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While the Bush administration shifts course on
its $700 billion rescue plan, Congress is examining whether even
bigger changes should be made in the program in light of the
deteriorating economy and soaring mortgage foreclosures.
      

The debate may not be resolved until President-elect Barack
Obama takes office on Jan. 20 and pursues policies for
administering the rescue program that are likely to be more closely
aligned with his Democratic allies in Congress.
      

In anticipation of the change of administrations, Democrats were
holding hearings in both the House and Senate on Thursday examining
various aspects of the most serious financial crisis to hit the
country in 70 years.
      

The House Oversight Committee was examining the role that hedge
funds may have played in recent market turbulence. Among those
scheduled to testify was billionaire investor George Soros,
chairman of Soros Fund Management.
      

Meanwhile, the Senate Banking Committee will hear from
executives of a number of financial institutions including Bank of
America, JPMorgan Chase and Wells Fargo on the issue of how the
government's $700 billion rescue effort is operating and
particularly whether the government should be requiring more
commitments on the use of the money to address rising mortgage
foreclosure problems.
      

Treasury Secretary Henry Paulson announced Wednesday that the
administration had decided to scrap what had originally been the
centerpiece of the program - a proposal to buy troubled assets to
get them off the books of banks as a way of promoting increased
lending.
      

Instead, Paulson said the administration will proceed with an
alternative plan to spend $250 billion to buy stock in the banks as
a way of bolstering their financial situation and accomplishing the
same goal - getting the institutions to return to more normal
lending.
      

However, critics contend the administration should be imposing
more restrictions on the stock purchases as a way of insuring that
the banks will use the government resources to increase lending
rather than just hoarding the cash or using it to acquire other
banks or boost dividends for stockholders.
      

Sen. Charles Schumer, D-N.Y., said even with the changes in the
rescue plan he was still disappointed in the administration's
unwillingness to issue strict guidelines to ensure that
participating firms use the funds to increase lending.
      

"In these difficult times, fear is still overwhelming
confidence," Schumer told reporters on Tuesday.
      

More reports detailing the difficulties facing the economy were
expected on Thursday with the Labor Department releasing its latest
look at weekly applications for unemployment benefits, the Commerce
Department reporting on the trade gap for September and the
government reporting on the budget deficit for October.
      

The level of jobless claims was expected to remain at levels
indicating the labor market is under severe strains, reflecting
what many economists fear could be a deep and prolonged recession.
      

The government reported last Friday that the unemployment rate
soared to a 14-year high of 6.5 percent in October as businesses
cut another 240,000 jobs.
      

The trade deficit was expected to show some improvement,
declining to $57 billion in September, compared to $59.1 billion in
August, reflecting a big drop in the price of imported oil and a
weakening economy, which is dampening demand for other imports.
      

The budget deficit, however, was expected to show a big increase
in October, the first month of the new budget year, rising to
$101.5 billion, compared to $57 billion in October 2007. The
soaring costs of the bank rescue and the weak economy are expected
to put the country on track to run up a record deficit for the
current budget year of between $700 billion and $1 trillion, a
staggering sum for a single year.
      

Despite its new flexibility, the administration said Wednesday
it remains opposed to using the rescue fund to bail out the ailing
auto industry or to provide guarantees for home loans, an idea that
supporters contend offers the greatest hope for helping legions of
Americans who are facing foreclosure.
      

Congressional Democrats felt otherwise on autos, and strongly.
House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid
were pressing for quick passage of a major package for carmakers
during a postelection session that begins next Tuesday, and one key
House Democrat was putting together legislation that would send $25
billion in emergency loans to the beleaguered industry in exchange
for a government ownership stake in the Big Three car companies.
      

Paulson told reporters Wednesday that the administration was
exploring the possibility of setting up a program in conjunction
with the Federal Reserve that would provide support for the $1
trillion market in securities that fund such vital consumer
products as credit cards, auto loans and students loans. About 40
percent of consumer credit is supplied through the sale of these
securities that are backed by payments consumers make on their
credit cards and other loans.
      

The administration has already spoken for all but $60 billion of
the initial $350 billion supplied by Congress, including the $250
billion for direct stock purchases from banks and $40 billion for a
new loan supplied on Monday to help stabilize troubled insurance
giant American International Group.
      
      

Gallery

Another approach on mortgages, but will it work?

Paulson says troubled assets will not be purchased

Bush administration still working rescue

Wall St. heads to uncertain open

Business and Economic News

While the Bush administration shifts course on
its $700 billion rescue plan, Congress is examining whether even
bigger changes should be made.

Congress examines $700 billion rescue program

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