Stimulus Advances; Treasury Next

Spurred on by President Barack Obama, an $838 billion economic recovery plan advanced toward passage in the Senate on Tuesday after clearing a last procedural hurdle with the help of three Republicans Monday evening.

Sen. Edward M. Kennedy (D-Mass.), ill with cancer, returned for the 61-36 roll call in a dramatic show of Democratic unity behind Obama — and a landmark shift in fiscal policy in the face of the economic crisis facing the nation.

Republican support was confined to three moderates: Maine Sens. Susan Collins and Olympia Snowe and Sen. Arlen Specter of Pennsylvania. All had a major hand in negotiating provisions in the bill, including a Collins-Specter deal last Friday to scale back the package by $108 billion. But the lack of more bipartisan support remains a disappointment for the White House and leaves the president battling criticism from his defeated rival, Sen. John McCain (R-Ariz.).

“This is neither bipartisan nor a compromise. It is generational theft,” said McCain in a biting speech on the floor. And new tax estimates Monday for the Senate bill suggest that just 87% of filers will actually benefit from the president’s signature Making Work Pay $500 credit to offset payroll taxes.

Mindful of these critiques, Obama himself grabbed hold of the presidential microphone as never before, campaigning in the industrial Midwest and then hosting a prime-time televised press conference back at the White House.

With Treasury Secretary Timothy Geithner scheduled to speak Tuesday on the banking and foreclosure crisis, the administration seems intent on conveying a greater urgency — and a more human face — to a complex agenda that can seem a maze of frightening numbers to nervous voters.

“We have inherited an economic crisis as deep and as dire as any since the Great Depression,” the president said at a town hall appearance in Elkhart, Ind. “Economists from across the spectrum have warned that, if we don’t act immediately, millions of more jobs will be lost. ... And our nation will sink into a crisis that at some point we may be unable to reverse.”

At his White House press conference, he said his goal is to break the “negative spiral” in the economy and that he can’t afford to be discouraged by the lack of bipartisan support.

“There have been a lot of bad habits built up here in Washington,” Obama said. “It’s going to take time to break down some of those bad habits”

He said his overtures to Republicans had been designed to “to build up some trust over time. But he told reporters: “Understand the bottom line that I’ve got right now . . . . I can't afford to see Congress play the usual political games. What we have to do right now is deliver for the American people.”

Geithner’s Treasury speech is confined to the second half of a $700 billion financial markets rescue fund already approved by Congress last fall. He will testify later in the day before the Senate Banking Committee, and Treasury began briefing committee staff in the Senate and House Monday evening.

Beyond the $350 billion already approved, the government could need more money given the number of banks teetering near insolvency. And Senate Republican Leader Mitch McConnell (R-Ky.) suggested the White House was “trying to kind of slow walk the cumulative effect of quite a lot of spending.”

Obama deflected such questions in his press conference, saying he first wanted to show that the money available could be properly used. And in fact, top Democrats say Treasury would be foolish to ask for more until first trying to heal the rifts left by former Secretary Henry Paulson’s handling of the first $350 billion.

The recovery bill before Congress and Geithner’s speech are both of a piece to try to do this. First by focusing on job losses in the real economy and second in Geithnr’s case, committing an estimated $50 billion of the rescue funds toward mitigating home foreclosures — a major issue for Democrats.

The Federal Reserve remains a major player, and Treasury’s plan anticipates a major expansion of the Fed’s Term Asset-Backed Securities Loan Facility (TALF) to ease consumer credit. But like his predecessor, Geithner’s most complex challenge is finding a way to attract private capital back into the market to buy up bad mortgage assets that are hanging over the banking industry. 

One option is a proposed $500 billion private-public banking partnership of sorts in which government would support private sector purchases of bad assets and thereby stretch the Treasury dollars available. But Geithner must also take steps to greatly increase the transparency of Treasury’s interaction with banking interests and require better reporting by them of what is done with the capital invested by the government.

Meeting with House Democratic leaders last week, Geithner went out of his way to avoid “bashing” Paulson, with whom he worked as president of the Federal Reserve Bank of New York. But he also made clear that he disagreed with some of Paulson’s handling of the funds and presented himself as more of a career public servant than did the former Goldman Sachs CEO and investment banker.

Geithner spoke of his wife, a social worker in New York City, and his children in public schools, striking a chord with Democratic members. House Majority Whip Jim Clyburn (D-S.C.) urged him to speak more about himself to rank-and-file members, and Geithner did so at his request at a party issues conference in Virginia later in the week.

These small steps are not insignificant as Obama tries to forge some unity of purpose with Congress in dealing with the crisis facing the nation.

In the stimulus bill, the president is challenging conventional wisdom in Washington by using spending, not just tax cuts, to try to stimulate demand and slow the rapid rise in unemployment. At the same time, he must overcome the anger and “bailout fatigue” expressed by many conservatives, who have mounted strong grass-roots pressure on Republicans to resist his agenda.

Republican aides say the flood of phone calls and well-organized e-mails against the plan over the past week is the greatest since the right-wing attacks on immigration legislation in the last Congress. And since many Republican lawmakers live in fear of primary challenges, this would help explain why so few have come over to help the president.

Obama’s advisers argue that their own polls show a real disconnect between the inside-Washington mind-set, often critical of the plan, and everyday voters such as those in Indiana on Monday, who are worried about jobs.

“One thing that we learned over two years is that there’s a whole different conversation in Washington than there is out here,” Obama adviser David Axelrod told reporters traveling to Indiana. “If I had listened to the conversation in Washington during the campaign for president, I would have jumped off a building about a year and a half ago.”

Nonetheless, House Democrats would have preferred to see Obama out on the stump earlier, possibly helping them get Republican support when the bill went through the House. And selling more spending as stimulus is a tough idea still to get across to many voters.

“While Obama gets ‘style points’ for his handling of this issue, make no mistake, Americans have very mixed attitudes about the stimulus plan and are not sold on either its urgency or its substance,” said Republican pollster Neil Newhouse in a memo Monday.

Obama isn’t helped by the fact that simply putting a firm price tag on the immense package is such a challenge for budget scorekeepers.

For example, after negotiations last week with Republican moderates, it was generaly agreed that the revised Senate package would cost about $827 billion, based on prior estimates by the Congressional Budget Office and tax committees. But CBO released a new set of numbers late Monday suggesting the real cost is about $838 billion.

It’s just a little more than a 1 percent difference that appears to be driven by a side effect of new caps on executive pay on Wall Street. Over 10 years, the tables suggest that could cost $10.8 billion in foregone federal revenues.
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