Sunday, January 25, 2009

Bigger bank bailouts coming?

President Barack Obama's top economic adviser would not rule out Sunday that more money may be needed to stabilize the U.S. financial system as a deep recession increases banks' losses.

Lawrence Summers, head of the National Economic Council, also said there was no question that tax cuts passed under former President George W. Bush needed to be repealed, though he would not be pinned down on exactly when.

"We can make important progress and get started with the support that has been provided," Summers said on NBC's "Meet the Press" when asked whether taxpayers should expect another request for funding to shore up the financial system. "What ultimately will be necessary is something that will play out over time."

House Speaker Nancy Pelosi said earlier that "some increased investment" may be needed beyond the $700 billion approved last fall.

The bailout fund was first pitched as a way to get bad assets off the banks' books in the hope that doing so would help restore normal lending and get the economy going.

Instead, most of the money has gone to buy stakes in banks, and both Democrats and Republicans have complained that the cash was doled out with too few strings attached and insufficient oversight.

But as the economy weakens and unemployment rises, the pile of bad debts on bank balance sheets is likely to grow, which may force Obama's administration to take bolder action.

One idea that has been much discussed on Wall Street is setting up a "bad bank" that would serve as a repository for those assets that are difficult to value or sell. Summers did not comment directly on that concept, although other members of Obama's economic team have mentioned it as an option.
Repeal tax cuts

Summers said Obama and his choice for Treasury secretary, Timothy Geithner, would provide more detail on economic policy in the coming weeks, but they said an $825 billion stimulus package working its way through Congress is the proper size and shape to help revive the economy.

Responding to criticism that the package contained too little immediate help, Summers said Obama was committed to spending three-quarters of that sum in the first 18 months.

"We're not going to rush things to the point of being wasteful," Summers said. Items like tax cuts and aid for state and local government would provide quick assistance, he added.

While Obama has pledged tax reductions for 95% of households, Summers said Bush's tax cuts must be repealed because the country is facing a severe budget gap and a massive longer-term entitlement spending burden.

"I don't think there's any question they have to be repealed," Summers said. "The country can't afford them for the long run. They have to be allowed to expire. What the timing will be, that's something that's got to get worked out through the legislative process."

Summers would not say when he thought the tax cuts should be eliminated, and the leader of the House Republicans said he did not think that would happen this year.

"I've got my doubts whether they'll be bold enough to do that," Rep. John Boehner of Ohio said on "Meet The Press". To top of page
Mr. President...we've got a plan: Crack down on credit-card companies. Help small businesses. Everyday Americans tell Barack Obama how they'd save the economy.

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