• FEBRUARY 27, 2009, 7:07 P.M. ET

The Dangers of Turning Inward

Countries are attempting to protect their own companies and workers from the economic crisis. The financial and political damage will be severe, argues Jeffrey E. Garten.

 

By JEFFREY E. GARTEN

Reuters

Protesters clash with riot police in Athens Dec. 18 in the midst of the economic crisis.

Not long ago, on a visit to Bangalore, India, I made what I thought would be a 15-minute trip to the outskirts of the city. The journey took 90 minutes on roads filled with cars, trucks, bicycles, push carts, children, all kinds of animals and giant potholes. At one point my taxi was at a dead stop for what seemed like an eternity, waiting for a small group of cows to move to the side of the road. It was dusty and noisy, filled with the sounds of buzzing scooters and honking horns.

We eventually came to our destination: the campus of Infosys, an Indian technology company with major operations around the world. Here was a city within a city, with ultra-modern buildings, movie theaters, restaurants with international cuisine, workout facilities, classrooms for executive education, accommodations for workers who had to stay late and communications capabilities that I had never seen in American companies.

Two worlds. One globalized, the other not. One that had access to the world’s capital, technology and management, the other stuck in another century. Many of Infosys’s management and employees came from that poorer world. I wondered what it would take to pull up the millions of others.

In the next 24 hours, approximately 180,000 people in developing countries will be moving from the countryside to cities such as Shanghai, Sao Paulo, Johannesburg. The same will happen tomorrow and every day thereafter for the next 30 years, the equivalent of creating one new New York City every two months, according to the United Nations. These men and women will need everything — electricity, water, food, heath care, shelter, schools, computers and, of course, jobs. Many have the potential to improve not just their local environments but the world. For better or worse, the forces of globalization have pushed them to urban areas to seek a better life. And it will be globalization that opens the world to them, allowing international agencies to pump in capital, multinational companies to help supply technology and management, and Western universities to transfer knowledge.

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Reuters

British union members stage a rally at a power station on Feb. 11 over claims that overseas workers were being hired.

Yet if historians look back on today’s severe downturn, with its crumbling markets, rising unemployment and massive government interventions, they could well be busy analyzing how globalization — the spread of trade, finance, technology and the movement of people around the world — went into reverse. They would likely point to the growth of economic nationalism as the root cause.

Ordinary protectionism such as tariffs and quotas would be one aspect of this problem, but it won’t be the worst of it because a web of treaties and the enforcement capabilities of the World Trade Organization will constrain the most egregious behavior. Economic nationalism is more insidious because it is broader, more subtle and subject to fewer legal constraints. It is a frame of mind that casts doubt on the very assumption that we live in a single international market, and that relatively open borders are a virtue. It is based on a calculation that despite all the talk about economic interdependence, nations can go it alone, and could be better off in doing so. True economic nationalists want above all to protect capital and jobs in their own countries. They see global commerce not as a win-win proposition but as a contest in which there is a victor and a loser. They are thus not focused on international agreements to open the world economy; to the contrary, they are usually figuring out how to avoid international commercial obligations.

The last time we saw sustained economic nationalism was in the 1930s, when capital flows and trade among countries collapsed, and every country went its own way. World growth went into a ditch, political ties among nations deteriorated, nationalism and populism combined to create fascist governments in Europe and Asia, and a world war took place. It took at least a generation for globalization to get back on track. There have been some bouts of inward-looking governmental action since then, such as the early 1970s when the U.S. cut the dollar from its gold base and imposed export embargoes on soybeans and steel scrap. However, the economic conditions were not sufficiently bad for the trend to sustain itself.

The kind of economic nationalism we are seeing today is not yet extreme. It is also understandable. The political pressures could hardly be worse. Over the last decade, the global economy grew on average about 4% to 5%, and this year it will come to a grinding halt: 0.5% according to the International Monetary Fund, where projections usually err on the optimistic side. World trade, which has grown much faster than global gross domestic product for many years, is projected to decline this year for the first time since 1982. Foreign direct investment last year slumped by 10% from 2007. Most dramatically, capital flows into emerging market nations are projected to drop this year by nearly 80% compared to 2007.

The aggregate figures don’t tell the story of what is unraveling in individual countries. In the last quarter of 2008, U.S. GDP dropped by 6.2% at an annual rate, the U.K. by 5.9%, Germany by 8.2%, Japan by 12.7% and South Korea by 20.8%. Mexico, Thailand and Singapore and most of Eastern Europe are also in deep trouble. In every case, employment has been plummeting. So far popular demonstrations against government policies have taken place in the U.K., France, Greece, Russia and throughout Eastern Europe. And the governments of Iceland and Latvia have fallen over the crisis.

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Reuters

Bulgarians demand economic and social reforms in Sofia Jan. 21.

Governments could therefore be forgiven if they are preoccupied above all with the workers and companies within their own borders. Most officials don’t know what to do because they haven’t seen this level of distress before. They are living from day to day, desperately improvising and trying to hold off political pressure to take severe measures they know could be satisfying right now but cause bigger damage later. Thinking about how their policies might affect other countries is not their main focus, let alone taking the time to try to coordinate them internationally.

Besides, whether it’s in Washington, Brussels, Paris, Beijing, Brazilia or Tokyo, it is hard to find many top officials who wouldn’t say that whatever measures they are taking that may undermine global commerce are strictly temporary. They all profess that when the crisis is over, they will resume their support for globalization. They underestimate, however, how hard it could be to reverse course.

Political figures take comfort, too, from the global institutions that were not present in the 1930s — the IMF, the World Bank and the World Trade Organization, all of which are assumed to be keeping globalization alive. This is a false sense of security, since these institutions are guided by sovereign countries. Government officials often feel that because they are going to endless crisis summit meetings — the next big one is in London on April 2, when the world’s top 20 nations will be assembling — that some international coordination is actually taking place. This is mostly an illusion. With a few exceptions, such as the so-called Plaza Agreements of 1984 when currencies were realigned, it is difficult to point to a meeting where anything major has been said and subsequently implemented.

But as the pressure on politicians mounts, decisions are being made on an incremental and ad hoc basis that amounts to a disturbing trend.

Classic trade protectionism is on the rise. In the first half of 2008, the number of investigations in the World Trade Organization relating to antidumping cases — selling below cost — was up 30% from the year before. Washington has recently expanded sanctions against European food products in retaliation for Europe’s boycott against hormone-treated American beef — an old dispute, to be sure, but one that is escalating.

In the last several months, the E.U. reintroduced export subsidies on butter and cheese. India raised tariffs on steel products, as did Russia on imported cars. Indonesia ingenuously designated that just a few of its ports could be used to import toys, creating a trade-blocking bottleneck. Brazil and Argentina have been pressing for a higher external tariff on imports into a South American bloc of countries called Mercosur. Just this week, the E.U. agreed to levy tariffs on American exports of biodiesel fuel, possibly a first shot in what may become a gigantic trade war fought over different environmental policies — some based on taxes, some on regulation, some on cap and trade — being embraced by individual countries.

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Reuters

Demonstrators call on the government to protect workers in St. Petersburg, Russia, Feb. 7.

Much bigger problems have arisen in more non-traditional areas and derive from recent direct intervention of governments. The much-publicized “Buy America” provision of the U.S. stimulus package restricts purchases of construction-related goods to many U.S. manufacturers, and although it is riddled with exceptions, it does reveal Washington’s state of mind. The bailout of GM and Chrysler is a purely national deal. Such exclusion against foreign firms is a violation of so-called “national treatment” clauses in trade agreements, and the E.U. has already put Washington on notice that it will pursue legal trade remedies if the final bailout package is discriminatory.

Uncle Sam is not the only economic nationalist. The Japanese government is offering to help a broad array of its corporations — but certainly not subsidiaries of foreign companies in Japan — by purchasing the stock of these firms directly, thereby not just saving them but providing an advantage over competition from non-Japanese sources. The French government has created a sovereign wealth fund to make sure that certain “national champions,” such as car-parts manufacturer Valeo and aeronautics component maker Daher, aren’t bought by foreign investors.

Government involvement in financial institutions has taken on an anti-globalization tone. British regulators are pushing their global banks to redirect foreign lending to the U.K. when credit is sorely needed and where it can be monitored. Just this past week, the Royal Bank of Scotland announced it was closing shop in 60 foreign countries. Western European banks that were heavily invested in countries such as Hungary, the Czech Republic and the Baltics have pulled back their credits, causing a devastating deflation throughout Eastern Europe. The Swiss are reportedly considering more lenient accounting policies for loans their banks make domestically as opposed to abroad.

This de-globalizing trend could well be amplified by Washington’s effort to exercise tight oversight of several big financial institutions. Already AIG’s prime Asian asset, American International Assurance Company, is on the block. As the feds take an ever bigger stake in Citigroup, they may well force it to divest itself of many of its prized global holdings, such as Banamex in Mexico and Citi Handlowy in Poland. It appears that new legislation under the Troubled Asset Relief Program will also restrict the employment of foreign nationals in hundreds of American banks in which the government has a stake.

Whether or not it goes into bankruptcy, General Motors will be pressed to sell many of its foreign subsidiaries, too. Even Chinese multinationals such as Haier and Lenovo are beating a retreat to their own shores where the risks seem lower than operating in an uncertain global economy. The government in Beijing is never far away from such fundamental strategic decisions.

Then there is the currency issue. Economic nationalists are mercantilists. They are willing to keep their currency cheap in order to make their exports more competitive. China is doing just that. A big question is whether other Asian exporters that have been badly hurt from the crisis — Taiwan, South Korea and Thailand, for example — will follow suit. Competitive devaluations were a major feature of the 1930s.

It’s no accident that the European Union has called an emergency summit for this Sunday to consider what to do with rising protectionism of all kinds.

There are a number of reasons why economic nationalism could escalate. The recession could last well beyond this year. It is also worrisome that the forces of economic nationalism were gathering even before the crisis hit, and have deeper roots than most people know. Congress denied President Bush authority to negotiate trade agreements two years ago, fearing that America was not benefiting enough from open trade, and an effort to reform immigration was paralyzed for years. Globally, international trade negotiations called the Doha Round collapsed well before Bear Stearns and Lehman Brothers did. Concerns that trade was worsening income distribution were growing in every major industrial nation since the late 1990s.

Whenever countries turned inward over the past half-century, Washington was a powerful countervailing force, preaching the gospel of globalization and open markets for goods, services and capital. As the Obama administration works feverishly to fire up America’s growth engines, patch up its financial system and keep its housing market from collapsing further, and as its major long-term objectives center on health, education and reducing energy dependence on foreign sources, the country’s preoccupations are more purely domestic than at any time since the 1930s.

In the past, American business leaders from companies such as IBM, GE, Goldman Sachs and, yes, Citigroup and Merrill Lynch beat the drum for open global markets. As their share prices collapse, some voices are muted, some silenced. It is not easy to find anyone in America who has the stature and courage to press for a more open global economy in the midst of the current economic and political crosswinds.

And given that the global rot started in the U.S. with egregiously irresponsible lending, borrowing and regulation, America’s brand of capitalism is in serious disrepute around the world. Even if President Obama had the mental bandwidth to become a cheerleader for globalization, America’s do-as-I-say-and-not-as-I-do leadership has been badly compromised.

If economic nationalism puts a monkey wrench in the wheels of global commerce, the damage could be severe. The U.S. is a good example. It is inconceivable that Uncle Sam could mount a serious recovery without a massive expansion of exports — the very activity that was responsible for so much of America’s economic growth during the middle of this decade. But that won’t be possible if other nations block imports.

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Reuters

A peaceful protest in Reykjavik, Iceland, on Jan. 24. Iceland’s government collapsed in the economic crisis.

For generations, the deficits that we have run this past decade and the trillions of dollars we are spending now mean we will be highly dependent on foreign loans from China, Japan and other parts of the world. But these will not be forthcoming at prices we can afford without a global financial system built on deep collaboration between debtors and creditors — including keeping our market open to foreign goods and services.

The Obama administration talks about a super-competitive economy, based on high-quality jobs — which means knowledge-intensive jobs. This won’t happen if we are not able to continue to bring in the brightest people from all over the world to work and live here. Silicon Valley, to take one example, would be a pale shadow of itself without Indian, Chinese and Israeli brain power in its midst.

More generally, without an open global economy, worldwide industries such as autos, steel, banking and telecommunications cannot be rationalized and restructured efficiently, and we’ll be doomed to have excessive capacity and booms and busts forever. The big emerging markets such as China, India, Brazil, Turkey and South Africa will never be fully integrated into the world economy, depriving them and us of future economic growth. The productivity of billions of men and women entering the global workforce will be stunted to everyone’s detriment.

Of course, no one would say that globalization is without its problems. Trade surges and products made by low-priced labor can lead to job displacement and increasing income inequality. Proud national cultures can be undermined. But these challenges can be met by reasonable regulation and by domestic policies that provide a strong social safety net and the kind of education that helps people acquire new skills for a competitive world. With the right responses of governments, the benefits should far outweigh the disadvantages. For thousands of years, globalization has increased global wealth, individual choice and human freedom.

The point is, economic nationalism, with its implicit autarchic and save-yourself character, embodies exactly the wrong spirit and runs in precisely the wrong direction from the global system that will be necessary to create the future we all want.

As happened in the 1930s, economic nationalism is also sure to poison geopolitics. Governments under economic pressure have far fewer resources to take care of their citizens and to deal with rising anger and social tensions. Whether or not they are democracies, their tenure can be threatened by popular resentment. The temptation for governments to whip up enthusiasm for something that distracts citizens from their economic woes — a war or a jihad against unpopular minorities, for example — is great. That’s not all. As an economically enfeebled South Korea withdraws foreign aid from North Korea, could we see an even more irrational activity from Pyongyang? As the Pakistani economy goes into the tank, will the government be more likely to compromise with terrorists to alleviate at least one source of pressure? As Ukraine strains under the weight of an IMF bailout, is a civil war with Cold War overtones between Europe and Russia be in the cards?

And beyond all that, how will economically embattled and inward-looking governments be able to deal with the critical issues that need global resolution such as control of nuclear weapons, or a treaty to manage climate change, or help to the hundreds of millions of people who are now falling back into poverty?

To say that there is an obvious antidote to the rise of economic nationalism is to brush off the powerful pressures that have created it. It wouldn’t be enough for President Obama to make a great speech demonstrating his determination to head off anti-global trends. Neither can any one summit turn the tide, nor any one piece of legislation.

It would be an achievement if the WTO publicized and named and shamed anti-global measures that governments were taking. Shoring up the IMF and the World Bank to help poorer countries deal with economic stress would be a good idea, too. Developing far-reaching trade adjustment policies consisting of education, training, wage insurance and other forms of community support for those people clobbered by imports will be valuable, because it would reduce protectionist pressure. Making a Herculean effort to conclude the global trade agreement that now languishes in Geneva and designing and implementing a treaty on climate change would also be a great shot in the arm. And if the efforts under way in Europe and in the U.S. to reform banking regulation could be brought under one roof — a new global banking regulator — in place of what could otherwise turn out to be competing and conflicting systems, that would be a breakthrough.

But the most powerful medicine for the disease of economic nationalism would be a short-lived recession. Under any circumstances, it will take years of work for government and business leaders to get the world back on the globalization train. The sooner that work can begin, the better.

Jeffrey E. Garten is a professor at the Yale School of Management and chairman of Garten Rothkopf, a global advisory firm. He held economic- and foreign-policy posts in the Nixon, Ford, Carter and Clinton administrations.

 

Copyright 2008 Dow Jones & Company, Inc. All Rights Reserved

http://online.wsj.com/article/SB123577692593997401.html

High & Low Finance

Failing Upward at the Fed

By FLOYD NORRIS

Published: February 26, 2009

Wall Street may be more comforted by an approach that gives banks bailouts with no strings, and that holds nobody accountable for their reckless decisions. But such an approach won’t solve the problem.

President Obama, Feb. 24, 2009

It’s not much fun to be a banker these days. One leading European banker says a poll showed that the only groups now held in lower regard are prostitutes and convicted felons. There are plenty of people who would be quite happy to see a few bankers join the latter group.

The opprobrium is well earned. The banks invented toxic securities and thought they were making lots of money from them. But the bosses seem to have been too busy flying around on their private jets to understand the risks they were taking. Now their banks are in business only because the government has poured hundreds of billions of dollars into them.

But it was not all their fault. These were regulated institutions, and the regulators failed.

Remarkably, the institution that had the most direct responsibility to prevent the debacle — the Federal Reserve — has taken little heat for its own failures. There has been no Congressional hearing where Fed officials were treated to anything like the grilling the division chiefs of the Securities and Exchange Commission received three weeks ago.

Instead, the Congress appears ready to increase the Fed’s powers.

Sometimes nothing succeeds like failure.

In his speech to Congress, the president asked the legislators to quickly reform financial regulation. It appears Congress may act quickly, but not on an overall reform plan. Representative Barney Frank, the chairman of the House Financial Services Committee, told me after the speech that he expected to pass a bill this year to make the Fed into a “systemic regulator,” able to take jurisdiction over any financial institution if it threatens the financial system.

When I asked about other regulatory reform ideas, like giving the Securities and Exchange Commission powers similar to those of the Food and Drug Administration, so that a new financial product could not be sold widely without approval, Mr. Frank said those would be for a later round of legislation.

Books will be written on the failure of the Fed in the last cycle. It decided that it did not need to worry itself over rising asset prices. So it stood by, first in the technology stock bubble, then in the housing bubble. It saw credit getting excessively loose, and leverage piling up, but comforted us with assurances that if there was a bubble, the Fed knew how to clean up after it burst, principally by cutting interest rates.

It championed letting the shadow financial system grow without oversight, and shied away from doing anything about highly risky mortgages.

Perhaps most important, the Fed and other regulators had no idea how much risk they had allowed into the system. They knew that various financial innovations were designed to let banks make more money without being required to put up more capital, but they did not figure out that that meant the capital there might be inadequate. They threw up their hands at the complexity of it all, and said banks could use their own models to assess risk.

In sum, the Fed thought it had learned the lessons of the 1930s, but it had not learned the lesson of the 1920s, that allowing asset prices to soar to absurdly leveraged heights could lead to a financial collapse as the need to repay loans forced sales that drove prices lower, resulting in the need to repay more loans, and so on and so on.

The Fed was not alone, of course. Congress was quite happy with free-flowing credit and pushed to assure that financial innovations were allowed to blossom. The S.E.C. did miss some criminals, most notably Bernard L. Madoff, and it failed in its regulation of Lehman Brothers and Bear Stearns. The Commodity Futures Trading Commission seemed more concerned with exempting new products from regulation than with investigating their potential systemic risks.

But it was the Fed that encouraged Bank of America to buy Merrill Lynch without much due diligence. And it supported Citigroup’s offer to buy Wachovia, a deal that thankfully was not completed. Only months later, it appears that the regulators seriously underestimated the financial risks faced by both Citi and Bank of America.

The current Fed chairman, Ben S. Bernanke, is not responsible for that long list of error, although, as he conceded this week, he did seriously underestimate the gravity of the problem as recently as last fall.

And he deserves credit for recent actions. The Fed has done about all it conceivably could do, cutting the interest rate it controls almost to zero, lending money against virtually any collateral a bank has and buying anything it legally can purchase. In retrospect, it may have moved too slowly, but it was faster than other major central banks.

The New York Fed, under the leadership of Timothy Geithner, who is now the Treasury secretary, also deserves credit for its work on credit-default swaps. Most of the reforms he pushed for have yet to be adopted, but he did focus the attention of senior bankers on that market, which may have reduced the damage from corporate defaults. There is one clear advantage in giving systemic duties to the Fed, rather than to any other regulator. The Fed is not dependent on Congress for funding, so it would be easier to hire staff to handle the new responsibilities. Other regulators have periodically felt budget pressures to hold down spending to levels that turned out to be unreasonably low.

But the Fed also has a major disadvantage. Unlike the S.E.C., which instinctively looks for more disclosure and more openness, bank regulators are inclined to secrecy, particularly in times of stress. They want us to trust they have the situation in hand.

Even now, the banks being bailed out have not been required to detail the toxic securities they own. Without that information, it is impossible for even sophisticated analysts to assess whether each bank has taken all the write-downs it should. That is one reason banks are hesitant to trust each other.

Mr. Bernanke’s predecessor, Alan Greenspan, has been trying to restore his reputation without admitting any error beyond assuming that banks would act rationally in making loans, and therefore not requiring large enough capital buffers.

“The real lesson here appears to be that bank regulators cannot fully or accurately forecast whether, for example, subprime mortgages will turn toxic or whether a particular tranche of a collateralized debt obligation will default, or even if the financial system will seize up,” he said in a speech last week to the Economic Club of New York. It sounded to me a little like a failing student protesting, “Dad, nobody could have passed that test.”

Is the current Fed leadership so modest about its abilities? No doubt it cannot “fully or accurately” forecast what will happen, but does it think that it can do a much better job now than it did in the years leading up to the current crisis? If so, how? What reforms are needed in the Fed’s own regulatory operations? Would such reforms have enabled regulators to see what was happening in time to at least reduce the damage?

Those are questions the Congress might want to ask before it gives the Fed a broad mandate to expand its authority.

Floyd Norris’s blog on finance and economics is at nytimes.com/norris.

http://www.nytimes.com/2009/02/27/business/economy/27norris.html?_r=1&ref=business

http://online.wsj.com/article/SB123576107411496281.html

• FEBRUARY 27, 2009, 2:45 P.M. ET

After 35 Years, Manhattan District Attorney Morgenthau to Step Down

 

Associated Press

NEW YORK — Manhattan District Attorney Robert Morgenthau has decided not to run for re-election, marking the end of a long era for a prosecutor who has locked up murderous mobsters, corrupt CEOs and thousands of other criminals for five decades.

A high-ranking person in Mr. Morgenthau’s office who is familiar with the decision says the prosecutor will announce his plans Friday afternoon. The individual spoke on condition of anonymity because the decision had not been announced.

Mr. Morgenthau, 89 years old, scheduled an announcement Friday but did not disclose its subject.

He has been a prosecutor in New York City since the Kennedy administration, when he was appointed Manhattan’s top federal prosecutor. In 1974, he became the New York state prosecutor in the Manhattan borough, leading the busiest and most prominent district attorney’s office in the nation.

“We owe much of our city’s low crime rate and safe streets to his years of great service. He will be sorely missed,” said City Council member Peter F. Vallone Jr., a former assistant to Mr. Morgenthau.

In 2005, at age 86, Mr. Morgenthau was elected for the eighth time, turning back a challenge from Leslie Crocker Snyder, a popular former state judge who tried without success to turn his age and lengthy tenure into campaign issues.

Ms. Crocker Snyder is seen as a favorite to win the post in the November election. She issued a statement Friday wishing Mr. Morgenthau well. “He has been a great institution for New York, and I hope he is happy in the next phase of his life,” Ms. Crocker Snyder said.

“As both a federal prosecutor and district attorney, his integrity and excellence is shown not just in his longevity and dedication, but in the results he delivered generations of New Yorkers,” Sen. Charles Schumer said in a statement.

Mr. Morgenthau cultivated a dignified, above-the-fray presence and was widely acknowledged by allies and foes alike as effective, nonpartisan and incorruptible.

From that emerged a reputation that extended beyond the Lower Manhattan courthouse. He was the model for the avuncular character of prosecutor Adam Schiff, played by actor Steven Hill on the long-running television series, “Law & Order.”

He hailed from a wealthy, prominent New York family. His paternal grandfather was U.S. ambassador to Turkey during World War I, and his father was treasury secretary under President Franklin D. Roosevelt, a family friend.

Mr. Morgenthau had a lifelong friendship with members of the Kennedy family. He campaigned for John F. Kennedy in the 1960 presidential race. The next year, the new president named him U.S. attorney for the Southern District of New York.

He later hired John F. Kennedy Jr. as an assistant prosecutor.

Copyright © 2009 Associated Press

 

Copyright 2008 Dow Jones & Company, Inc.

Senate agrees to give DC residents a vote
Reuters
By Thomas Ferraro WASHINGTON (Reuters) - Residents of the US capital would finally have a full voting member in Congress, heeding demands first made by democratic activists two centuries ago, under a bill passed on Thursday by the Senate.
Senate Approves Bill Giving Washington a Seat in US House Bloomberg
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Senate agrees to give D.C. residents a vote

Thu Feb 26, 2009 10:06pm GMT

By Thomas Ferraro

WASHINGTON (Reuters) - Residents of the U.S. capital would finally have a full voting member in Congress, heeding demands first made by democratic activists two centuries ago, under a bill passed on Thursday by the Senate.

On a vote of 61-37, the Senate sent the measure to the House of Representatives, which is expected to approve a similar version next week.

Once the two chambers resolve differences and pass a final bill, President Barack Obama has promised to sign it into law.

The measure would give Washington, D.C., full political representation in the House, setting up a legal challenge likely to wind up in the U.S. Supreme Court. Opponents say the U.S. Constitution allows for representation for states only, not cities or districts.

The United States is the only democracy in the world that does not provide citizens of its capital a full voting member in its legislative branch, bill backers say.

“It is patently unjust and un-American,” said Senator Joseph Lieberman, a Connecticut independent and a chief sponsor of the legislation.

Each of the 50 U.S. states have two members in the U.S. Senate. The number of representatives each state has in the 435-member House is based on their population.

Washington, D.C., which used to be part of the state of Maryland, was created as a district by the federal government and designated as the U.S. capital in 1800. Residents have sought representation in Congress ever since.

The Senate and House bills would give Washington — named for the first U.S. president and also known as the District of Columbia — a representative, but no senators.

(Editing by David Wiessler)

(thomas.ferraro@thomsonreuters.com; +1-202-789-8015; Reuters Messaging: thomas.ferraro.reuters.com@reuters.net))

© Thomson Reuters 2008. All rights reserved

FEB 26, 2009, 12:16 P.M. ET

Obama Delivers $3.6 Trillion Budget Blueprint

Plan Would Raise Taxes on Affluent, Businesses; Aims to ‘Break From a Troubled Past’

By JONATHAN WEISMAN

WASHINGTON — President Barack Obama delivered Congress a $3.6 trillion budget blueprint Thursday that hopes to “break from a troubled past” with a sharp shift toward expanded government activism, tax increases on affluent families and businesses, and spending cuts targeted at those he says profited from “an era of profound irresponsibility.”

Associated Press
Copies of President Obama’s first budget for fiscal 2010.
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Document: Budget Blueprint (144 pages)
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Pentagon Budget to Rise Modestly
Plan Boosts Funds to Fight Mortgage Fraud
Family Planning Makes Its Way Into Budget
Tougher Oversight of Labor Laws Promised
Direct-Lending Program for Student Proposed
Obama Takes Aim at Foreign Profits
Climate-Change Research Gets Big Boost
Plan Aims to Boost Spending on Veterans
Justice: Funds to Hire Police Grow
SEC May Get 13% Funding Increase
Retirement: Budget Requires Savings Plans
Web, Border Security Priorities for Homeland
Taxes, Spending Cuts to Fund Health Plan
Complete Coverage: The Obama Budget
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The budget blueprint for fiscal year 2010 is one of the most ambitious policy prescriptions in decades, a reordering of the federal government to provide national health care, shift the energy economy away from oil and gas, and boost the federal commitment to education.

One war would end, as troops leave Iraq, while another would ramp up in Afghanistan. To fund it all, families earning over $250,000 and a variety of businesses will pay a steep price, but Mr. Obama implored Americans to own up to the mistakes of the past while accepting profound sacrifices.

“We need to be honest with ourselves about what costs are being racked up, because that’s how we’ll come to grips with the hard choices that lie ahead,” Mr. Obama said Thursday morning. “And there are some hard choices that lie ahead.”

The president blamed the nation’s economic travails on the administration that preceded him and on a nation that lost its bearings. His budget plan projects a federal deficit of $1.75 trillion for 2009, or 12.3% of the gross domestic product, a level not seen since 1942 as the U.S. plunged into World War II.

“This crisis is neither the result of a normal turn of the business cycle nor an accident of history,” the president states in an opening message of the 134-page document. “We arrived at this point as a result of an era of profound irresponsibility that engulfed both private and public institutions from some of our largest companies’ executive suites to the seats of power in Washington, D.C.”

Associated Press
President Obama, accompanied by Budget Director Peter Orszag (right) and Treasury Secretary Tim Geithner, speaks about his fiscal 2010 federal budget on Thursday morning.
By 2013, the deficit would drop to $533 billion but begin to climb from there again as the heart of the Baby Boom begins drawing Social Security and Medicare benefits.

The budget’s introduction is likely to herald one of the fiercest political fights Washington has seen in years, waged on multiple fronts. Within minutes, Republicans were lambasting a document they called class warfare, designed to mire the nation in recession for years to come. Business lobbyists were girding for battle even before the budget’s unveiling. Even Democrats are likely to blanch at cuts to agriculture and other programs that have been tried before – and have failed repeatedly.

The budget sets aside an additional $250 billion to complete the president’s effort to rescue the financial markets and stabilize the banking sector. That would come on top of the $700 billion already allocated by Congress. And it is likely to grow. The budget makes clear that reserve would be used to leverage the purchase of toxic assets weighing down the banking sector’s books, $750 billion in asset purchases overall. That could mean a doubling of the original bailout in the end.

Mr. Obama proposes large increases in education funding, including indexing Pell Grants for higher education to inflation and converting the popular scholarship to an automatic “entitlement” program. High-speed rail would gain a $1 billion-a-year grant program, part of a larger effort to boost infrastructure spending even beyond the funds in his $787 billion stimulus plan.

The Defense Department would see a $20.4 billion boost in 2010, a 4% increase from this year, slowing its growth from the Bush years but securing personnel increases for the Army and Marine Corps. Mr. Obama will request an additional $75.5 billion for the wars in Iraq and Afghanistan for the rest of 2009 and another $130 billion for 2010, as he withdraws most combat troops from Iraq over 19 months but sends many of them to Afghanistan.

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Budget Stepping Stones

See the steps by which the federal budget will be finalized in the coming months.

In one of the budget’s most ambitious proposals, the president plans to cap the emissions of greenhouse gases, forcing polluters to purchase permits for emissions that would be slowly brought down to 14% below 2005 levels by 2020 and 83% below 2005 levels by 2050. The sale of those permits, beginning in 2012, would reap $646 billion through 2019. Of those revenues, $525.7 billion would be devoted to extending Mr. Obama’s signature “Making Work Pay” $800 tax credit for working couples. Another $120 billion would go to clean energy technology.

He acknowledged his $630 billion fund for a national health insurance program will not be enough to ensure access to health care for all Americans, but he said it will be a start.

To finance his proposals, the president has clearly chosen winners and losers — with the affluent heading the list of losers. In populist tones that reflect an anger he notably avoided on the campaign trail, Mr. Obama wrote, “Prudent investments in education, clean energy, health care, and infrastructure were sacrificed for huge tax cuts for the wealthy and well-connected. In the face of these trade-offs, Washington has ignored the squeeze on middle-class families that is making it harder for them to get ahead. There’s nothing wrong with making money, but there is something wrong when we allow the playing field to be tilted so far in the favor of so few.”

In that sense, the budget is payback. As expected, tax increases will rise for singles earning $200,000 and couples earning $250,000, beginning in 2011 — for a total windfall of $656 billion over 10 years. Income tax hikes would raise $339 billion alone. Limits on personal exemptions and itemized deductions would bring in another $180 billion. Higher capital gains rates would bring in $118 billion. The estate tax, scheduled to be repealed next year, would instead be preserved forever, with the value of estates over $3.5 million — $7 million for couples — taxed at 45%.

Businesses would be hit, too. The budget envisions reaping $210 billion over the next decade by limiting the ability of U.S.-based multinational companies to shield overseas profits from taxation. Another $24 billion would come from hedge fund and private equity managers, whose income would be taxed at income tax rates, not capital gains rates. Oil and gas companies would be hit particularly hard, with the repeal of multiple tax credits and deductions.

The federal government would take over most student lending. Managed care companies would lose their subsidies for offering Medicare plans. Farmers with operating incomes over $500,000 would see their farm subsidies phased out. And cotton storage would no longer be financed by the federal government.

“There are times where you can afford to redecorate your house, and there are times where you need to focus on rebuilding its foundation,” Mr. Obama said as he unveiled his plan. “Today we have to focus on foundations.”

Write to Jonathan Weisman at jonathan.weisman@wsj.com

http://online.wsj.com/article/SB123564748462081261.html

• FEBRUARY 26, 2009

Bank Capital Gets Stress Test

Dark Scenario Includes Jobless Rate Above 10% and Further 25% Drop in Home Prices

 

By DEBORAH SOLOMON and JON HILSENRATH

WASHINGTON — The Obama administration, in unveiling details of its financial-rescue plan, laid out a dark economic scenario it expects banks to be able to withstand, the starting point for what could become a significant new infusion of government cash into the banking system.

To ensure banks can survive even if the unemployment rate rises above 10% and home prices fall by another 25%, the administration will require some institutions to either raise private money or accept a bigger investment from the U.S. government. U.S. officials don’t expect the economy to deteriorate that sharply, but they want to be sure banks are prepared nonetheless.

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President Obama yesterday after meeting with lawmakers and his economic team to call for an overhaul of financial regulation.

The first step in the latest effort to shore up the banking sector will be a series of “stress tests” to assess whether the largest U.S. banks can survive a protracted slump. The tests aren’t expected to be finished until April. Banks will then have up to six months to address any shortfall.

Unlike the Bush administration’s effort to pump $250 billion into banks, the Obama team didn’t commit a set amount of money to the effort and President Barack Obama said Tuesday it is likely that banks will need additional funds beyond the $700 billion rescue package approved by Congress last fall.

The government’s investment would come in the form of convertible preferred shares, which institutions could choose to convert into common equity at any time. Regulators and investors have become more concerned about the amount of common stock banks hold, since that is a bank’s first line of defense against losses.

To ensure their balance sheets are strong, the biggest banks will be required to undergo a tough assessment, including whether they have the right type of capital. Officials said they expect banks would convert the shares to common equity as needed to help protect against losses.

MORE

• Stress Test FAQ | Terms & Conditions
• Real Time Econ: Are Scenarios Dire Enough?
• Bernanke: Officials Have Necessary Tools
• Bernanke Eases Nationalization Fears
• Banking, Economic Crises Feed the Spiral

A bank’s capital is its cushion against losses, a buffer that ensures its depositors and other lenders will get paid even if the bank runs into trouble.

Economists said most of the nation’s largest banks will likely have to raise capital under the economic assumptions that regulators plan to use. The stress test assumes an unemployment rate averaging 8.9% in 2009 and 10.3% in 2010. Because that is an average for a whole year, the test envisions the jobless rate reaching higher than those levels on a monthly basis during these stretches. It was 7.6% in January

Under some circumstances, the government might end up owning majority stakes in banks.

“I think you’ll find most firms need more capital and that Bank of America and Citigroup are going to need a boatful of new capital,” said Douglas Elliott, a fellow at the Brookings Institution.

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• Would nationalizing banks improve or worsen the crisis? Share your thoughts at Journal Community.

Banks that get a government investment will have to comply with strict executive-compensation restrictions, including curtailed bonuses for top executives and earners. The securities will pay a 9% dividend — higher than the 5% banks are required to pay under the Bush-era program — and banks would be restricted in paying dividends and from buying back their own stock. The securities would automatically convert to common stock after seven years.

Banks that have already sold preferred shares to the government as part of the $250 billion program would also be able to swap the preferred shares for convertible securities that can convert to common shares.

Administration officials said the effort is an attempt to avoid nationalizing banks and to make sure institutions can lend money. While officials said most banks are considered well capitalized, uncertainty about economic conditions is hindering their ability to lend money or attract private capital.

Treasury Secretary Timothy Geithner sought to knock down speculation that the government may nationalize banks, saying such a move is “the wrong strategy for the country and I don’t think it’s the necessary strategy.” Mr. Geithner, speaking on The NewsHour with Jim Lehrer, said there may be situations where the government provides “exceptional support” but that the best outcome is if the banks “are managed and remain in private hands.”

U.S. officials will demand that financial institutions test the resilience of their portfolios and capital against a grim, though not catastrophic, economic landscape. The test assumes a 3.3% contraction in gross domestic product in 2009, which would be the worst performance since 1946. And it assumes home-price declines of another 22% in 2009 and 7% in 2010.

Participants in Government Investment Plan

• See a list of participating companies in the bank-share purchase program.

That would be worse than most economists and the Federal Reserve currently expect. Private economists on average forecast a 2% contraction in economic output this year and a 2% rebound next year, with the jobless rate remaining below 10%.

Some private forecasters said they can imagine worse.

“I don’t have any problem believing the unemployment rate is going to move to 12% or that vicinity,” said Laurence Meyer, vice chairman of Macroeconomic Advisers LLC, a forecasting firm whose models are widely used in Washington and New York.

Mr. Meyer said regulators had to strike a delicate balance in designing their test. If they painted a truly grim scenario — the economy contracted by 9% in 1930, 6% in 1931 and 13% in 1932 — it could force banks to raise more capital than they are capable of raising, driving them further into the government’s arms.

“You don’t want to know the answer to some of the questions you might ask,” Mr. Meyer said.

Write to Deborah Solomon at deborah.solomon@wsj.com and Jon Hilsenrath at jon.hilsenrath@wsj.com

http://online.wsj.com/article/SB123557705225772665.html

• FEBRUARY 25, 2009, 11:49 P.M. ET

The 2% Illusion

Take everything they earn, and it still won’t be enough.

 

President Obama has laid out the most ambitious and expensive domestic agenda since LBJ, and now all he has to do is figure out how to pay for it. On Tuesday, he left the impression that we need merely end “tax breaks for the wealthiest 2% of Americans,” and he promised that households earning less than $250,000 won’t see their taxes increased by “one single dime.”

AP

This is going to be some trick. Even the most basic inspection of the IRS income tax statistics shows that raising taxes on the salaries, dividends and capital gains of those making more than $250,000 can’t possibly raise enough revenue to fund Mr. Obama’s new spending ambitions.

Consider the IRS data for 2006, the most recent year that such tax data are available and a good year for the economy and “the wealthiest 2%.” Roughly 3.8 million filers had adjusted gross incomes above $200,000 in 2006. (That’s about 7% of all returns; the data aren’t broken down at the $250,000 point.) These people paid about $522 billion in income taxes, or roughly 62% of all federal individual income receipts. The richest 1% — about 1.65 million filers making above $388,806 — paid some $408 billion, or 39.9% of all income tax revenues, while earning about 22% of all reported U.S. income.

Note that federal income taxes are already “progressive” with a 35% top marginal rate, and that Mr. Obama is (so far) proposing to raise it only to 39.6%, plus another two percentage points in hidden deduction phase-outs. He’d also raise capital gains and dividend rates, but those both yield far less revenue than the income tax. These combined increases won’t come close to raising the hundreds of billions of dollars in revenue that Mr. Obama is going to need.

But let’s not stop at a 42% top rate; as a thought experiment, let’s go all the way. A tax policy that confiscated 100% of the taxable income of everyone in America earning over $500,000 in 2006 would only have given Congress an extra $1.3 trillion in revenue. That’s less than half the 2006 federal budget of $2.7 trillion and looks tiny compared to the more than $4 trillion Congress will spend in fiscal 2010. Even taking every taxable “dime” of everyone earning more than $75,000 in 2006 would have barely yielded enough to cover that $4 trillion.

Fast forward to this year (and 2010) when the Wall Street meltdown and recession are going to mean far few taxpayers earning more than $500,000. Profits are plunging, businesses are cutting or eliminating dividends, hedge funds are rolling up, and, most of all, capital nationwide is on strike. Raising taxes now will thus yield far less revenue than it would have in 2006.

Mr. Obama is of course counting on an economic recovery. And he’s also assuming along with the new liberal economic consensus that taxes don’t matter to growth or job creation. The truth, though, is that they do. Small- and medium-sized businesses are the nation’s primary employers, and lower individual tax rates have induced thousands of them to shift from filing under the corporate tax system to the individual system, often as limited liability companies or Subchapter S corporations. The Tax Foundation calculates that merely restoring the higher, Clinton-era tax rates on the top two brackets would hit 45% to 55% of small-business income, depending on how inclusively “small business” is defined. These owners will find a way to declare less taxable income.

The bottom line is that Mr. Obama is selling the country on a 2% illusion. Unwinding the U.S. commitment in Iraq and allowing the Bush tax cuts to expire can’t possibly pay for his agenda. Taxes on the not-so-rich will need to rise as well.

On that point, by the way, it’s unclear why Mr. Obama thinks his climate-change scheme won’t hit all Americans with higher taxes. Selling the right to emit greenhouse gases amounts to a steep new tax on most types of energy and, therefore, on all Americans who use energy. There’s a reason that Charlie Rangel’s Ways and Means panel, which writes tax law, is holding hearings this week on cap-and-trade regulation.

Mr. Obama is very good at portraying his agenda as nothing more than center-left pragmatism. But pragmatists don’t ignore the data. And the reality is that the only way to pay for Mr. Obama’s ambitions is to reach ever deeper into the pockets of the American middle class.

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Swaps Need Regulation After Bank Losses, Gensler Says (Update1)

By Ian Katz and Tina Seeley

Feb. 25 (Bloomberg) — Gary Gensler, the nominee to head the Commodity Futures Trading Commission, is dogged by a decade- old debate with former Chairman Brooksley Born over whether to regulate private derivative contracts blamed in part for $1 trillion in global bank losses.

The Baltimore native, then working for Treasury Secretary Robert Rubin, was on the side that opposed oversight by the CFTC, the watchdog for $5 trillion in commodity and financial futures. Since President Barack Obama nominated him Dec. 18, Gensler has been working to convince members of Congress that he is now ready to expand the agency’s regulatory authority to include $28 trillion in credit-default swaps and other derivatives.

“The stakes are very high,” said Andrew Lowenthal, a lobbyist with Porterfield & Lowenthal LLC in Washington and former CFTC chief of staff. Lawmakers “want to understand where Gary is going to come from. There are a lot of tricky issues.”

At his confirmation hearing today, Gensler, 51, told the Senate Agriculture Committee that “we must urgently develop a broad regulatory regime for over-the-counter derivatives markets.” Credit-default swaps “will also require further regulation,” Gensler said.

Before today’s session, Committee Chairman Tom Harkin, a Democrat from Iowa, wanted to ask the nominee about why he hadn’t supported oversight in the past and why the Treasury didn’t heed Born’s cautions that unregulated derivatives posed a danger to the economy, Harkin spokeswoman Kate Cyrul said. Harkin said in an interview with Bloomberg Television today that he has “lingering questions.”

Higher Stature

If approved, Gensler would run the agency most likely to regulate the swaps and other derivatives he helped exempt in 2000 commodity futures legislation, according to Peter Wallison, a former Treasury Department general counsel who is now a senior fellow at the Washington-based American Enterprise Institute. That new assignment would raise the stature of a commission little-known outside Washington, he said.

A bill that taps the CFTC to regulate these complex contracts was approved by the House Agriculture Committee this month.

Gensler declined to comment for this article because of his confirmation hearing.

As chairman, Gensler also would serve on the President’s Working Group on Financial Markets, along with Federal Reserve Chairman Ben S. Bernanke, Treasury Secretary Timothy Geithner and Securities and Exchange Commission Chairman Mary Schapiro. The committee makes recommendations on how to keep markets functioning and will be the administration’s forum to debate new regulatory architecture, according to James Cox, a law professor at Duke University in Durham, North Carolina.

Regulation Forum

Because of the government’s expanding role in the economy, the group “is going to be even more important than it has been,” Cox said. “Financial planning is at its zenith. The knitting of the sweater that emerges will be done at the President’s Working Group.”

First, Gensler must convince Congress that his attitude toward regulation is closer to his work on the 2002 Sarbanes- Oxley Act toughening corporate governance rules than the 2000 Commodity Futures Modernization Act, which he also helped shape.

“That bill is, rightly or wrongly, perceived as being a contributor to the current financial crisis,” said Craig Pirrong, a finance professor at the University of Houston, referring to the CFMA. “In this environment, that’s not the most favorable association.”

In recent weeks, Gensler has been trying to convince members of Congress and critics he’s ready to tackle regulation of futures markets convulsed for the past year by increased speculation, volatility and record high prices.

Meetings With Born

Gensler met with Born a couple of times and spoke with her on the phone to discuss the job and get advice, people familiar with the matter said. The meetings don’t mean Born supports Gensler’s nomination, they said, although one noted that it appeared he had “evolved” his views on regulation.

Born declined to comment on the nominee’s chances for confirmation or whether she supports him.

In the weeks since his nomination, Gensler has answered pages of questions from Democratic senators on the CFMA legislation, the role of speculators pushing up commodity prices and whether he supports a merger of the CFTC and SEC.

Among those who questioned Gensler is Senator Maria Cantwell, Democrat from Washington. She blocked Walter Lukken, President George W. Bush’s choice to head the CFTC, from ever being named anything more than “acting” chairman. Unlike Lukken, Gensler agrees with Cantwell that speculators contributed to the run-up in commodity prices.

‘Excessive Speculation’

“I believe that excessive speculation in commodity futures can cause sudden or unreasonable fluctuation or unwarranted changes in commodity prices,” Gensler said in responses to questions from Senator Carl Levin, a Democrat from Michigan.

The stance helped Gensler with the Petroleum Marketers Association of America, a federation representing 8,000 companies that sell home heating oil, gasoline and other petroleum products. The group has complained to Congress about “excessive speculation” that it claims drove up energy prices.

“We certainly had questions, unanswered questions, about where Gensler would fall regarding the desperate need to reform the commodities market,” said Sherri Cabrera, PMAA vice president. “Gensler suggested that he does support far more regulation now than he used to, that anyone who has lived the last five years has to see the need for that.”

Gensler also discussed the issue with Michael Masters, a hedge fund manager who has criticized the role of speculation in last year’s commodity price rises.

Reaching Out

“The CFTC in the past has said speculation did not cause price movements, which is quite frankly laughable,” said the president of Masters Capital Management in Atlanta. Masters met with Gensler earlier this month at the Hotel George in Washington after the nominee “reached out” to him.

“That he acknowledged what speculation did publicly is quite important,” said Masters, who isn’t ready to back him yet. “It’s a good start.”

Gensler managed to convert House Agriculture Committee Chairman Collin Peterson. The Minnesota Democrat threatened to “take his head off” until White House Chief of Staff Rahm Emanuel made a personal plea for restraint, Peterson said.

After several meetings with Gensler, Peterson is ready to endorse the nominee.

“I am very comfortable with him at this point, and think he should be confirmed,” he said. Peterson didn’t say what in particular Gensler said that swayed him, and didn’t respond to requests for comment this week.

SEC-CFTC Merger

Senators also submitted questions to Gensler on whether he supports the notion of merging the CFTC and SEC — an idea championed by Treasury Secretary Henry Paulson under President George W. Bush’s administration. Gensler has responded that he wouldn’t support a merger if it would impair the CFTC’s ability to regulate.

Gensler has been working in and around Democratic politics since 1997, when he quit Goldman Sachs Group Inc. to join the Treasury under Rubin, the investment bank’s former co-chief executive officer. Gensler stayed on as undersecretary to Rubin’s successor, Lawrence Summers, who was in place when the CFMA was passed and is now Obama’s National Economic Council director.

After Enron Corp.’s massive accounting fraud surfaced in 2001, Gensler volunteered to serve as a senior adviser to Senator Paul Sarbanes. He eventually worked on the Sarbanes- Oxley Act, one of the most sweeping corporate oversight laws passed since the SEC was formed in 1934.

Wall Street Savvy

Gensler is a “tremendous problem solver” and has “very good political antennae,” Sarbanes, 76, said in an interview. “His experience in New York has given him an expertise, an understanding of complex financial matters, which is extremely helpful when it comes to asking, ‘How do you regulate these activities?’”

Sarbanes-Oxley defines Gensler more than the 2000 commodity futures act, said Bart Chilton, a Democrat currently serving as one of five commissioners at the CFTC.

“If you just take one bill in isolation, it’s really a disservice to his portfolio of accomplishments,” he said in an interview.

A father of three daughters, Gensler lost his wife to breast cancer in 2006. The Wharton School MBA has run marathons and a 50-mile ultra-marathon race, according to race results posted online. At 30, he became one of the youngest partners at Goldman Sachs.

Clinton Adviser

Gensler, one of Hillary Clinton’s senior advisers during the presidential primaries, was snapped up by the Obama campaign after she conceded. Two weeks after the election, he was working on the 10th floor of the SEC building as the president’s point man to evaluate the agency.

In 2002 he co-wrote “The Great Mutual Fund Trap: An Investment Recovery Plan,” examining the “failings” of the mutual fund system. The book, written out of frustration at low government-pension returns, recommends index-fund investing to avoid the “perfectly understandable mistake of trusting experts” who try to outperform the market.

Gensler had at least $15.5 million last year in investments and assets, mainly in bonds and stock and index funds, according to financial disclosure forms filed with the U.S. Office of Government Ethics. His total includes $100,001 to $250,000 in restricted stock he is to receive from Strayer Education Inc. for his work as a board member.

Strayer Board

Strayer is a holding company for a university with the same name that offers working adults undergraduate and graduate degrees via the Internet or in facilities in the eastern U.S. The Arlington, Virginia-based company also paid Gensler $89,660 for serving on the board and as chairman of the audit committee. He resigned from Strayer on Feb. 2.

“He’s a good Democrat and wants to engage in these issues,” said Phil Singer, who was a spokesman for the Clinton campaign. “He could be doing a lot of things instead of taking on what will be presumably a stressful and difficult job given the gravity of the issues the country is facing.”

To contact the reporters on this story: Ian Katz in Washington at Ikatz2@bloomberg.netTina Seeley in Washington at tseeley@bloomberg.net

Last Updated: February 25, 2009 16:04 EST

 

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