Nov. 18 Update: Paulson, Bernanke Defend Bailout Re-DirectionA week after doing a 180-degree change in direction with the $700 billion dollar bailout, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke on Tuesday defended their choice. The plan is now focused on infusing liquidity into banks to increase lending to consumers, rather than buying up toxic debts including soured mortgages from institutions.
Saying that the purchase of those bad assets would have required a massive commitment of the bailout funds, Paulson says the first installment of $350 billion would not be enough firepower. Paulson and Bernanke testified before the House Financial Services Committee. The two said the administration must be quick to assess changing conditions and be able to adapt the bailout plan. "If we have learned anything throughout this year, we have learned that this financial crisis is unpredictable and difficult to counteract," Paulson says.
According to a survey of Professional Forecasters, the U.S. economy went into a recession last spring and is expected to sharply contract by the end of this year. The Philadelphia Federal Reserve performed the survey among the forecasters, which takes the shine off earlier reports released on Monday showing an industrial output rebound in October. Data from New York's factory sector supports the dim view of forecasters, as the state output dropped to a record low in November.
The Federal Reserve survey predicts gross domestic product will shrink by 2.9 percent in the fourth quarter -- a sharp downgrade from the previous prediction of 0.7 percent growth. The survey of forecasters says the domestic economy went into a recession in April and predicts it will last 14 months, making it one of the longest since the 1930s. The survey also predicts that an average loss of more than 200,000 jobs per month in the final three months of 2008.
Big Three Bailout Mulled
As Congress begins a special lame-duck session this week, a partisan fight over the future of the country's Big Three automakers awaits legislators who must choose whether to fund a bailout of the auto giants or let them slip into bankruptcy.
Markets Fall Lower
The news of Citigroup slashing another 53,000 jobs in the coming months pushed the markets lower on Monday. This was after a turbulent week that saw the Dow Jones Industrial Average shed another 340 points. Citigroup says along with the job cuts it will lower expenses by 20 percent. The market closed down 116 points to 8,381 after dropping more than 250 points earlier in the day.