Colin Powell endorses Barack Obama for president

(CBS News) Former Secretary of State Colin Powell broke with the Republican party during the 2008 election, to endorse then-candidate Barack Obama for president, calling Obama a "transformational figure." 

With 12 days to go before the presidential election, Powell publicly endorsed President Obama for re-election on "CBS This Morning" Thursday 

"I voted for him in 2008 and I plan to stick with him in 2012 and I'll be voting for he and for Vice President Joe Biden next month."

Plan to Move Distressed Assets Could Move Stocks Higher

Put me down as a fan of this plan. It could end up being a stroke of genius. This definitely trumps the Resolution Trust Corporation (RTC) plan that was used to dispose of the assets from failed Savings and Loans.

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The Obama team announced its intention to partner with the private sector to buy $500 billion to $1 trillion of distressed assets as part of its revamping of the $700 billion bank bailout last month.

...private investment managers would run the funds, deciding which assets to buy and what prices to pay. The government would contribute money from the $700 billion bailout, with additional financing likely coming from the Federal Reserve and by selling government-backed debt. Other investors, such as pension funds, could also participate. To encourage participation, the government would try to minimize risk for private investors, possibly by offering non-recourse loans.

'Bad Bank' Funding Plan Starts to Get Fleshed Out

Bob DeMarco is a citizen journalist, blogger, and Caregiver. In addition to being an experienced writer he taught at the University of Georgia , was an Asociate Director and Limited Partner at Bear Stearns, was CEO of IP Group, and is a mentor. Bob currently resides in Delray Beach, FL where he cares for his mother, Dorothy, who suffers from Alzheimer's disease. Bob has written more than 500 articles with more than 11,000 links to his work on the Internet. His content has been syndicated on Reuters, the Wall Street Journal, Fox News, Pluck, BlogCritics, and a growing list of newspaper websites (15). Bob is actively seeking syndication and writing assignments.

Bold Endeavors: How Our Government Built America, and Why It Must Rebuild Now

AIG Whose your Daddy?

It is now clear that AIG had to be bailed out. The alternative was a meltdown of the world financial system. I still remember Hank Greenberg, with hat in hand on CNBC, telling America that AIG has plenty of assets and just needed some help from the U.S. government---taxpayers (that was the first $85 Billion) . I also remember writing that there was zero chance that AIG would make it. I still believe that to be true.

The government is going to need to keep AIG going for about 20 years before they can dig themselves out of the hole they put themselves in by creating a mountain--a trillion dollars or more--of phony baloney paper. We are learning every day how toxic so called credit derivatives swaps are, and how worthless they are. Nobody can put a price on this paper. On the other hand, it did help enrich management of AIG by creating lots of fee income that turned into bonuses. The underlying assets--little did they care.

So here comes AIG hat in hand for more of the taxpayer's hard earned dollars. This is really the Donald Trump strategy--get your partners in so deep they have no choice but to give you more money. So far they are into our pockets for $150 billion.


It is time for a realistic view of this problem. We--the taxpayers--need to hire some sharp investment bankers to get in there and make the best deal possible for the American public. This plan should include a longer term plan to dismantle AIG and erase it from the face of the earth.

Throwing good money after bad is not going to work and the next thing you know we--the taxpayers--will be broke. It is time to ask--Whose your daddy?

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This is a very good explanation of the situation as it now exists. Follow the link for more.

AIG Seeks to Ease Its Bailout Terms

American International Group Inc. is seeking an overhaul of its $150 billion government bailout package that would substantially reduce the insurer's financial burden, while further exposing U.S. taxpayers to its fortunes, people familiar with the matter say.

Under the plan, the government loan of up to $60 billion at the heart of the bailout would be repaid with a combination of debt, equity, cash and operating businesses, such as stakes in AIG's lucrative Asian life-insurance arms. AIG and the government have been discussing the changes since December and plan to announce them by Monday when the insurer is expected to ...

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Government Help for Homeowners--Access to Refinancing Case 1

What help is available for borrowers who stay current on their mortgage payments but have seen their homes decrease in value?

Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.

Case 1-Access to Refinancing

In 2006: Family A took a 30-year fixed rate mortgage of $207,000 on a house worth $260,000 at the time. (The family put just over 20% down.) They received a Fannie Mae conforming loan with an interest rate of 6.50%.

Today: Family A has about $200,000 remaining on their mortgage but their home value has fallen 15 percent to $221,000.

Their “loan-to-value” ratio is now 90%, making them ineligible for a Fannie Mae refinancing.

Under the Refinancing Plan: Family A can refinance to a rate of 5.16%. This would reduce their annual payments by nearly $2,350.
* How do I know if I am eligible?

Complete eligibility details for all programs will be announced on March 4th when the program starts. The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.

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Obama's Foreclosure Speech (Live)

Visit msnbc.com for Breaking News, World News, and News about the Economy

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The Housing Bailout--How did they get there?

The long awaited housing bailout will be announced today. The biggest issues surround which homeowners win and which homeowners lose. The biggest losers will be homeowners who have been living in their homes for a long time and making their payments. They will get nothing and will help pay the loans of home owners in trouble.

The big question is will the Obama plan include homeowners who put nothing down, have no job, and no assets and received a mortgage--NINJA loans. The next group in trouble are homeowners that simply cannot afford their home. Will the homeowners who never were going to be able to afford the home they purchased get bailed out? The current estimate is a whopping 3 million homeowners fall into these categories. Should they be bailed out? Or, should the lenders be forced to eat the loans.

The most vulnerable group are homeowners that are making payments but now see their houses underwater. The first question I would ask is how did they get there? My mother has a neighbor with a house that is $150,000 underwater. However, prior to that purchase she sold a house and realized a gross gain of $550,000. Should she receive help?

It is now estimated that about 10 million homeowners are making their payments but own homes that are worth less than the mortgage they are paying. It appears they get nothing in the housing bailout. Once they see deadbeats and fools getting bailed out will they decide to walk away from their mortgage? If they do, the housing bailout will ultimately fail. This will occur because the housing market will continue to worsen for years and be a continued drag on the economy? Or will it?

Housing accounts for about 6 percent of Gross Domestic Product. Meanwhile, retail sales accounts for 66 percent. Are we focusing in the right place?

Is the housing bailout about consumers or is it about banks. I think you already know the answer.

Your thoughts, perspective and comments are welcome.

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Economic Scene

Bailout Likely to Focus on Most Afflicted Homeowners

By DAVID LEONHARDT

The long-awaited housing bailout will finally be announced on Wednesday.

In a speech in Phoenix, a signature real estate boomtown gone bust, President Obama will explain his plan to reduce foreclosures. And the key to understanding that plan will be remembering that there are two different groups of homeowners who are at risk of foreclosure.

The first group is made up of people who cannot afford their mortgages and have fallen behind on their monthly payments. Many took out loans they were never going to be able to afford, while others have since lost their jobs. About three million households — and rising — fall into this category. Without help, they will lose their homes.

The second group is far larger. It is made up of the more than 10 million households that can afford their monthly payments but whose houses are worth less than what is owed on their mortgages. In real estate parlance, they are underwater. If they want to stay in their homes, they will have no trouble doing so. But some may choose to walk away voluntarily, rather than continue to make payments on an investment that may never pay off.

Scratch beneath the details of any housing bailout proposal, and the fundamental issue is whether it tries to help the second group or just the first.

Mr. Obama has evidently decided to focus on the first group, based on the previews of his speech that aides have offered. In coming weeks, his administration will begin spending $50 billion to entice banks to reduce the monthly payments of people who otherwise couldn’t afford to stay in their houses. In effect, the government will split the losses on these mortgages with banks.

The $50 billion will come from the money Congress has already allocated for the bailout of the financial system. It is likely to be aimed at people who need a significant, but not an enormous, amount of help to meet their mortgage payments.

There are some big advantages to this approach. Bailing out all underwater homeowners would be tremendously expensive. All told, about $500 billion in mortgage debt is already underwater, and it’s impossible to know in advance who is likely to walk away. So the government would have to spend hundreds of billions of dollars to help millions of people who don’t need help staying in their homes.

But the Obama approach also brings risks. The administration is betting that few of those 10 million underwater homeowners will walk away. (A year from now, the number will about 15 million, Moody’s Economy.com projects.) If they begin to abandon their homes in large numbers, however, they will aggravate the housing bust and the financial crisis — and probably force the administration to come up with a new, much larger housing bailout down the road.

In that case, the speech that Mr. Obama is making in Phoenix could come to look like a rose-colored bit of incrementalism, which happens to be the very criticism that Obama advisers have leveled against the Bush administration’s response to the housing bust.

Underwater homeowners clearly face a difficult choice. By walking away from a house and then renting a similar one in the same town, many could save themselves a lot of money. And those who need to move — to take a new job, for example, or to marry — may have little choice but to default. They may not get enough from a sale to pay off the mortgage.

On the other hand, defaulting will wreck a homeowner’s credit rating. For families that don’t need to move, doing so will also bring other headaches and costs. They will be leaving behind their homes. Many other people may continue to make their payments simply because they think it’s the right thing to do.

The current housing bust doesn’t have a good recent historical analogy. It’s too big. But there have been some serious regional housing slumps that may offer a window into how underwater homeowners will behave this time.

Three economists at the Federal Reserve Bank of Boston recently did an analysis along these lines, looking at the Boston area in the early 1990s. From early 1989 until late 1991, prices in Boston fell 15 percent. They did not return to their 1989 peak until 1997.

Yet only 6.4 percent of homeowners who had been underwater at the end of 1991 were eventually foreclosed on. And the majority of these foreclosed homeowners weren’t merely underwater; they were also unable to make their monthly payments, because of the severe recession hitting New England at the time, as Chris Foote, an economist at the Boston Fed, told me. They are the kind of people the Obama plan is meant to help.

In all, maybe only 1 or 2 percent of underwater homeowners walked away even though they could make their payments. Mr. Foote and his colleagues predict that the nationwide foreclosure rate over the next few years will be higher than it was in Boston, but not radically so.

For most people, the Fed economists write, being underwater “is a necessary but not a sufficient condition for foreclosure.”

Now, not all economists buy this argument. They say that the psychology of the current bust is different from what it was in Boston in the early 1990s. In a handful of metropolitan areas, including Phoenix, prices have fallen almost 50 percent from their 2006 peak.

Homeowners in such places may wonder if their houses will ever be worth more than their mortgages. So fairly small changes in their lives — like a reduction in work hours or the breakdown of a car — may lead them to walk away from their homes.

“I would not minimize that risk at all,” said Frederic Mishkin, a member of the Fed’s board of governors until last year.

If even 10 percent of the underwater homeowners walked away, Mr. Mishkin notes, foreclosures would soar, exacerbating the economy’s many problems.

Other economists who share his view are calling for across-the-board programs that would reduce interest rates or otherwise juice the housing market. They are worried that without bolder government actions, the housing market will continue to spiral downward.

In the end, the choice between the two approaches becomes a matter of cost-benefit analysis. The more aggressive approach would almost certainly do more to reduce foreclosures. But it would also be enormously more expensive.

If the economists from the Boston Fed are right — or even close to right — then the aggressive approach may cost something like $500 billion to prevent 500,000 foreclosures.

That’s $1 million per prevented foreclosure. Is that really worth it? Or could the money be better spent in other ways? (There is also the small matter of whether Congress would be willing to spend another $500 billion anytime soon.)

Mr. Obama is apparently going to try to get more bang for the buck by focusing on those homeowners who would certainly lose their homes without government help.

The plan will also help some underwater homeowners refinance their mortgages, but that won’t be the emphasis.

The administration’s next task is to execute its plan better than the Bush administration executed its various housing plans. That will mean offering subsidies that are big enough to persuade banks, finally, to rewrite mortgage terms.

It also might help to suggest that the federal government would look unfavorably on any bank that did not make good use of those subsidies. After all, the government is now a shareholder in many banks.

E-mail: leonhardt@nytimes.com

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If lucky you get almost 8 Bucks a week from the stimulus bill

Under the "stimulus" bill that President Obama signed today some people will be getting close to 8 bucks per week, others will be paying higher taxes--a higher marginal tax rate.

Let's get to the good news first. If you are single and make less than $75,000 a year you get $400. Married and making less than $150,000 bucks you get $800. So look at it this way, if you are lucky you can expect a little less than 8 bucks a week.

The theory behind giving you a little bit each week is you will spend it. It appears many people saved the money from the Bush stimulus. We no longer like people to save in this country. Spend, Spend, Spend. Uh, isn't this what got us in trouble in the first place?

Now to the bad news. If you are single making over $95,000 forgetaboutit--you get nothing (double that for married folks). If you are in that little window between $75,000 and $95,000 your marginal tax rate is going up by two percent. Ditto, if you are married and making between $150,000 and #190,000.

They say this is $116 billion in tax credits for 95% of Americans. I am a bit confused. Close to 45 million Americans are in the zero tax bracket. Another 13 million or so retirees don't need to file a tax return. As far as I can tell, you won't be getting your 8 bucks a week. If you are making money the easy way, you know, from social security, dividends or interest I don't know if you get to play. In the Bush version your social security qualified you for $300-$600 bucks. Which you received all at once as opposed to 6 bucks a week.

Two thirds of Gross Domestic Product (GDP) is retail sales. So if everyone spends their 8 bucks, it would be a good thing. Maybe enough to keep your favorite luncheonette in business until the economy picks up.

The Wall Street Journal has a nice article on the latest attempt to boost consumer spending.

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Plan Tries Slow, Steady Stimulus to Revive Spending

By SUDEEP REDDY

The Obama administration is betting that an extra $8 a week in most Americans' paychecks will boost consumer spending and help pull the U.S. out of its downturn.

One piece of the $787 billion economic recovery package, which President Barack Obama plans to sign Tuesday in Denver, is an experiment in consumer behavior. The $116 billion in tax credits for 95% of Americans will come largely through reduced tax withholding from paychecks, over two years, rather than one-time payments.

The idea: let money trickle out to consumers so it feels like a permanent income boost.

When the government sent lump-sum checks for the 2001 and 2008 stimulus packages, Americans stashed most of the cash in savings or paid off debt. Neither of those actions fulfills the goals of a stimulus intended to offset weak consumer spending.

The tax break, one of Mr. Obama's campaign pledges, will provide up to $400 per worker or $800 for couples filing jointly. The credit begins phasing out for individuals making $75,000 a year and couples earning $150,000, eliminating 2% of income above that level from the tax break. That means that for every $1,000 over the cap, $20 of the credit is subtracted.

For example, someone earning $40,000 would receive the full $400, while someone who makes $85,000 would get $200, and a worker who earns $95,000 would receive nothing.

The first payments are expected to start hitting paychecks this spring, once the Internal Revenue Service releases new tax tables for employers to adjust payrolls. While the benefit for individuals amounts to $7.69 a week, the tax break for most workers this year should be about $12 to $14 a week to make up for the early months of 2009. Taxpayers who don't receive the break through employer payrolls can claim the credit as a refund on their 2009 taxes or by changing their quarterly withholding.

Whether the tax break boosts the economy in the short run depends in part on how stretched households have become and how consumers see the tax credit.

Getting money in a paycheck may indicate a steadier income gain, especially if recipients see it as a permanent middle-income tax cut -- as the Obama administration wants it to become eventually. "Spending something that's going to be a monthly or weekly flow would be the rational thing to do," said Matthew Shapiro, a University of Michigan economist who studied the 2001 and 2008 stimulus packages.

Consumers might connect a relatively large, single check in the mail to a credit-card debt or other loan that needs to be repaid. Or they could realize the need to save money in a downturn or in response to lower housing or investment values. That is what appears to have happened last year, when then-President George W. Bush's $152 billion stimulus package gave most Americans checks of $300 to $1,200. About a third was spent over the course of a year, while the personal saving rate shot up from zero in April 2008 to 4.8% the following month when the checks hit mailboxes.

At the time, consumers also were facing skyrocketing fuel prices as gasoline topped $4 a gallon. For many consumers, the government stimulus payments went largely toward offsetting the higher fuel bills, providing only a modest cushion to consumer spending as the economy continued to weaken.

"I don't care how you give it to me as long as I get money," said Matt Randolph, 26 years old, who is in the U.S. Navy. Last year, he and his wife, April, received a $1,200 check and said they used it to pay off credit-card bills.

This time around, Mrs. Randolph says, with the money spread out, "We'd think 'Oh a few more dollars. Let's go out to dinner.' For $16 a week, I am not going to go take a vacation somewhere."

Some economists are less optimistic than the White House about the boost from the stimulus. The personal saving rate in December jumped to 3.6% from 0.4% a year earlier, and Americans could decide to let the smaller payouts pile up.

"Because the economy is so much worse now and people are so much more panicked now, I do think it's more likely we'll get precautionary saving," said Mark Zandi, chief economist at Moody's Economy.com.

That's what Madeleine Leach plans to do with her money. Ms. Leach, a vice principal in the Newark, N.J., school district, says the weak housing and job markets have made her wary of spending too much. "You can't just go on spending money because you never know whether you're going to be employed," she said. Ms. Leach, 34, plans to save the money for her wedding next year.

Write to Sudeep Reddy at sudeep.reddy@wsj.com



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Total Public Debt Outstanding---A Tale of Two Presidents

Ever wonder about Federal Public debt?

You can think of the total public debt as accumulated deficits plus accumulated off-budget surpluses. The on-budget deficits require the U.S. Treasury to borrow money to raise cash needed to keep the Government operating. We borrow the money by selling securities like Treasury bills, notes, bonds and savings bonds to the public.

The public debt is what we--as citizens of the United States--owe. In other words, the amount we have allowed our elected officials to borrow. Everyone knows the federal government takes in revenue in the form of taxes and other receipts. The difference between revenue and the amount that is actually spent equals the Public debt. This is also known as Treasury Debt.

• Public debt outstanding January 20, 1993--4,188,092,107,183.60
• Public debt outstanding January 19, 2001--5,727,776,738,304.64
• Under the Clinton administration Public debt increased by $1,539 Trillion

• Public debt outstanding January 19, 2001--5,727,776,738,304.64
• Public debt outstanding January 20, 2009--10,626,877,048,913.08
• Under the Bush administration Public debt increased by $4,899 Trillion

Total outstanding Treasury Debt as of February 12, 2009 is $10,759,196,587,563.44

If you would like to pay off part of the national debt you can write a a check and send it to:

Attn Dept G
Bureau Of the Public Debt
P. O. Box 2188
Parkersburg, WV 26106-2188

You can look at the numbers above and decide for yourself if the borrowing habits of the Federal government--we the people--effects stock prices. Your IRA and 401 k probably did very well from 1993-2001, not so good from 2001-2009.

Feel free to comment.

If you would like to know the total amount of treasury debt outstanding each day, or learn more about--The Debt to the Penny and Who Holds It--go here.

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McCain Knocks Obama

As the stock market was beginning its crash in September, John McCain pronounced that the economy was fundamentally sound. Somehow he missed the collapse of Lehman Brothers, the forced sale of Merrill Lynch (announced the day before), and the AIG fiasco. He tried to backtrack the next day,

by calling the economy fundamentally sound, what he really meant was that American workers are the best in the world.

He proved he was out of touch with not only the economy but also what was happening all across America.

Instead of being a positive factor in the current mess, McCain is proving once again that he has not yet grasped that the days of Karl Rovian rhetoric are over.

The stimulus bill which Obama will sign Tuesday is “incredibly expensive,” McCain said. “It has hundreds of billions of dollars in projects which will not yield in jobs,” McCain told CNN Chief National Correspondent John King. “This was supposed to be a package that was going to create jobs.”

One can only wonder what McCain would be proposing in a similar position. It scares me to think about it. He is all over television saying "the economy will come back".

I am not a big fan of the stimulus package. However, I believe it is necessary and I doubt we could get anything better in the current political environment. I am also convinced that inaction--waiting for the economy to come back on its own--would be a disaster.

Dear John, wake up.

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Stimulus bill was 'a bad beginning' for Obama, says McCain

From CNN Associate Producer Martina Stewart
(CNN) – Arizona Sen. John McCain did not pull any punches in assessing a major milestone in his former rival’s nascent presidency.

“It was a bad beginning,” McCain said Sunday of the legislative process that resulted in the $787 billion stimulus bill recently passed by Congress. “It was a bad beginning because it wasn’t what we promised the American people, what President Obama promised the American people – that we would sit down together.”

While McCain said he appreciated the fact that Obama came to Capitol Hill to speak with House Republicans about the stimulus bill. But, “that’s not how you negotiate a result.” Instead, “you sit down in a room with competing proposals” and “almost all of our proposals went down on a party-line vote”

“I hope the next time we will sit down together and conduct truly bipartisan negotiations. This was not a bipartisan bill.”


But the former Republican presidential nominee was also critical of how his own party had conducted itself in the past when it came to bipartisanship.

“Republicans were guilty of this kind of behavior,” McCain said. “I’m not saying that we did things different. But Americans want us to do things differently and they want us to work together.”

The stimulus bill which Obama will sign Tuesday is “incredibly expensive,” McCain also said. “It has hundreds of billions of dollars in projects which will not yield in jobs,” McCain told CNN Chief National Correspondent John King. “This was supposed to be a package that was going to create jobs.”

McCain also spoke about the potential long-term effects of the stimulus bill.

“We are committing generational theft,” McCain said. “We are laying a huge deficit on future generations of Americans.”

Failure to bring the federal government’s spending back in line with its revenue once the economy improves could lead to inflation and debasement of the dollar down the road, McCain also told King.

McCain, who has represented the border state of Arizona in the Senate for more than two decades, also discussed illegal immigration on State of the Union.

Filed under: John McCain • President Obama • State of the Union • economic stimulus

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The News Hour Economists panel - Krugman, Rogoff, Marron, Rivlin Part 1

Source firedoglake

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The News Hour Economists panel - Krugman, Rogoff, Marron, Rivlin Part 2

Source firedoglake

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Big Business Loses Out on Tax Break Under Stimulus Deal

One potato, two potato, three potato, zip.

I wrote previously about Georgia Republican Sen. Johnny Isakson proposal that provided a $15,000 tax credit to consumers who purchase a principal residence--Senate Advances Tax Break for Homebuyers. This would have applied to the purchase of a new or existing home. Bad idea since purchasing an existing home does not add to the economy. Additionally, I could foresee that shrewd investors could find a way to swap houses and enjoy $30,000 in tax benefits at the expense of taxpayers. I also wrote about how this tax proposal would benefit the rich and not all taxpayers, Senate’s Housing Tax Credit Favors Higher-Income Homebuyers. Poof gone.

It was clear that Johnny, a former real estate agent, had one thing in mind--some payback for his campaign backers.

Democratic negotiators have also jettisoned a proposal from Georgia Republican Sen. Johnny Isakson that would have provided a $15,000 tax credit to consumers who purchase a principal residence before the end of 2009. The plan was strongly supported by the National Association of Home Builders and many Republicans.

Key words: National Association of Home Builders. Make the builders rich, do little for the consumer, nice try Johnny.

But after Mr. Isakson and most Senate Republicans voted against the overall stimulus package Tuesday, Democrats stripped it from the final legislation. Instead, they expanded an existing $7,500 tax credit for first-time home buyers to $8,000 and extended its expiration to the end of the year from this summer. The change cuts the cost of the home-buyer proposal to less than $3 billion over 10 years from more than 10 times that amount.

Fair enough.

Big business didn't do as well as they would have liked in the new stimulus spending package. I have nothing against big business as I invest in stocks all the time; however, I prefer companies that can do it the old fashioned way without needing to step up the the government "trough". Capitalism--good.

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Big Business Loses Out on Tax Break Under Stimulus Deal

By BRODY MULLINS

WASHINGTON -- From auto dealers to the home-building industry, big business appears to be the biggest loser in the final economic stimulus plan being pieced together Wednesday on Capitol Hill.

Negotiators from the House and Senate sliced billions of dollars in tax incentives for businesses and slashed huge tax breaks for consumers that were strongly backed by industry lobbyists.

Many of the business tax provisions were added to the stimulus legislation in the Senate in an effort to attract Republican votes. President Barack Obama wants bipartisan support for the plan and was dealt a setback when no Republicans voted for the House version of the plan two weeks ago.
How the Stimulus Plans Differ

* Compare the House and Senate versions of the stimulus legislation.

More

* See the draft text of the Senate's stimulus bill
* Obama Seeks to Restore Stimulus Spending
* Finding a Foreclosure Fix Proves Tricky
* Bill Poses Political Risk for Both Parties
* Tax Break Divides Large, Small Builders
* Handful of Firms Benefit in Senate Bill
* Stimulus's Winners and Losers
* Obama Warns of 'Lost Decade'
* Do you think the stimulus legislation will work?
* How would you grade Obama's handling of the economy?
* Real Time Econ: Tax Revenue Tumbles
* Video: The Prospects for a U.S. Recovery

But when only three Republican senators voted for the Senate version of the bill Tuesday, Democrats slashed the business tax proposals in an effort to bring the total cost of the bill under $789 billion.

Though the details of the overall package could remain unclear until Thursday, interviews with congressional aides and industry lobbyists indicate that the final plan will include just $5 billion in tax incentives aimed at corporations, down from $21 billion in the Senate.

Democrats shed most of that by cutting back a tax break sought by unprofitable businesses to recoup taxes paid in the past five years by offsetting former profits with more recent losses. Democrats agreed to limit the tax benefit to small businesses, reducing its cost to just a few billion dollars from $19 billion included in the Senate bill.

Democratic negotiators have also jettisoned a proposal from Georgia Republican Sen. Johnny Isakson that would have provided a $15,000 tax credit to consumers who purchase a principal residence before the end of 2009. The plan was strongly supported by the National Association of Home Builders and many Republicans.

But after Mr. Isakson and most Senate Republicans voted against the overall stimulus package Tuesday, Democrats stripped it from the final legislation. Instead, they expanded an existing $7,500 tax credit for first-time homebuyers to $8,000 and extended its expiration to the end of the year from this summer. The change cuts the cost of the home-buyer proposal to less than $3 billion over 10 years from more than 10 times that amount.

Negotiators also dropped a plan by Sen. Barbara Mikulski (D., Md.) that would have allowed consumers to write off the interest on loans for vehicles purchased this year. In its place is a smaller plan to allow consumers to write off sales and excise taxes on car purchases. $2 billion he broader plan in the Senate would have cost $11.5 billion over 10 years.

In a win for business, negotiators sweetened a provision that would reduce the tax burden for companies that buyback their debt. The provision was backed by a coalition that included the U.S. Chamber of Commerce, private equity firms and Las Vegas casinos.

Several smaller tax provisions for businesses remained in the legislation. Negotiators appear ready to except a plan that would allow small businesses to more quickly write off there expenses and a second proposal to speed up the depreciation of new equipment and investments for all companies.

However, Florida citrus growers and California vintners lost a bid to expand those provisions to include agricultural projects.

Negotiators also cut a $500 worker tax credit to $400. Republican Sen. Olympia Snowe of Maine had called the worker tax credit the "signature" piece of Mr. Obama's stimulus plan.

Write to Brody Mullins at brody.mullins@wsj.com

Previously on All American Investor

Ray Dalio on the current state of affairs in the market

15 Great Stocks From the Great Depression

Roubini Predicts U.S. Losses May Reach $3.6 Trillion

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"We would be making an error if we were content to look solely at financial markets," she said. She deplored huge debts that governments are accumulating to spend their way out of the present crisis. But she said she recognized, for the moment, that "there is no other possibility."

Sarkozy, Merkel, Blair Call for New Capitalism

The head of Europe's biggest economy said Thursday that world leaders should be looking at the massive U.S. deficit and other economic imbalances, not just problems caused by financial markets, as they debate a new global order.

Speaking at a conference in Paris on the future of capitalism, German Chancellor Angela Merkel singled out the American budget deficit and China's current account surplus -- the difference between exports and imports -- as problems upsetting the global economy.

"We would be making an error if we were content to look solely at financial markets," she said. She deplored huge debts that governments are accumulating to spend their way out of the present crisis. But she said she recognized, for the moment, that "there is no other possibility."

A Congressional Budget Office report estimates that the U.S. federal budget deficit will hit an unparalleled $1.2 trillion for the 2009 budget year -- and that is before President-elect Barack Obama's sweeping stimulus package is calculated.

European governments have agreed to be flexible about budget rules that limit deficits to 3 percent of gross domestic product as recession bites.

Merkel said the International Monetary Fund has not managed to regulate global capitalism, and she called for the creation of an economy body at the United Nations, similar to the Security Council, to judge government policy.

French President Nicolas Sarkozy, leading the two-day conference with former British Prime Minister Tony Blair, blamed financial speculators for encouraging a system fueled on debt.

He called financial capitalism based on speculation "an immoral system" that has "perverted the logic of capitalism."

"It's a system where wealth goes to the wealthy, where work is devalued, where production is devalued, where entrepreneurial spirit is devalued," he said. But no more: "In capitalism of the 21st century, there is room for the state," he said.

Governments around the world have had to step in to rescue credit-starved banks and financial institutions from collapse. They are also pumping billions of euros into their economies to encourage growth.

Measures will be taken by global leaders meeting in London on April 2, Sarkozy promised, urging the U.S. to join the international consensus. Blair called for a new financial order based on "values other than the maximum short-term profit."

"The greatest entrepreneur I had the chance to meet was passionate about what he had created, not what he had accumulated," he said.

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