WASHINGTON — On a single day filled with staggering sums, the Obama administration, Federal Reserve and Senate attacked the deepening economic crisis Tuesday with actions that could throw as much as $3 trillion more in government and private funds into the fight against frozen credit markets and rising joblessness.
“It’s gone deep. It’s gotten worse,” President Barack Obama said of the recession at a campaign-style appearance in Fort Myers, Fla., where unemployment has reached double digits. “The situation we face could not be more serious.”
If any more emphasis were needed, Wall Street investors sent stocks plunging, objecting that new rescue details from the government were too sparse. The Dow Jones industrials dropped nearly 382 points.
The president spoke shortly after Senate passage of an $838 billion emergency economic stimulus bill cleared the way for talks with the House on a final compromise. In a display of urgency, White House chief of staff Rahm Emanuel traveled to the Capitol for meetings that stretched into the night with Democratic leaders as well as moderate senators whose views — and votes — will be key to any deal.
Separately, Treasury Secretary Timothy Geithner outlined plans for spending much of the $350 billion in financial bailout money recently cleared by Congress, and the Federal Reserve announced it would commit up to $1 trillion to make loans more widely available to consumers.
Taken together, the events marked at least a political watershed if not an economic turning point — the day the 3-week-old administration and its congressional allies assumed full control of the struggle against the worst economic crisis since the Great Depression.
The vote was 61-37 in the Senate to pass the stimulus, with moderate Republican Sens. Susan Collins and Olympia Snowe of Maine and Arlen Specter of Pennsylvania joining Democrats in support.
Whatever the cost of the final bill, it will add to the deficit, and that created another little-mentioned dilemma for the administration and Democrats.
Future spending bills on domestic programs or tax cuts will probably have a far more difficult time gaining the support necessary to pass without offsetting spending cuts or tax increases that would hold the deficit level.
Geithner pledged to “fundamentally reshape” the financial industry bailout that began last fall under the Bush administration. He also said new steps would hold banks accountable for their use of bailout funds.
One element of the administration’s approach calls for using as much as $100 billion in federal bailout funds to give banks, hedge funds or other investors the incentive to purchase so-called toxic assets carried on the books of other financial institutions. The goal is to return struggling banks to health so they can resume making loans, and an administration fact sheet said the amount of government and private funds combined will be “on an initial scale of up to $500 billion, with the potential to expand up to $1 trillion.”
“It’s good that they’re doing something about the toxic assets, but it’s very hard to evaluate the thing they are doing until they decide what it is,” said Douglas J. Elliott, an economic fellow at the Brookings Institution and a former investment banker. “There’s no question the market’s disappointed by the lack of details.”
The Federal Reserve announced it would commit up to $1 trillion to purchase bonds or other assets backed by consumer loans. The Treasury will guarantee a portion of the Fed investment by putting up $100 billion, an increase from a $20 billion commitment that Bush administration had announced.
The goal of this program is to make it easier for consumers to buy cars or obtain student loans, small-business loans or other types of credit that have dried up in recent months.
Geithner, however, provided little information on the administration’s long-awaited, $50 billion plan to reduce home foreclosures that is now scheduled to be unveiled in the next few weeks.
Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee, said the administration was taking “too much time” developing a foreclosure plan and called on companies that hold or service mortgages to hold off on foreclosure proceedings until it is released.
Promising transparency for the financial rescue, Geithner said Americans would be able to track where the government money was going and how it was being used on a new website, .
Federal Reserve Chairman Ben Bernanke also embraced transparency Tuesday, telling the House Financial Services Committee that the famously opaque central bank within weeks would launch a public website with information about the Fed’s lending and would review its disclosure policies.
Geithner said the Obama administration would not ask for more funds beyond the remaining $350 billion of bailout money until it was clear the government had a plan that’s working, but he indicated that such a request would eventually come.
Disappointed by what the Treasury secretary did and did not say, the stock market tumbled as he spoke. The Dow Jones industrial average closed down 381.99 points, or 4.6 percent.
“Geithner appears well-intentioned and flexible, but ‘shock and awe’ this ain’t,” said Greg Valliere, a political strategist for financial services firm Stanford Group Co.
The Los Angeles Times contributed to this report.
