Bailout Plan Back on Track?

WASHINGTON — House and Senate negotiators worked out a tentative deal with the White House late Saturday on a $700 billion plan to rescue the teetering financial sector from the worst financial crisis since the Great Depression, with an eye toward a House vote Monday and Senate action to follow. A bipartisan coalition including House Speaker Nancy Pelosi, D-Calif., Senate Majority Leader Harry Reid, D-Nev., Treasury Secretary Henry Paulson and House Republican Whip Ray Blunt, R-Mo, announced the agreement after midnight in the Capitol, capping a marathon negotiating session that began in early afternoon. The lawmakers, eager to get a deal in place before financial markets open Monday, emphasized that their agreement still had to be translated into legislative language and presented to lawmakers for sign off. Staff was told to work through the night to finish the necessary paperwork. The plan would allow the Treasury Department to buy troubled mortgage-backed securities and other loans held by financial institutions. The government could later resell the assets, presumably after they'd recovered much of their value. The proposal is designed to restore market confidence, set a floor under asset prices and allow bank capital and credit to flow again, unlocking critical gears of lending for the economy.

The compromise plan will keep the basic Treasury Department framework. But the Bush administration would get only the first $350 billion of the money up front, and the rest would be contingent on congressional action. The deal would include limits on compensation to executives whose firms benefit from government assistance, which Sen. Kent Conrad, D-N.D., said was one of the thorniest issues lawmakers and the administration faced during their hours-long negotiating session. Conrad said lawmakers wanted to prevent golden parachutes — big bonsues to executives of the type who crash their company, then sail off into the sunset. The legislation would place "reasonable" limits on severance packages for executives of companies that benefit from the rescue plan. It would affect fired executives of financial firms, and executives of firms that go bankrupt.

The House braced for a difficult vote set for Monday on a $700 billion rescue of the financial industry after a weekend of tense negotiations produced a plan that Congressional leaders portrayed as greatly strengthened by new taxpayer safeguards. The 110-page bill, intended to ease a growing credit crisis, came after a frenzied week of political twists and turns that culminated in an agreement between the Bush administration and Congress early Sunday morning. The measure still faced stiff resistance from Republican and Democratic lawmakers who portrayed it as a rush to economic judgment and an undeserved aid package for high-flying financiers who chased big profits through reckless investments.

GM, Ford and Chrysler are seeking up to $50 billion in low-interest government-backed loans, double the $25 billion approved last year as part of an energy bill. The U.S. auto industry, wracked by unexpectedly high gas prices this year, has found itself once again producing the wrong models at the wrong time. Repeating a historically embarrassing inability to predict consumer preferences, the U.S. Big 3 are flush with an inventory of SUVs and large pickup trucks at a time when consumers are begging for smaller European-style minivans and more fuel-efficient vehicles, including hybrids. Last week, U.S. News & World Report suggested the $25 billion loan-guarantee bailout for the Big 3 automakers may be passed by Congress and signed by President Bush as early as this weekend.

• JJ Commentary: This so-called “bailout” is like putting a band aid on Hoover Dam. The underlying problem of too much debt (a function of greed) remains – and is even exacerbated by the bailout.

Citigroup to Buy Wachovia's Banking Operations

Citigroup will buy banking giant Wachovia in a deal brokered by the Federal Deposit Insurance Corp., the FDIC said Monday. The FDIC emphasized that Wachovia didn't fail and that all depositors are protected. The transaction won't require any funds from the FDIC's deposit insurance fund, the agency said. The FDIC said it has entered into a loss-sharing arrangement on a pre-identified pool of loans under which Citigroup will absorb up to $42 billion of losses on a $312 billion pool of loans. Citigroup also will grant the FDIC $12 billion in preferred stock and warrants. Wachovia's financial problems stem from its acquisition of Golden West Financial in 2006 for roughly $25 billion. With that purchase, Wachovia inherited a deteriorating $122 billion portfolio of "pick-a-payment loans," which let borrowers skip some payments. Concerns about Wachovia's financial health have hammered the company's stock in recent days.

European Bank Giant Fortis Partially Nationalized

BRUSSELS — Dutch-Belgian bank and insurance giant Fortis NV was given a $16.4 billion lifeline to avert insolvency as part of a wider bailout plan agreed to by Belgium, the Netherlands and Luxembourg, officials said Sunday. Belgium's Prime Minister Yves Leterme said the bailout shows account holders and investors that Fortis will not be allowed to fall victim to the global credit crisis. Under the bailout, Belgium will invest $6.88 billion and the Netherlands $5.86 billion in Fortis' banking operations in the two countries. In return, they each receive 49% ownership in those national arms of the bank. Luxembourg will invest $3.6 billion in the bank's Luxembourg operations, also for a 49% stake.

British Lender’s Assets to be Sold, Nationalized

LONDON — The troubled British mortgage lender Bradford & Bingley will be nationalized and sold off in parts, with Spanish banking giant Santander SA taking over its retail deposits and branch network, British media reported Monday. The British government is likely to take on the bank's toxic loans and fold them into Northern Rock, a mortgage lender nationalized by the British government in February. The BBC said the Treasury will then try to sell the company's 200 branches and savings business to other banks.

Tight Credit Becomes Problem for Small-Business Owners

As lawmakers debate the proposed financial bailout bill, small-business owners — who are especially vulnerable to financial meltdowns — face even tighter credit than usual. They're tapping credit cards and personal savings as it gets harder to land bank financing. They appear to be hoarding their cash, anticipating worse economic times. And unless the rescue bill frees up credit, they'll likely find it harder to get federally guaranteed loans. Small businesses employ 116 million workers and crank out half of the U.S. gross domestic product, says the Commerce Department. So if their credit woes worsen, the effects will be widespread. Year to date, Small Business Association loans to small businesses have plummeted compared with the same period last year.

Bailout Plan Falters

WASHINGTON — No one said it would be easy. Despite unprecedented calls for quick action, the White House's $700 billion plan to rescue the financial industry appeared to fall apart late Thursday, less than 12 hours after a market-soothing deal seemed likely. A convergence of financial concerns, presidential politics and partisan rancor created an unexpected Washington drama with the nation's economic future hanging in the balance. House Financial Services Committee Barney Frank, D-Mass., accused House Republicans of refusing to negotiate in good faith and told President Bush "to go to work" to find GOP votes needed to pass the plan. At one point Thursday, a somber Treasury Secretary Henry Paulson kneeled before Democrats at the White House while urging them not to publicly criticize Republicans — and risk sending the financial markets plunging.

Meanwhile, Republican presidential nominee John McCain issued a statement acknowledging that a bipartisan White House meeting he appeared to have sought to help showcase his leadership skills on the economy had devolved into a "contentious shouting match." Tension over the competing plans boiled over during the White House meeting among congressional leaders, President Bush, McCain and Illinois Sen. Barack Obama, McCain's Democratic opponent in the presidential race. What had seemed like it could be a triumphant moment of bipartisan problem-solving ended with the participants scattering, with no formal announcements and with signs of deep discord.

• JJ Commentary: The “third horseman” (third seal, Revelation 6:5) is riding in earnest now

Bank Failures Continue

WALL STREET JOURNAL — In what is by far the largest bank failure in U.S. history, federal regulators seized Washington Mutual Inc. and struck a deal to sell the bulk of its operations to J.P. Morgan Chase & Co. The collapse of the Seattle thrift, which was triggered by a wave of deposit withdrawals, marks a new low point in the country's financial crisis. But the deal, as constructed by the Federal Deposit Insurance Corp., could hold some glimmers of hope for the beleaguered banking system because it averts any hit to the bank-insurance fund. Instead, J.P. Morgan agreed to pay $1.9 billion to the government for WaMu's banking operations and will assume the loan portfolio of the thrift, which has $307 billion in assets. The full cost to J.P. Morgan will be much higher, because it plans to write down about $31 billion of the bad loans and raise $8 billion in new capital. All WaMu depositors will have access to their cash, but holders of more than $30 billion in debt and preferred stock will likely see little if any recovery.

The failure of WaMu eclipsed what had long been America's largest bank bust on record, the 1984 collapse of Continental Illinois, which had $40 billion in assets. The fact that no bank was willing to buy WaMu until it failed shows how badly confidence has eroded in a banking system awash with record profits just a few years ago. Faced with deepening losses on mortgages, credit cards and other loans, big and small banks across the country are struggling with what many bank executives say is a crisis far deeper than the savings-and-loan debacle. As of June 30, WaMu had more than 43,000 employees, more than 2,200 branch offices in 15 states and $188.3 billion in deposits.

NEW YORK/LONDON (REUTERS) — Banks and money managers borrowed a record amount from the Federal Reserve in the latest week, nearly $188 billion a day on average, showing the central bank went to extremes to keep the banking system afloat amid the biggest financial crisis since the Great Depression. The data on borrowing from the Fed closed out another day of high anxiety in global money markets. Key measures of funding stress hit record levels on both sides of the Atlantic as nervous market participants awaited developments from Washington on a $700 billion financial bailout plan. Federal Reserve data showed Thursday the total amount banks borrowed nearly quadrupled the previous record of $47.97 billion per day notched just the week before. "This looks like the balance sheet of a central bank that is keeping the financial system on life support," said Michael Feroli, U.S. economist with JPMorgan in New York.

Foreclosures to Persist

Not even one of the biggest government bailouts in history will immediately turn back the flow of home foreclosures and falling housing prices. Housing experts say foreclosures are likely to remain above historical norms until at least next summer as mortgages reset and home prices in some areas of the country continue to fall. One worry: Delinquencies, already a growing problem for subprime borrowers, are rising among prime mortgage borrowers. Nationally, foreclosures rose 12% in August from the month before and were up 27% from the year before, according to RealtyTrac. More than 2 million foreclosures on homes financed with subprime loans are anticipated from late 2008 to the end of 2009, according to the Center for Responsible Lending. An additional 40.6 million homes will drop in value because they are near foreclosed homes.

Economy Continues to Weaken

WASHINGTON — Orders for big-ticket items plunged at the fastest rate in seven months in August while the pace of new-homes sales dropped to its lowest level in more than 17 years, the government said Thursday in separate reports. The reports underscored the weakness in the economy going into the financial turmoil that rapidly escalated in September. Orders for durable goods, long-lasting items like cars and refrigerators, dropped 4.5% in August as demand for machinery, cars, aircraft and other items fell, the Commerce Department said. The news did not bode well for the manufacturing sector, which has fared OK this year as strong export demand has cushioned the blow of the deteriorating domestic economy. But Federal Reserve Chairman Ben Bernanke warned this week that export growth will likely ease given softening economies abroad.

Pork Still King

WASHINGTON — A $630 billion spending bill nearing final approval in Congress includes $6.6 billion for thousands of lawmakers' pet projects, including $51.5 million requested by Democratic vice presidential nominee Joe Biden when both presidential candidates have sworn off seeking any money. Taxpayers for Common Sense analyzed the 2,321 special-interest items called "earmarks" in the spending bill. The legislation is a temporary measure that would fund the government through March, rather than October 2009, when the next fiscal year ends. It combines spending bills for the Departments of Defense, Homeland Security and Veterans Affairs, as well as nearly $30 billion in disaster relief for flood and hurricane victims and up to $25 billion in loans to automakers. Both presidential candidates, Republican John McCain and Democrat Barack Obama, have criticized earmarks. McCain, who doesn't request earmarks, has said that as president, he would veto any bill containing them. Since joining the Senate in 2005, Obama has requested $860.6 million in earmarks, according to the taxpayer group, but none this year, and he has pledged to reduce them if elected president.

Economy (The Third Horseman)

WASHINGTON (AP) — The Bush administration is asking Congress to let the government buy $700 billion in toxic mortgages in the largest financial bailout since the Great Depression, according to a draft of the plan obtained Saturday by The Associated Press. The plan would give the government broad power to buy the bad debt of any U.S. financial institution for the next two years. It would raise the statutory limit on the national debt from $10.6 trillion to $11.3 trillion to make room for the massive rescue. The proposal does not specify what the government would get in return from financial companies for the federal assistance. The White House and congressional leaders hoped the developing legislation could pass as early as next week. The plan is designed to let faltering financial institutions unload their bad debt on the government, and in turn the taxpayer, in a bid to avoid dire economic consequences.

To get the money to buy up the bad mortgage loans that have threatened to bring the financial system to its knees, the government will have to borrow. And that borrowing will come at a time when the federal budget deficit is already soaring. The deficit for this budget year, which ends Sept. 30, is expected to rise to $407 billion, more than double the $161.5 billion imbalance for 2007, reflecting what the economic slowdown and this year's $168 billion economic stimulus program are already doing to the government's books. Treasury Secretary Henry Paulson is resisting calls from Congress to add additional help for households to the $700 billion financial system rescue bill.

• JJ Commentary: More and more debt is not the solution. Debt is the problem, which is now growing worse and worse.

In their bold response to the deepening financial trauma, the Federal Reserve and U.S. Treasury Department appear to have tossed aside the playbook that guided official thinking on the economy for three decades. Throughout more than a decade of recurrent crises in nations such as Mexico, Russia and Thailand, the United States offered the same advice: Let the market solve the problem and get the government out of the way. Even when the consequences of such economic "tough love" included widespread joblessness, soaring poverty and domestic turmoil, Washington insisted on the rule that the market knew best. Now that it's the United States battling financial conflagration, it turns out there are exceptions to that rule. Such as Uncle Sam's takeover of AIG, the world's largest insurance company. Such as the quasi-nationalization of mortgage giants Fannie Mae and Freddie Mac. Such as putting $29 billion of taxpayer money at risk to facilitate JPMorgan Chase's acquisition of investment bank Bear Stearns "We're not doing what we preached," says economist Sung Won Sohn of California State University.

WASHINGTON — It is the end of an era on Wall Street, as the Federal Reserve granted permission for the last two major investment banks — Goldman Sachs and Morgan Stanley — to become bank holding companies in order to stay in business. And early Monday, Morgan said it will "pursue a strategic alliance" with Japan's Mitsubishi UFJ Financial Group in which Mitsubishi would own up to 20% of Morgan Stanley. The Fed announced late Sunday that it had approved the request, which will allow Goldman and Morgan Stanley to create commercial banks that can take federally insured deposits, bolstering the resources of both institutions. The change is the latest seismic shift on Wall Street. The change of status means both companies will come under the direct regulation of the Fed, which oversees the nation's bank holding companies.

• JJ Commentary: That’s just what the Fed wants, more control. By the way, the Federal Reserve is not really a federal institution. Its board of governors is privately appointed and run. Only the Chairman is appointed by the government.

Foundations and non-profit groups that invest in the stock market are getting battered by recent Wall Street volatility. Hardest hit are community groups that rely on both endowments and donations, which are also expected to decline. The survey showed that 52% of the community foundations that responded said they plan to distribute less grant money next year because of the economic downturn.

WASHINGTON — Finance officials from the globe's major economic powers pledged Monday to do all they can to fight a worsening credit crisis that threatens the world's economic health and stability. The Group of Seven said they welcomed the extraordinary steps by the United States to stem the crisis, including a plan where the Treasury Department would buy bad mortgages and other toxic assets held by banks and other financial institutions. Besides the United States, the Group of Seven is made up of Japan, Germany, France, Britain, Italy and Canada. The group didn't offer specifics about what actions they might take. But they sought to send a reassuring message that they are on top of the situation.

Economy (The Third Horseman)

WASHINGTON — Treasury Secretary Henry Paulson said Friday he will work through the weekend with financial officials and members of Congress to find a way to "remove troubled assets from our financial system." At a news conference, Paulson said troubled home loans "are now parked or frozen" on the books of financial institutions, preventing them from making new loans. He said the root cause of the financial crisis is "illiquid mortgage assets" that have lost their value and are clogging the financial system. About 5 million home loans are delinquent, Paulson said, with "irresponsible lending" and "irresponsible borrowing" at the root of the problem. The Treasury said it will tap the $50 billion Exchange Stabilization Fund to provide guarantees for money market mutual funds. The exchange fund was created in 1934, during the Depression, to provide support for the dollar. The Fed said it will expand its emergency lending efforts to allow commercial banks to finance purchases of asset-backed securities from money market funds. The central bank's move should help the funds meet demands for redemptions.

• JJ Commentary: The previous and proposed government bailouts only further our long march from a free-market economy to socialism, a key objective of the New World (Dis)Order folks. They help to manufacture crises and then institute more socialism in response – “controlled chaos” they call it.

USA TODAY — We've entered a period of tight credit — which could mean jobs lost, retirement plans pruned, college deferred and lifestyles diminished. Across the nation, Americans know that something's wrong. Nearly one-quarter of adults — 23% — believe the U.S. economy is in a depression, according to a USA TODAY/Gallup Poll taken Monday and Tuesday. That's nearly double the 12% who said so in February. At coffee shops and gas stations across the USA, people are wondering what the government has gotten them into as taxpayers with all the federal bailouts. "We just keep going deeper and deeper in debt," says Milton Hubbard, 58, a pastor in Chanute, Kan. "At some point, it is going to crash." Nearly 50% of the USA's 27 million small businesses say they've been "impacted by the credit crunch," according to a July survey by the National Small Business Association trade group. Predictably, many are postponing big purchases, not filling vacant jobs and cutting back on business travel and advertising. Spooked by the Wall Street meltdown, they're moving personal and business-related cash to safer, federally insured savings accounts and CDs.

VIENNA — After a brief respite, concerns over deepening turmoil in the U.S. financial system sent oil prices back above $100 a barrel Thursday. In addition, stepped-up attacks by Nigerian militants against the country's oil infrastructure helped to increase oil prices. In a fifth day of violence, Nigeria's main militant group said Wednesday that it had destroyed an oil-pumping station and a pipeline crossing southern Nigeria in a rare daylight attack. Parts of the USA are still running short of gasoline five days after Hurricane Ike knocked out 20% of the nation's refining capacity. The crunch is especially severe in the Southeast and Mid-Atlantic, which get their gas through pipelines from the Gulf region. It's largely hitting stations and convenience stores not affiliated with big brands such as ExxonMobil.

MOSCOW — Russia ordered its main stock exchanges closed for a second day Thursday as President Dmitry Medvedev said 500 billion rubles ($20 billion) will be poured 0into financial markets in an effort to stabilize them. The government is struggling to stem a dizzying plummet in share prices and restore confidence in the economy — trouble that has revived memories of the 1998 financial collapse. The financial regulator first suspended trading on Wednesday after the RTS, a leading index, fell 6.5%.

LONDON (AP) — Lloyds TSB on Thursday announced a $21.9 billion deal to take over struggling HBOS, Britain's biggest mortgage lender. The government said it would facilitate the deal by overriding anti-monopoly regulations. The takeover follows days of heavy selling pressure on HBOS shares, which closed Wednesday down 20% at $2.68, a fifth of their value at the start of the year. The combined companies will account for more than a quarter of the U.K. mortgage market and 400 billion pounds, or $715 billion, in savings deposits.

The Financial Times says central bankers are taking a coordinated approach to the recent upheaval in financial markets. "The package of up to $247 billion comes from the U.S. Federal Reserve, the European Central Bank, the Swiss National Bank, the Bank of England, the Bank of Canada and the Bank of Japan," CNN says. "The injection of cash, which amounts to an expansion of up to $180 billion in available funds, is an effort to fuel economic activity." The New York Times says the actions come at a "potentially dangerous new phase" in the crisis. "Some economists worry that a psychology of fear has gripped investors, not only in the United States but also in Europe and Asia," the paper says.

Economic Woes Expand

Lehman Bros. Merrill Lynch. Fannie Mae. Freddie Mac. Countrywide Financial. Bear Stearns. In staggering succession, some of Wall Street's oldest and biggest firms have been seized, failed outright or merged into other companies. The credit crunch, which began in the real estate market, has emerged as a full-blown financial crisis threatening the global credit markets. Thanks partly to nimble emergency moves by the U.S. government, the financial system has avoided a full-scale collapse. There is widespread concern, however, that other financial institutions could be brought down by the sliding home mortgage market. Two Wall Street icons are about to vanish as independent companies. Lehman Bros., which began 158 years ago as Alabama cotton traders, filed for bankruptcy protection. And Merrill Lynch, whose bull mascot has been Wall Street's iconic symbol of optimism since 1970, agreed to be absorbed by Bank of America. Analysts say too many companies have borrowed too much to buy high-risk assets — mainly securities backed by subprime mortgages, which are loans made to borrowers with poor credit. Now, companies that own those securities must write off their losses and raise fresh cash.

The Federal Reserve said Tuesday night it would lend up to $85 billion to flailing insurance giant American International Group, saying the move was necessary to protect the financial system. The action averts a bankruptcy filing by AIG, which has been struggling to raise capital after crippling losses on protection it sold to investors in mortgage-backed securities. It also faced additional pressures to meet collateral calls from investors after its credit rating was downgraded by four rating agencies Monday night. The senior management of AIG will be tossed out, and the government will effectively be in control of the company. The government will have a 79.9% equity interest in AIG and the right to veto the payment of dividends to common and preferred shareholders. The Fed's decision, made with the Treasury Department's support, came just days after the Treasury and Fed refused to bail out investment bank Lehman Bros. The main difference between the two situations: AIG is so huge and its operations so intertwined in the financial system that the Fed feared an AIG failure could harm the broader economy.

WASHINGTON — Urgently trying to keep cash flowing to prevent a Wall Street meltdown, the Federal Reserve on Tuesday pumped $50 billion into the nation's financial system to help ease credit stresses. Tuesday’s cash injection was in the form of short-term repurchase agreements in which the Fed makes the loans, accepting agency and mortgage-backed securities as collateral. A repurchase agreement or repo, is a contract in which the seller of securities, in this case financial companies, agree to buy them back at a specified time at a specified price.

WASHINGTON — The Federal Reserve on Tuesday voted unanimously to keep a key interest rate at 2% while acknowledging that turmoil in financial markets has "increased significantly" and the economy appears to be weakening. In a statement released at the end of a one-day meeting, the Fed's policymaking Open Market Committee said it has "significant" concerns about both inflation and the slowing rate of economic growth. "Strains in financial markets have increased significantly and labor markets have weakened further," the Fed said.

WASHINGTON (Reuters) — Construction of new homes plummeted to a 17-1/2-year low in August as builders scaled back sharply to try to cope with the deep housing slump. The Commerce Department said Wednesday that starts on new homes fell 6.2% from July, to a seasonally adjusted annual rate of 895,000, lowest since 1991 and well below the 950,000 rate that economists surveyed by Reuters had anticipated. With home foreclosures soaring and prices falling, builders are clearly bracing for a protracted downturn. New applications for building permits declined 8.9% in August to an annual rate of 854,000.

MOSCOW — Russian stock exchanges halted stock and bond trading Wednesday after one of the worst falls since the country's 1998 financial collapse, and the Finance Ministry pledged $60 billion to help local banks. Investors have dumped Russian assets after global financial turmoil combined with falling oil prices and Moscow's war with Georgia to form a toxic cocktail for the Russian markets.

VIENNA — A “silver lining” to the current economic woes is that oil prices fell again Tuesday, slipping below $92 a barrel, reflecting market fears that the credit crisis will be a drag on global economic growth and restrain demand for crude. OPEC's production cut of 520,000 barrels a day earlier this month has failed to stem the decline. The 13-nation group said oil demand in the U.S. fell by 800,000 barrels a day last month due to the slow economy and high retail prices.

Economy – The Third Horseman

LONDON (AP) — Oil prices fell to $95 a barrel on Monday after Hurricane Ike inflicted minimal damage to oil installations on the Texas coast. Federal officials said Sunday that the storm destroyed at least 10 oil and gas platforms and damaged pipelines in the Gulf of Mexico — only a small amount of the 3,800 production platforms in the Gulf. Three years ago, back-to-back hurricanes knocked out more than 100 platforms. Power outages were slowing efforts to restart the refineries. Valero Energy said only one of its closed refineries had power, and spokesman Bill Day said he couldn't estimated how long it would take to resume production. However, gasoline prices rose nearly 5 cents a gallon Monday, bringing the total increase in the three days since Hurricane Ike slammed into Texas to almost 17 cents, according to a nationwide survey.

Investors must absorb the bankruptcy filing at Lehman Brothers and Merrill Lynch's forced sale to Bank of America for $50 billion in stock. And perhaps most ominously, American International Group is reportedly asking the Federal Reserve for emergency funding. The world's largest insurance company plans to announce a major restructuring Monday. The swift developments are the biggest yet in the 14-month-old credit crises that stems from now toxic subprime mortgage debt. U.S. stocks fell moderately at the opening bell Monday, then got worse, after the stunning reshaping of the Wall Street landscape. Global stocks fared much worse as a feverish sell-off in Europe and Asia turned markets sharply lower.

WASHINGTON — The nation's industrial output plunged in August by nearly four times the amount that had been expected. It's the worst performance since Hurricane Katrina devastated the Gulf Coast in 2005. The Federal Reserve reported Monday that industrial output dropped 1.1% last month, far worse than the 0.3% decline economists had been expecting. The weakness was led by an 11.9% drop in production of motor vehicles and parts, reflecting the hard times facing the U.S. auto industry. The U.S. manufacturing sector has been battered by a prolonged housing slump and feeble demand for autos, due to the weak economy and the big jump in gasoline prices this year.

Senate Votes to Shore Up Transportation Dept. Funds

WASHINGTON (AP) — The Senate voted Wednesday to shift $8 billion into the highway trust fund, restoring solvency to an account that is going broke and staving off what could have been crippling delays in federal aid for road and bridge projects around the country. The voice vote came five days after Transportation Secretary Mary Peters said the trust fund would be out of money by the end of the month and urged Congress to approve the $8 billion replenishment bill that the White House previously had threatened to veto. The House passed a nearly identical bill in July and was expected to act quickly to send a final version of the legislation to the president. President Bush is now expected to sign the bill because the funds were depleted faster than first estimated.

Trade Gap Widens to 16-month High

WASHINGTON (AP) — America's trade deficit shot up in July to the highest level in 16 months as oil imports hit an all-time high, offsetting strong export growth, and the deficit with China climbed to the second highest level on record. The Commerce Department said Thursday that the deficit rose 5.7% to $62.2 billion in July, much worse than the $58 billion deficit that Wall Street expected. It pushed the gap between what America imports and what it sells abroad to the highest level since March 2007. The trade deterioration reflected the record oil prices in July, which pushed America's foreign oil bill to an all-time high of $51.4 billion, up 13.7% from June. As crude oil prices surged in July, the volume of oil imports jumped 15% to 342 million barrels, the highest since June 2004 even though prices were almost double the average of last July.

Foreclosure Filings Increase, but at Slower Rate

Foreclosure filings in August were up 27% compared with the same month a year ago, but that's a significantly slower pace than in previous months, according to data released Friday. Nationwide, 303,800 homes received at least one foreclosure-related notice in August, up 12% from July, RealtyTrac said. That means one in every 416 U.S. households received a foreclosure filing last month. August's increase, however, was smaller than the two prior months. June and July both had year-over year increases in foreclosure filings of 50% or more.

Economy (The Third Horseman – Rev. 6)

WASHINGTON (AP) — The federal highway trust fund will run out of money this month, requiring delays in payments to states for transportation construction projects, Transportation Secretary Mary Peters said Friday. The trust fund — a federal account used to help pay for highway and bridge projects — will run about $200 million short of its commitments for the fiscal year, which ends Sept. 30, Peters said during a conference call with reporters. The shortfall will mean short delays — and in some cases a temporary reduction — in payments to states for infrastructure projects the federal government has agreed to help finance. Although the fund started with a $8.1 billion balance in October 2007, transportation officials say revenue for the past year was $8.3 billion below what the government had committed to spend. Peters blamed the funding shortage on the high price of gasoline, which has prompted Americans to drive less. This means less fuel has been purchased, and less gasoline taxes collected for the trust fund. Americans drove 50 billion fewer miles between November and June 2008 than during the same period a year earlier. Arizona is delaying as much as $171 million in new highway projects funded by federal money as Congress fights over how to pay the tab.

USA TODAY: The sharp rise in joblessness is draining unemployment insurance trust funds in many hard-hit states, setting the stage for a federal bailout to keep the funds solvent. The unemployment rate reached a five-year high of 6.1% in August, putting the number of jobless people at 9.5 million, up 2.4 million from a year earlier. About one-third of the jobless collect unemployment insurance from state governments. The federal government is required to loan states money when their trust funds run short. In the short term, bailouts increase the federal deficit. In the long term, businesses pay higher unemployment insurance taxes to replenish the trust funds.

NEW YORK (CNNMoney.com) -- Federal officials unveiled an extraordinary takeover on Sunday of troubled mortgage giants Fannie Mae and Freddie Mac, signaling the most dramatic move to date aimed at shoring up the nation's housing market. The plan, which was delivered by Treasury Secretary Henry Paulson and James Lockhart, director of the Office of Federal Housing Enterprise, places the twin mortgage buyers into "conservatorship" to be overseen by the Federal Housing Finance Agency. Under conservatorship, the government would temporarily run Fannie and Freddie until they are on stronger footing. Both agencies will be open for business Monday morning. Dividends on both common and preferred shares will be eliminated in an effort to preserve capital. Freddie and Fannie, which were created by the U.S. government, own or back $5.4 trillion worth of home debt - half the mortgage debt in the country. Since last summer, they have suffered about $12 billion in losses. Fannie and Freddie have become virtually the only source of funding for banks and other home lenders looking to make home loans. Their ability to do so is crucial to the recovery of the battered home market and the broader U.S. economy.

WASHINGTON — The unprecedented federal takeover of mortgage giants Freddie Mac and Fannie Mae announced on Sunday is a bold attempt to stabilize financial markets and restore the faltering housing market, but it thrusts trillions of dollars of risk directly onto taxpayers' shoulders. "You can call it a bailout, you can call it a safety net or you can call it a rescue package, but the bottom line is the American taxpayer is left footing the bill," says Richard Yamarone, director of economic research at Argus Research.

WASHINGTON (AP) — The federal government will run a near-record deficit of $407 billion for the budget year ending Sept. 30, according to the latest Capitol Hill estimates. The Congressional Budget Office figures released Tuesday say the flood of red ink will spill over into next year, when the deficit would reach a record $438 billion — and could go even higher as the government takes over mortgage giants Fannie Mae and Freddie Mac. The numbers represent about 3% of the size of the economy, which is the deficit measure seen as most relevant by economists. That's considerably smaller than the deficits of the 1980s and early 1990s, when Congress and earlier administrations cobbled together politically painful deficit-reduction packages. Still, the new figures are so eye-popping in dollar terms that it may restrain the appetite of the next president, who takes office Jan. 20, to add to it with expensive spending programs or new tax cuts. Pressure may build to allow some tax cuts enacted in 2001 and 2003 to expire as scheduled at the end of 2010, with Congress also feeling pressure to curb spending growth.

ARIZONA REPUBLIC — Porfirio H. Gonzales Elementary in Tolleson can't collect the $153,000 from the state needed to fix a collapsing sewer line - unless sewage starts backing up into its preschool and kitchen. Gonzales is one of many schools across Arizona struggling to make do without the cash to repair their buildings. In May, the Legislature halted the second half of repair payments many districts expected. The state also emptied this school year's entire repair fund, pulling back $86 million, to plug holes in the state budget. The moves by the state to withhold money are but the latest in a decade-long trend of not giving schools the full amount of repair funds that state law requires. Over the past 10 years, the Legislature has given schools less than half the money the formula requires.

Alaskans hit the annual oil jackpot Saturday — and it was a gusher. Every man, woman and child in the 49th state will receive $3,269, their cut of the state's yearly oil wealth, plus a special cash bonus to offset soaring fuel costs. In all, 610,768 people are receiving the payouts. The oil royalty works out to $2,069 and the fuel rebate $1,200. Last year's payout was $1,654. People must live in Alaska one calendar year to qualify. The fund was created in 1976 after North Slope oil was discovered. Since the first payout of $1,000 in 1982, Alaskans have received $16.5 billion. Two questions are contentious: Is the oil Alaska's oil or America's oil? And should the state reduce its request for federal funding by the total amount of the dividend?

Economy

WASHINGTON — Businesses shed 84,000 jobs in August as the unemployment rate soared to a five-year peak of 6.1%, the Labor Department said Friday in a report providing stark evidence that the economy is foundering. Fully 2.2 million Americans have lost their jobs in the past 12 months, as the unemployment rate has climbed from 4.7%. In another troubling sign, the number of long-term unemployed — those out of work six months or more — jumped by 163,000 to 1.8 million, and has surged by 589,000 in the past 12 months.

NEW YORK (CNNMoney.com) -- A record 1.249 million homes were in foreclosure during the second quarter of 2008, according to a report released Friday by the Mortgage Bankers Association. And new foreclosure proceedings were started on about 490,000 of the 45 million home mortgages serviced by MBA members. That's up 9% from the 448,000 starts recorded in the previous quarter. Mortgage delinquencies continued their grim rise during the three months ended June 30, with 2.9 million homeowners falling behind on their loan payments, apart from those already in foreclosure. Compared with a year ago, delinquencies are up more than 25%, while loans in foreclosure have nearly doubled. Both levels were the highest ever recorded by the survey.

WASHINGTON — The nation struggled with slow economic growth and still-high prices that are weighing on consumers and businesses alike. The country is stuck in a slow-growth rut, the Federal Reserve suggested Wednesday. The Fed's report on business conditions around the nation, released Wednesday, provided fresh evidence of the toll that housing, credit and financial problems are taking on the economy as a whole. A growing number of analysts believe the economy could be thrown into a tailspin later this year and early next year as consumers and businesses curtail their spending even more.

NEW YORK — Oil prices closed at their lowest level in five months Thursday as a lower-than-expected drop in U.S. gasoline stockpiles gave traders more reason to believe that a cooling economy is forcing Americans to drive less. Light, sweet crude for October delivery fell $1.46 to settle at $107.89 a barrel on the New York Mercantile Exchange. It was crude's fifth straight decline and the lowest settlement price for a front-month contract since April 4.

Bankruptcies Soar for Senior Citizens

While the bankruptcy filing rate for those under 55 has fallen, it has soared for older Americans, according to a new analysis from the Consumer Bankruptcy Project, which examined a sampling of noncommercial bankruptcies filed between 1991 and 2007. The older the age group, the worse it got — people 65 and up became more than twice as likely to file during that period, and the filing rate for those 75 and older more than quadrupled. In 1991, the 55-plus age group accounted for about 8% of bankruptcy filers, according to the study, which looked at more than 6,000 cases filed in 1991, 2001 or 2007. By last year, filers 55 and over accounted for 22%. A number of factors are contributing to the increase. Higher prices for ordinary consumer goods have hit seniors on fixed budgets. For older Americans living below the poverty level, or not far above, a safety net likely doesn't exist for economic setbacks such as medical problems. And some fall prey to scams that cripple their finances.