Fed Chair Calls For More Bank Bailouts

Federal Reserve Chairman Ben Bernanke says that the proposed economic stimulus could provide a significant boost to economic activity. But more bailouts of financial institutions may be needed to sustain any economic recovery from President-elect Barack Obama's plan to inject more than $700 billion into the economy.

Bernanke made his comments in a speech to London's School of Economics. He says that removing troubled assets from institutions' balance sheets, as the original bailout called for, may be needed to aid financial institutions' recovery. More banks and other financial firms will probably need more capital injections from the government, he adds, and guarantees of their debt would be backed in return for the government getting a bigger equity stake in the firms receiving money.

The Fed has taken other actions to stimulate the economy, including lowering the interest rate to near zero and putting more than $1 trillion into the economy through different types of lending programs. Bernanke dismissed concerns about the Fed's balance sheet. He says that some of the moves made by the Fed to increase lending would be quickly taken back once the markets stabilized to normal levels. Two areas that that will not return quickly are mortgage-backed securities purchases and the interest rate, which will remain near zero for an extended period of time.

Obama Calls for Remainder of TARP Funds

President-elect Barack Obama told Congress that dramatic action is needed and that the remaining bailout funds need to be put to work.

One of Obama's top advisors, Larry Summers, director-designate of the National Economic Council. outlined the president's priorities on how to use the balance of the TARP funds in a letter to top Congressional leaders.

The letter says Obama's aims are to:

Use "our full arsenal of tools" to get credit flowing to consumers and businesses;
Reform the oversight of the TARP program and other responses to financial crisis;
Use "smart, aggressive policies" to reduce foreclosures;
Toughen conditions for recipients of bailout money; and
Try to attract private capital and speed the end of bailout plans.

Obama also notified President Bush on Monday that he plans to ask Congress to release the rest of the funds. There have been calls by Congressional leaders to review how the funds are spent, and calls for restrictions being placed on loan recipients, including executive compensation limits and accounting where the money is used. Calls for stricter use comes after the "few strings attached" lending of the first $350 billion by Treasury Secretary Henry Paulson has no process for tracking how the money is being used.

Reducing foreclosures will be the top priority that Congress will insist that the second half of the bailout is used for, say lawmakers. House Financial Services Chairman Barney Frank introduced a bill on Friday that promises $50 billion of foreclosure relief and toughens the requirements on banks getting bailout money.

US Could Lose 2 Million Jobs in 2009

The Conference Board reports there are no signs ahead showing the labor market will improve any time in 2009, saying the country could another 2 million more jobs in 2009 in the face of the 2.6 million jobs lost in 2008.

The Conference Board's Employment Trends Index fell 1.6 percent in December to 99.6. The report states the continued deterioration in the Employment Trends Index signals that no turnaround in the labor market is expected in the near future. The index has declined for 17 months in a row and has dropped 1.6 percent or more in the last six months.

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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