government spending and tax cuts eventually will help revive the economy.

"Although the near-term economic outlook is weak, the committee anticipates that policy actions .... will contribute to a gradual resumption of sustainable economic growth," the Fed said.

But even in this best-case scenario, the nation's unemployment rate -- now at quarter-century peak of 8.1 percent -- will keep climbing. Some economists think it will hit 10 percent by the end of this year.

The recession, which began in December 2007, already has snatched a net total of 4.4 million jobs and has left 12.5 million searching for work.

Stocks jump after Fed says it will buy Treasurys

Wednesday March 18, 6:30 pm ET
By Tim Paradis and Madlen Read, AP Business Writer
Stocks rise after Federal Reserve says it will buy up to $300B in Treasurys; Dow gains 91

NEW YORK (AP) -- The Federal Reserve kept Wall Street's big rally alive -- and gave the Treasury market a huge boost as well.

Both markets surged Wednesday after the Fed said it would pump more than $1 trillion into the economy to help revive the housing market. The plan includes buying up to $300 billion of long-term government bonds during the next six months.

Investors expect the move to drive down borrowing costs for everything from mortgages to credit cards. The Dow Jones industrial average reversed early losses to end up 91 points and the yield on the benchmark 10-year Treasury note plunged, indicating strong demand for the note.

The dollar fell as investors worried the government's actions would eventually fan inflation.

The Fed's move, analysts said, is likely to produce an immediate drop in mortgage rates, of 0.25 to 0.5 percent percentage points. The central bank also made clear it would be able to purchase the majority of new mortgage-backed securities for at least the rest of the year, possibly longer.

That's great news for those borrowers with good incomes and healthy credit scores who are able to qualify for a loan. But dramatically tighter lending standards have made it tough for many borrowers to qualify.

Still, it was a plus for the housing industry, which many analysts believe must recover in order for the overall economy to prosper again. Homebuilder and financial company stocks shot higher on the news, which came a day after the Commerce Department reported better-than-expected housing start numbers for February.

The sheer magnitude of the Fed's proposal "indicates they have a lot of weapons still in the arsenal," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.

The Fed said it would build on a plan to buy mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac. It also will buy an additional $750 billion, bringing its total purchases of these securities to $1.25 trillion. It also will boost its purchase of Fannie and Freddie debt to $200 billion.

The Fed's announcement accompanied its decision to keep interest rates at historically low levels. Chairman Ben Bernanke has said in recent weeks that the recession could end this year if the credit and financial markets can be stabilized. Bernanke and other officials have said they would deploy whatever tools necessary to revive the economy.

"They are certainly, assertively doing everything they can to intervene," said David Darst, chief investment strategist of Morgan Stanley's Global Wealth Management Group.

The Dow Jones industrial average rose 90.88, or 1.2 percent, to 7,486.58.

Broader stock indicators also jumped. The Standard & Poor's 500 index added 16.23, or 2.1 percent, to 794.35, and the Nasdaq composite index rose 29.11, or 2 percent, to 1,491.22.

The Russell 2000 index of smaller companies jumped 14.04, or 3.5 percent, to 417.63.

More than four stocks rose for every one that fell on the New York Stock Exchange, where consolidated volume came to a heavy 9 billion shares compared with 6 billion shares traded Tuesday.

The market had traded lower ahead of the Fed's decision.

Stocks have risen for six out of the last seven days. Since the market rally began last week, the Dow has jumped 14.4 percent, and the S&P 500 has soared 17.4 percent. Those are the types of gains that would normally make for a great year in the stock market.

Government bond prices surged. The yield on the benchmark 10-year Treasury note, which moves opposite its price, tumbled to 2.50 percent from 3.01 percent late Tuesday. The yield on the three-month T-bill, considered one of the safest investments, slipped to 0.20 percent from 0.22 percent late Tuesday.

The dollar fell against other major currencies. Gold prices also slid as demand for safe haven holdings fell.

For both the stock and bond markets, the Fed's announcement was a welcome surprise. After the last Fed meeting in January, policy makers said they were considering buying government debt. But investors were skeptical the Fed would actually go through with it.

"We've suffered over the last month or so with disappointment that a lot of the initiatives out of the administration haven't materialized, and here is the Fed moving in with very strong actions to get things back on track," McCain said.

The Fed move -- which economists call "quantitative easing" -- is another way to push interest rates lower by essentially adding more money to the financial system. The Fed is using this tool now since its other main policy lever, the federal funds rate, has already been ratcheted down as low as it can go.

Bank stocks -- including Citigroup Inc., Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. -- got an extra boost after the Fed announcement. The Fed's actions are intended to keep interest rates low and also to unfreeze borrowing activity, which could be a huge help for banks.

Citi and Bank of America each jumped more than 22 percent, while Wells Fargo rose 17.5 percent and JPMorgan added 7.8 percent.

Home builders put up huge gains as well. Hovnanian Enterprises Inc. jumped 50 percent to $1.44, while Toll Brothers Inc. rose 5.7 percent. Home improvement retailers jumped as well. Home Depot Inc. rose 5.1 percent and Lowe's Cos. added 4.7 percent.

Technology stocks rose on news that International Business Machines Corp. is in discussions to buy Sun Microsystems Inc. for at least $6.5 billion in cash. Sun skyrocketed 79 percent, rising $3.92 to $8.89. IBM fell 96 cents, or 1 percent, to $91.95.

Investors are growing more hopeful that the rally in stocks might have staying power, though many remain cautious. Stocks gained 20 percent from late November until the start of the year, only to come crashing down to levels not seen in more than a decade as worries grew about the stability of the financial system and the economy's ability to turn higher.

As the Federal Reserve announced its plans, Capitol Hill focused on the millions of dollars in bonuses American International Group Inc. recently granted executives. AIG is roughly 80 percent owned by the government after receiving billions in federal bailout money.

President Barack Obama said he is seeking greater regulatory authority over financial institutions like AIG. Obama said the new powers he is seeking would be similar to those now exercised over banks by the Federal Deposit Insurance Corp. It would be part of the broader financial regulatory steps the administration is creating.

AIG rose 44 percent to $1.38.

Meanwhile, an unexpected build in gasoline inventories helped send oil prices lower. Light, sweet crude fell $1.02 to $48.14 per barrel on the New York Mercantile Exchange.

Overseas, Britain's FTSE 100 fell 1.4 percent, Germany's DAX index rose 0.2 percent, and France's CAC-40 fell 0.3 percent. Japan's Nikkei stock average rose 0.3 percent.