Americans Nervously Watch Financial Rescue | US News.com

Continued coverage of the financial crisis touches on many subjects, from the nervous feelings among Americans consumers to Treasury Secretary Henry Paulson's preparations to enact the bailout approved last week. Key stock markets in Europe and Asia are down between three and six percent in trading conducted while Americans were still asleep.

The AP says that "relief on Wall Street over the hard-won passage of a $700 billion bailout package for the financial system apparently hasn't yet trickled down to the pubs, storefronts, car lots and malls of Main Street. Many Americans spent an uneasy weekend wondering whether the rescue would help in time -- or at all -- and trying to figure out where next to cut back as the economic screws tighten." The New York Times says consumers "are pulling back on their spending, all but guaranteeing that the economic situation will get worse before it gets better," while the Wall Street Journal notes that even retailers' offering of "generous discounts" to try to bring in shoppers failed to "convince cautious shoppers to open their wallets."

The Christian Science Monitor says the downturn in hiring "most likely means the credit crunch on Wall Street has now moved to the general economy, as business and consumers hunker down." The Financial Times says JPMorgan economists have compared the labor market "with a boat sailing through rough seas over the past few months." By August, "the boat had indeed capsized, and in September, according to figures released at the end of last week, there were '159,000 men and women overboard.'"

Paulson Takes The Reins
The Christian Science Monitor reports, "Wall Street now runs through Washington." Treasury Secretary Paulson "will be the cartographer of a coming age of constraint, with vast powers to buy and sell bad assets, and hundreds of billions of taxpayer dollars at his disposal. Decades of deregulation appear to be at an end, with US agencies eager to impose new constraints on Wall Street's remaining firms."

The Wall Street Journal reports Paulson is expected to tap Assistant Secretary of Treasury for International Affairs Neel Kashkari to serve as interim head of Treasury's new Office of Financial Stability as early as today. The 35-year-old Kashkari is a "key adviser on whom he has come to rely heavily during the financial crisis." The Washington Post says Treasury will also today "begin the hiring process for five to 10 asset managers and release guidelines for how it will manage conflicts of interests for contractors who work for the program."

Paulson made the rounds of the Sunday political talk shows yesterday. On ABC's This Week, he said, "What I said to the President is what I'm going to say to the American people, is that last week as the credit markets were frozen, the capital markets were frozen, we had a situation where American companies weren't able to borrow money. This could ultimately affect small banks, loans to businesses, loans to farmers, jobs, people's retirement."

On Fox News Sunday, Paulson maintained, "We're not doing this to protect our financial institutions in and of themselves. We're doing it to protect the financial institutions because that's what is needed to protect the American taxpayer." On NBC's Meet The Press, Paulson reiterated that "I don't like the fact the taxpayer's being put in this position, but the numbers that are being used, which are -- you know, we're talking about hundreds of billions of dollars -- remember, this is not an expenditure, this is money that is being used to purchase these assets, as you said, these illiquid mortgage assets, which are very difficult to value. They will be held, and then they will be resold at some time. And so we can't determine what the cost is today."

In an editorial, USA Today urges Sens. John McCain and Barack Obama to announce their choices for Paulson's successor before the election, since "whoever takes over from Paulson will have unprecedented powers to spend what remains come January of $700 billion in rescue funds."

Room Seen For Plenty Of Blame To Go Around

The Los Angeles Times reports, "When Congress voted last week to bail out Wall Street banks and investment houses, members were also indirectly voting to repair damage lawmakers themselves had caused during a decades-long era of deregulation." Still, The Hill says House Republicans "defended 'deregulation' in advance of House Oversight and Government Reform hearings designed to assign blame for the financial market crisis." A report written by the committee's Republican staff "instead points a finger at a few large institutions, in particular Fannie Mae and Freddie Mac."

Financial Industry Facing New Scrutiny
The AP reports, "With the passage of the $700 billion rescue package, the financial industry will face greater congressional scrutiny in coming weeks and months. Further-reaching regulation is almost certain." The Financial Times says the government intends to use new powers contained in the legislation "to prevent the disorderly failure of any more systemically important financial institutions."

Fight Over Wachovia Continues
The AP reports Wachovia "is moving ahead with its deal to sell itself to Wells Fargo -- while questions arise about the damaging effects that prolonged litigation might have on Wachovia." Wachovia "responded Sunday to a New York judge's order temporarily blocking the sale of the bank to Wells Fargo with a lawsuit of its own, asking a federal judge in Manhattan to allow the deal to go through." AFP says Wachovia said "it 'continues to believe its agreement with Wells Fargo, which involves no government assistance, is proper and valid.'"

The Wall Street Journal says Federal Reserve officials were pushing Sunday for Wells Fargo and Citigroup to reach a compromise in a "sign that the federal government is worried about the volatile battle for Wachovia." Under a plan "being discussed Sunday night, Citigroup and Wells Fargo would divvy up Wachovia's network of 3,346 branches along geographic lines." The Financial Times says "people close to the situation said the New York Federal Reserve was actively involved in the discussions." The Washington Post also says, "Leaders of the central bank fear that a lengthy legal battle over Wachovia could pose broad risks to the financial system." The Los Angeles Times and New York Times also report on the battle.

Countrywide Agrees To Modify Mortgages
The New York Times reports Countrywide Financial "has agreed to the largest program ever to modify home loans, as part of a settlement with officials in 11 states, just days after the federal government adopted a giant financial rescue package without any relief for distressed homeowners." The Chicago Tribune reports the states "have reached an $8.8 billion settlement of their lawsuits" against Countrywide, the "biggest subprime mortgage lender."

White House Makes Legislative Gains

The Washington Post reports President Bush "flew to the family ranch over the weekend after weeks of bad news back in Washington, from the nation's ongoing financial crisis to polls showing his popularity hitting new lows." But the "tide of negative headlines has obscured a series of significant legislative victories for a president wrongly written off as a lame duck," including the bailout package, Congress' lifting the offshore oil drilling moratorium, and the India nuclear deal.