It's like winning the lottery, then being told you have just a week to spend it. And, oh yeah, don't waste any of it.
Under the nearly $800 billion stimulus package signed last week, some federal programs are set for an unparalleled increase in funding.
The example people usually cite first is the Energy Department's Home Weatherization Program, which is expecting a tenfold increase to its budget - with the stimulus package dumping $5 billion on a program that's currently running on $500 million a year.
But the weatherization program is hardly the only example. From the National Park Service to the Health Department to the Army Corps of Engineers, several agencies are getting a huge infusion of cash and a mandate to spend it quickly.
And that's got a lot of people nervous.
"'The federal, state and local bureaucracy just doesn't have the capacity to handle that decision making," said Rudy Penner, a senior fellow with the Urban Institute and a former director of the Congressional Budget Office. "There's going to be a lot of waste."
The Obama administration - which is responsible for managing the stimulus money - seems to understand the potential for waste.
They are promising an unprecedented level of transparency in doling out the money, and have created a board to oversee the process and a novel Web site - www.recovery.gov - that's supposed to allow citizens to track every dollar.
But experts say many of the federal agencies simply don't have the manpower or procurement procedures in place to oversee a such huge amount of money.
It's a shortcoming the Obama team itself acknowledges.
Pre-Sept. 11, 2001, the government awarded about $200 million worth of contracts a year, Earl Devaney, head of the Recovery Act Transparency and Accountability Board, said at a press conference earlier this week.
Now the government doles out more than $500 billion a year, but the number of procurement staff has stayed the same, said Devaney.
"That will be a major challenge for all of the (cabinet) secretaries to address," he said, "to make sure that the staff is available to make this happen quickly and to monitor it once it goes out."
Who may have trouble
Government programs that aren't used to handing out grants and don't have the staff or experience in place are most at risk of fumbling the money, said Paul Verchinski, a former official at the Federal Transit Administration.
This is by no means an exhaustive list, but these agencies came up in conversation with various experts.
The Transportation Department: The agency is slated to get some $45 billion, but shouldn't have too much of a problem with the cash, said Verchinski. That agency is used to giving grants, has a backlog of projects that have already been vetted that need funding, and has many local partners in the form of the state transportation departments that can provide more localized oversight.
The Department of Energy: Other experts worry about this agency's ability to distribute funds efficiently and effectively.
In addition to the tenfold increase in the weatherization program, the department is also tasked with handing out billions to support renewable energy and an additional $25 billion to help automakers transition to more fuel-efficient vehicles.
The money for the automakers, approved in 2007, is still in coffers at DOE, although to the agency's credit it didn't actually get the money until this past fall, the New York Times reported Friday.
A spokeswoman at DOE said the agency is prepared to handle the influx of money, although she couldn't detail any plans as they are still being finalized.
The Army Corps of Engineers: Tasked with dredging the nation's harbors and building dams and levies, among other things, the Corps is set to get an additional $4.6 billion as part of the stimulus package. That amount would nearly double its annual budget, causing it to come up as a potential trouble spot.
Corps spokesman Gene Pawlik said the agency has an experienced contracting staff, although they realize they'll have to bring in more people to manage the influx of money.
Particularly challenging, said Pawlik, is figuring out how to ramp up staff for just two or three years, as the stimulus money won't last forever.
Bringing in temporary workers or enticing former workers out of retirement are two ideas the Corps has been floating around so far, he said.
The National Institutes of Health: The Institutes, which funds medical-related research, is getting an $8 billion boost to its normal budget of about $29 billion.
The size of the budget increase worries some policy experts, but with some 60,000 grants currently under management, NIH spokesman John Burklow said the agency is in a good position to handle the extra money.
Burklow said the stimulus cash will be split between funding previous requests that were good but turned down for lack of funds, increasing the funding for some existing grants, and funding new requests.
The National Park Service: Even parks are getting more money. Some $50 million has been slated for a division that cleans up old mines in the West, according to an industry newsletter.
"It's a huge infusion [of money], like we've never seen before," John Burghardt, coordinator of the program, told the Land Letter weekly report.
There's no doubt many other agencies will see a huge infusion of cash.
While hardly anyone is naive enough to think there will be zero waste, experts are holding out hope that the programs can be managed effectively.
"There's always the chance of waste," said Mike McNamara, head of the public law and policy group at the law firm Sonnenschein Nath & Rosenthal. "What you have here is a heightened attempt to diminish the waste and get the money flowing quickly."
The Obama administration unveiled plans Wednesday aimed at assessing the health of the nation's 19 largest banks in order to determine the size and scope of future bailouts.
Under the so-called "stress test" program, which was first hinted at earlier this month when the White House rolled out its financial recovery plan, banking regulators would examine major financial institutions like Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500), estimating firmwide losses for the next two years if economic conditions worsened and the bank's ability to absorb such losses.
Industry regulators, including the Office of Thrift Supervision and the FDIC, are expected to look at the performance of different assets owned by banks, including loans and such exotic securities as collateralized debt obligations, under two different scenarios.
One would rely on current consensus economic expectations, while the other would focus on a "more adverse" scenario in which unemployment climbs above 10% and home prices decline another 20% over the next two years.
Senior government officials said that those tests would help regulators identify which banks may require additional government support and how much.
If regulators deem that a bank needs additional funds, the company will be given six months to secure aid from private investors.
If those efforts fail, the government would step in and buy convertible preferred shares. Over time, it is expected that the bank would convert those holdings into common stock, helping to boost a key measure of capital adequacy.
Officials said they would not make public the names of those banks that require additional assistance, although institutions may be forced to show their hand at some point, especially if they are trying to raise funds in public markets.
Nevertheless, officials stressed that money would be there for the banks that need it, even as Treasury's budget for spending on financial institutions may appear stretched thin.
"One clear certainty is that capital will be there," said one official.
In some sense, regulators may be hoping that the new tests will also help the government more carefully target the remaining funds from the second half of the $700 billion bailout program.
"It was ready, aim, fire on the first one," said Donald Musso, president and founder at the New Jersey-based financial services consulting firm FinPro. "Now there is a little more precision in the decision making."
One key provision of the stress test program, however, is that banks accepting further funds would be required to increase lending. Many banks that received taxpayer funds under the original Troubled Asset Relief Program, or TARP, which was unveiled late last year, were criticized for hoarding cash.
After the Treasury Department started making its first round of capital injections last October, those banks that accepted government funds faced heavy criticism from lawmakers and taxpayers for failing to use the funds to make new loans.
Fanning that anger was an unwillingness by many institutions to make any changes to their seemingly lavish spending habits.
Regulators said they hope to complete their examinations as quickly as possible, but all determinations would be made no later than the end of April.
Shares of most financial firms including Bank of America, rallied on the news, climbing 9%. Other large banks were also higher after treading in negative territory for most of the session, including JPMorgan Chase and Wells Fargo (WFC, Fortune 500), which gained 3% each. Bucking the trend was Citigroup, which ended the session 3% lower.
Many big bank stocks have managed to eke out gains this week as top administration officials downplayed fears that the government may have to step in and take control of the country's largest financial institutions.
The days of cheap gas are retreating into the rearview mirror, as prices continue to flirt with the $2-per-gallon mark.
The national average price for a gallon of unleaded gasoline edged down 0.1 cent to $1.965 Monday, according to the motorist group AAA. This is bad news for the growing ranks of jobless Americans, who are pinching pennies and looking for ways to cut costs.
The current price would have been welcomed by summertime drivers, because it's less than half the all-time high of $4.114 per gallon, achieved last July 17.
But since gas prices slumped to a low of $1.616 per gallon on Dec. 30, they've jumped more than 20%. At their current rate, prices could easily eclipse $2 per gallon.
This is occurring as crude oil prices are trading well below $40 a barrel.
"I think what you're seeing now is a backlash of a period, from the end of the summer until the end of the year, when refiners were selling gas into the consumer market at a discount to crude oil," said Ben Brockwell, director of data pricing for OPUS.
Brockwell said refineries lost money last year, despite the surge in gas prices. The refineries in the latter half of 2008 were paying top dollar for oil, and then producing gasoline in a low-demand economy, he said. Now, refineries are producing less, driving up prices in even this low-demand economy, while stockpiling discount oil, he said.
It's hard to tell how this impacts Americans, who have been cutting back on driving since last year, and who have avoided the gas-guzzling larger vehicles, said Moody's chief economist John Lonski.
"You'd rather see energy prices lower, but it doesn't serve right now as one of the primary worries that affects consumer spending," said Lonski. "I would think that of the list of things to worry about, it does not yet rank as high as it did this spring or early summer, when gas prices were at stratospheric levels."
Robert Sinclair, spokesman for AAA in New York, one of 16 states where the price of unleaded averages more than $2 a gallon, said, "Driving levels are already pretty low, with the downturn on the economy and people holding onto their pennies and worrying about the future."
But gas prices will probably keep going up, as they often do in late winter and early spring, when refineries traditionally conduct annual maintenance on their facilities, said Peter Beutel of energy risk firm Cameron Hanover.
The silver lining for consumers is that, because of lower demand, prices are unlikely to return to their sky-high levels from last year, according to Beutel.
"I think this market is going to have a very tough time getting over $2.35 [per gallon of unleaded by Memorial Day] just because there are so many people out of work and the economy is having such as difficult time going forward," he said.
The final topline price of the economic recovery package: $787 billion. That's below both the $820 billion House-passed version and the $838 billion Senate-passed version.
The compromises that the House, Senate and White House struck to finalize legislation changed the scope of a number of provisions, including those affecting individuals directly. In some cases, they either reduced or expanded a benefit relative to what appeared in the Senate or House versions of the bill.
Here's a look at some of the provisions that will have a direct effect on individuals in their paychecks, on their tax returns, and with regard to their unemployment benefits and health insurance if they've lost a job.
Making Work Pay Credit: The bill provides a $400 credit per worker and a $800 credit per dual-earner couple. The full credit would be paid to people making $75,000 or less ($150,000 per dual-earner couple). A partial credit would be paid to those making above those amounts but no more than $100,000 ($200,000 for couples).
The credit would also be refundable, which means that even very low-income families who don't make enough to owe income tax would be able to claim it.
For most working individuals, the credit will be paid over time at roughly $15 per period, assuming 26 pay periods in a year. Estimated cost: $116 billion.
One-time payments to those who don't work: For retirees, disabled individuals and others who don't work, the bill provides a one-time $250 payment. Estimated cost: $14.2 billion.
Break for higher income families: The bill includes a one-year provision to protect middle- and upper-middle-income families from having to pay the Alternative Minimum Tax. The AMT was intended primarily for high-income taxpayers but has in recent years threatened to engulf those lower down the income scale. Estimated cost: $70 billion.
Temporary deduction for car buyers: The bill would let those who buy a new car, light vehicle, recreational vehicle or motorcycle in 2009 deduct state and local sales taxes as well as any excise tax charged in the purchase. The deduction would be available to those earning less than $125,000 ($250,000 for joint filers). It will be an above-the-line deduction, meaning even taxpayers who don't itemize may take it in addition to the standard deduction. Estimated cost: $1.7 billion.
Temporary credit for home buyers: The bill increases the size of an existing temporary and refundable first-time home buyer credit to $8,000, up from $7,500. It also removes the requirement under current law that the credit be paid back if the buyer stays in the home for at least three years. And it would extend the credit's expiration date to Dec. 1, 2009, from July 1. Those eligible for this credit must have purchased a home after Jan. 1, 2009, and before Dec. 1, 2009.
The full credit is available to those making $75,000 or less ($150,000 for joint filers). Estimated cost: $6.6 billion.
New temporary college credit: The bill introduces the American Opportunity Tax Credit, which would be in effect for 2009 and 2010. It expands the existing Hope Scholarship tax credit and would be worth as much as $2,500 for higher education expenses, up from $1,800 currently.
The full credit would be available to those making less than $80,000 ($160,000 for joint filers). Those making between those amounts and $90,000 ($180,000 for joint filers) would get a partial credit. And the break would also be partially refundable, meaning lower income families with little or no tax liability could now claim some of the credit. Estimated cost: $13.9 billion.
Temporary Pell Grant increase: The bill increases the maximum Pell Grant by $500 to $5,350 in 2009 and $5,550 in 2010. Estimated cost: $15.6 billion.
Temporary expansion of child tax credit: The bill increases eligibility for the child tax credit by lowering the income threshold that must be met for the credit to be refundable. The threshold would be lowered to $3,000 for this year and next. That will allow lower income families to claim more of the credit than under current law. Estimated cost: $14.8 billion.
Temporary increase in earned income tax credit: The credit will be temporarily increased to 45% from 40% of qualifying earnings for low-income families with three or more children. It also includes a marriage penalty relief provision for couples who qualify for at least a portion of the credit. Estimated cost: $4.6 billion.
Direct lifeline benefits
Health insurance help for the jobless: The bill includes provisions to help eligible jobless workers pay for health insurance under Cobra. Cobra coverage allows newly unemployed workers to keep health insurance provided by their former employers for a period of time.
For workers who have been laid off between Sept. 1, 2008, and Dec. 31, 2009, the government will subsidize 65% of their premiums under Cobra for up to 9 months.
Those people laid off between Sept. 1, 2008, and the day the stimulus law goes into effect, and who did not sign up for Cobra, will get an additional 60 days to do so and receive the subsidy.
The subsidy will be limited to those whose income for the year is $125,000 or less ($250,000 for couples filing jointly). Estimated cost: $24.7 billion.
Another provision provides states funding to help pay for expanded Medicaid rolls for workers who've lost their jobs and can't afford health care on their own or can't get Cobra coverage because their former employer doesn't offer a health care plan. Estimated cost: $87 billion.
Unemployment benefits: The bill provides jobless workers with an additional 20 weeks in unemployment benefits, and 13 weeks on top of that if they live in what's deemed a high unemployment state, of which there are now about 30. Estimated cost: $27 billion.
In addition, the weekly unemployment benefit will temporarily increase by $25 on top of the roughly $300 jobless workers currently receive. Estimated cost: $8.8 billion.
Plus, the first $2,400 of benefits in 2009 would be exempt from federal income taxes. Estimated cost: $4.7 billion.
Food stamp payments: The bill includes a provision would increase food stamp payments by 13.6%, so a family of four would see an additional $80 on top of the $588 per month they receive currently. Estimated cost: $19.9 billion.
The bill also provides assistance to help local groups providing food and shelter, elderly nutrition services such as Meals on Wheels, and a program to help food banks re-stock their shelves. Estimated cost: $350 million.
Other help for needy families: The bill provides funding to states to create a contingency fund through 2010 for the welfare program called Temporary Assistance for Needy Families, which provides cash assistance to the needy. Estimated cost: $2.4 billion.
Harry Markopolos, the fraud investigator who was repeatedly rebuffed by the Securities and Exchange Commission in his efforts to blow the whistle on Bernard Madoff, Thursday presented SEC Inspector General David Kotz with evidence of two new potential cases of investment fraud.
"Pursuant to an agreement with him I've handed those tips to the office of the [SEC] Chairman Mary Shapiro," Kotz told CNN. Kotz said he could not elaborate on the tips from Markopolos.
Kotz and members of his staff met with Markopolos and two of his attorneys for seven hours Thursday, as part of the inspector general's investigation into the SEC's failure to uncover Madoff's alleged scam.
"He's a key witness in our investigation," said Kotz. "It was a very productive meeting. We received a tremendous amount of good information."
Kotz said he is still months away from issuing a report on the SEC's performance in the Madoff matter. Testifying before the House Subcommittee on Capital Markets Wednesday, Markopolos slammed the SEC's failure to heed his warnings that Madoff was a fraud.
"I gift-wrapped and delivered the largest Ponzi scheme in history to them and somehow they couldn't be bothered to conduct a thorough and proper investigation," said Markopolos.
Madoff remains under 24-hour house arrest at his luxury apartment on Manhattan's Upper East Side. A former Chairman of the Nasdaq Stock Market, Madoff told FBI agents he had operated a scheme that may have cost investors $50 billion, according to a criminal complaint. He faces one count of securities fraud.
The Senate is set to meet Monday evening to vote on Tim Geithner's nomination as the next Treasury Secretary. Senate Majority Leader Harry Reid of Nevada has said he expects to hold a vote at 6 p.m. ET.
Geithner is expected to easily win confirmation from the Democratic-controlled Senate. Democrats on Capitol Hill have spoken of the need to quickly confirm Geithner, who will spearhead President Obama's response to the financial crisis that threatens to unravel economic growth around the globe.
Reid warned Friday that Republicans "would not be very wise politically" to try to hold up the nomination, which last week won the support of all the Democrats and half the Republicans on the Senate Finance Committee. He added that Democrats could block any attempt to filibuster.
On Thursday, the committee recommended in an 18-5 vote that the full Senate confirm the appointment of Geithner, who is currently president of the Federal Reserve Bank of New York, to succeed Henry Paulson. Supporters spoke highly of Geithner's substantial experience in managing financial emergencies.
Five Republicans, including Sen. Orrin Hatch, R-Utah, supported his nomination, citing among other things the enormous stress the economy and the financial system are under right now.
If confirmed, Geithner will take over for Stuart A. Levey, the Under Secretary for terrorism and financial intelligence, who has been serving as acting Treasury Secretary since the Obama administration took office last week.
Bank bailout, part 2
The finance panel's recommendation came after two hearings last week that were dominated by questions about how President Obama and his top advisers plan to address the troubles in the financial sector.
Shares of big U.S. banks have plunged anew this month as investors struggle to come to grips with the risk that financial institutions will be overwhelmed by rising loan losses as the economy slows -- and the possibility that shareholders may be wiped out by a new round of government aid.
Congress has given Obama access to $350 billion of federal bailout funds. But congressional leaders, angered by the Bush administration's handling of the first slug of money under the Troubled Asset Relief Program, or TARP, have demanded that tough new terms be applied to bailout recipients -- and that the government give taxpayers a more complete account of how money is spent.
For his part, Geithner said in testimony last week that the administration is working on what he called a comprehensive response to the crisis. He said Obama would address the nation in coming weeks. Geithner also stressed the need for the government to act urgently and with great force.
"The tragic history of financial crises is a history of failures by governments to act with the speed and force commensurate with the severity of the crisis," Geithner said. "In a crisis of this magnitude, the most prudent course is the most forceful course."
Geithner also said he didn't yet see the need for more federal bailout funds, but stressed that the Treasury may have to "act flexibly" if conditions deteriorate further. The comments suggest the president may ask Congress for additional money beyond the $350 billion currently available under TARP.
Lawrence Summers, head of the National Economic Council, on Sunday wouldn't rule out the possibility that more money would be needed. "We can make important progress and get started with the support that has been provided," Summers said on NBC's "Meet the Press" when asked whether taxpayers should expect another request for funding to shore up the financial system. "What ultimately will be necessary is something that will play out over time."
Similarly, House Speaker Nancy Pelosi on Sunday said that "some increased investment" may be needed.
The five Republican committee members who opposed Geithner's nomination did so in part because of questions about Geithner's tax problems and whether he had candidly answered their inquiries about them.
Sen. Jon Kyl, R-Ariz., questioned Geithner extensively about the errors on his 2003 and 2004 tax returns and why Geithner didn't immediately pay back taxes due on his 2001 and 2002 returns.
Geithner acknowledged having made mistakes but insisted the errors were unintentional. To top of page
First Published: January 25, 2009: 4:21 PM ET
Here comes 'terrible': In the coming week, investors gear up for a deluge of weak earnings and the biggest plunge in GDP in 26 years.
Stocks tumbled Thursday afternoon as Microsoft's earnings miss and job cuts and John Thain's departure from Bank of America - exacerbated fears about the depth and duration of the recession.
The Dow Jones industrial average (INDU) fell 220 points or 2.7%, with roughly 3-1/4 hours left in the session. The Standard & Poor's 500 (SPX) index tumbled 22 points or 2.7% and the Nasdaq composite (COMP) lost 52 points or 3.5%.
Stocks slumped Tuesday on banking woes, rallied Wednesday on IBM's earnings and bouncing bank stocks and then sold off again Thursday.
"We're back to the volatility levels we saw in November, where it's up 250 one day, down 250 the next, only it's going to feel more dramatic this time because the Dow is at 8,000," said Brian Battle, vice president at Performance Trust Capital Partners.
Battle said that Microsoft's earnings loss and job cuts were a big negative for sentiment because it confirms that the recession is hitting a broad range of industries.
John Thain's departure from Bank of America is adding to nervousness about the leadership at the big banks, Battle said.
Microsoft: The tech leader said it will cut up to 5,000 jobs over the next 18 months due to the impact of the recession. Microsoft (MSFT, Fortune 500) also reported lower fiscal second-quarter earnings that missed estimates on slightly higher revenue that also missed estimates. Shares fell 10%.
Financials: Former Merrill Lynch chief executive John Thain will leave Bank of America, amid criticism of his management of Merrill - purchased by BofA a month ago. The news sent shares of Bank of America (BAC, Fortune 500) down 13%.
Citigroup (C, Fortune 500) said late Wednesday that former Time Warner chairman Richard Parsons has been named its new chairman. Last week, the company announced it was splitting its business in two.
Separately, it was reported that the chief executives of Bank of America and Citigroup bought some company stock last week, according to SEC filings. Yet this failed to reassure investors. Citigroup shares fell 14%.
Aflac (AFL, Fortune 500) shares fell after Morgan Stanley raised worries about its exposure to certain securities issued by hard-hit European financial firms, according to reports. Shares of the insurer lost 30%.
Apple: The company reported higher fiscal first-quarter sales and earnings late Wednesday that topped estimates. Apple (AAPL, Fortune 500) also issued a fiscal second -quarter sales and earnings forecast that was short of analysts' estimates. But investors focused on the earnings and sent shares 7% higher Thursday morning.
Other company news: After the market close Wednesday, eBay (EBAY, Fortune 500) reported a lower fourth-quarter profit that nonetheless topped estimates. The online auctioneer also issued a current-quarter profit forecast that is short of expectations. Shares fell 12.7% Thursday.
Also late Wednesday, Intel (INTC, Fortune 500) said it was shutting sites in Asia and scaling back U.S. operations in a restructuring move that will affect up to 6,000 people. Shares fell 5%.
Market breadth was negative. On the New York Stock Exchange, losers beat winners five to one on volume of 620 million shares. On the Nasdaq, decliners topped advancers four to one on volume of 1.08 billion shares.
Economy: Housing starts and building permits both tumbled to record lows in December, the government reported. Permits fell 10.7% from November to an annual rate of 549,000 in December. Starts fell 15.5% from November to an annual rate of 550,000. The declines were worse than expected, according to a Briefing.com survey of economists.
A separate report showed that weekly claims for unemployment rose to a 26-year high last week, rising 62,000 from the previous week to 589,000. That was a bigger rise than what economists were expecting.
Bonds: Treasury prices slipped, raising the yield on the benchmark 10-year note to 2.60% from 2.52% Wednesday. Treasury prices and yields move in opposite directions. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last month.
Lending rates tightened. The 3-month Libor rate increased to 1.16% from 1.12% Wednesday, according to Bloomberg.com. Overnight Libor rose to 0.21% from 0.19% Wednesday. Libor is a bank-to-bank lending rate.
Other markets: The dollar gained against the euro and fell against the yen.
U.S. light crude oil for March delivery fell $2.18 to $41.37 a barrel on the New York Mercantile Exchange.
COMEX gold for April delivery rose $4.80 to $856.50 an ounce.
Gasoline prices rose two-tenths of a cent to a national average of $1.85 a gallon, according to a survey of credit-card swipes released Wednesday by motorist group AAA.
