Reidblog [The Reid Report blog]

President Bush sought to reassure shaky markets and frightened consumers about worsening economic conditions today, asserting that the U.S. economy is fundamentally sound and urging Congress to quickly pass legislation to shore up mortgage giants Fannie Mae and Freddie Mac....

...The president also played down predictions that large numbers of banks may be on the verge of failure and spoke at length about the federal insurance system that guarantees deposits up to $100,000. Federal regulators last week took over IndyMac Bancorp of California amid a run on the bank's reserves.

"My hope is that people take a deep breath and realize their deposits are safe. I think the system is basically sound," Bush said.

"I'm not an economist, but I do believe we're growing," he said later, adding that the economy is "not growing the way it should."

The twin problems of slow growth and rising prices are making it difficult for federal policymakers to chart a course for the economy, Federal Reserve Chairman Ben S. Bernanke said today, as he outlined a raft of problems facing the country -- including "ongoing strains" at banks and finance companies and a string of recent job losses and declining home prices.

Wall Street was lower again today, with major U.S. indexes initially off as much as 1.5 percent. Shares, however, rebounded to near even by midday as news came oil prices fell by more than $8 a barrel, to around $136, as investors weighed the degree to which a global slowdown will undercut demand. Asian and European markets fell overnight.

Bernanke described worry about the run-up in the price of oil and other commodities, and said that it may lead businesses to raise prices for goods other than food and energy in the future.

"With businesses facing persistently higher input prices, they may attempt to pass through such costs into prices . . . more aggressively than they have so far," Bernanke said.

DETROIT (AP) — General Motors Corp. said Tuesday it will lay off salaried workers, cut truck production, suspend its dividend and borrow $2 billion to $3 billion to weather a severe downturn in the U.S. market.
GM said the moves will raise $15 billion to help cover losses and turn around its North American operations, including $10 billion from internal cost-cutting and $5 billion from selling some assets and borrowing against others.
"In short, our plan is not a plan to survive. It is a plan to win," GM Chairman and CEO Rick Wagoner said in a broadcast to employees.

GM's shares fell as much as 6 percent to a new 54-year low of $8.81, then rebounded to $9.94 in midday trading, up 56 cents from Monday's close.

Chief Operating Officer Fritz Henderson said GM wants to reduce its total salaried costs in the U.S. and Canada by more than 20 percent.
A large chunk of the reduction, he said, would come from cutting health care benefits for salaried retirees. Those people would get a pension increase from the company's overfunded pension fund to help compensate for Medicare and supplemental insurance, the company said.

Several thousand jobs will be cut through normal attrition and retirements, and through early retirement and buyout offers, Henderson said. The company could resort to involuntary layoffs but does not want to, he said.

(Bloomberg) -- The dollar declined to a record low against the euro on speculation Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson will say credit- market losses are hurting U.S. economic growth.

The currency dropped the most versus the yen since the March collapse of Bear Stearns Cos. and fell to a 25-year low versus the Australian dollar on concern confidence in the debt of Fannie Mae and Freddie Mac will diminish even after the U.S. government pledged support for the firms. The pound surpassed $2 for the first time since July 1 as inflation accelerated.

The economy showed the depth of its twin problems on Tuesday, slow growth and rising inflation, as the nation wrestled with a teetering financial system, a slumping dollar and rising prices for food and fuel.

The Labor Department reported that soaring costs for gasoline and food pushed inflation at the wholesale level up by a bigger-than-expected 1.8 percent in June, leaving inflation rising over the past year at the fastest pace in more than a quarter-century.

Over the past 12 months, wholesale prices are up 9.2 percent, the largest year-over-year surge since June 1981, another period when soaring energy costs were giving the country inflation pains.

Core inflation, which excludes energy and food, was better behaved in June, rising by just 0.2 percent, slightly lower than expectations.

A separate report from the Commerce Department showed that all the economy's problems were weighing on the consumer. Retail sales edged up by a tiny 0.1 percent in June, weaker than had been expected, as consumer spending was held back by a sharp plunge in sales at auto dealerships.

While the Federal Deposit Insurance Corporation (FDIC) is keeping secret its official list of 90 troubled banks, ABC News has obtained other lists prepared by several research groups and financial analysts.

The lists use versions of the so-called "Texas ratio" which compare a bank's assets and reserves to its non-performing loans, based on financial data made public by the FDIC in March.

Analysts say banks with a ratio over 100 per cent would be the most likely to fail, based on what happened to Texas savings and loans during the 1980's.

Labels: Bush administration, the Bush recession, u.s. economy, worst president ever