Obama Wins Nobel Peace Prize

The standards for winning a Nobel Peace prize have apparently been lowered. All that's necessary to win this once prestigious acknowledgement of one's efforts is ... well, I'll let you read for yourself as I quote one of the Nobel judges:

"Only very rarely has a person to the same extent as Obama captured the world's attention and given its people hope for a better future," Jagland said

So I can only imagine who the other contenders could have been. Hmm, being able to capture the world's attention and give them hope. The list of celebrities must have been quite long. /GB

Thousands Line Up For Stimulus Money in Detroit

I guess that lady that I saw on youtube was right. All her problems we're over because Obama was going to be elected. Remember her? "Thank God for president Obama. Now I won't have to worry about making my mortgage payment, feeding my kids or putting gas in my car." Yeah lady, all you have to worry about is standing in line to get your check. You might want to watch this video first though. Looks like work to me! /GB

Video: If you want it, here it is!

Marx and Lenin would win a Nobel Prize today!

This is not you father's recession. Comparisons to the Great Depression are not out of line. And a recovery will not occur swiftly or as smoothly as many are predicting. This article, by Paul Craig Roberts is telling. Keep in mind that Mr. Roberts is not a crack pot from the twilight zone. He was Assistant Secretary of the Treasury during President Reagan's first term and the Associate Editor of the Wall Street Journal. / GB

"Capital is dead labor, which, vampire-like, lives only by sucking living labor, and lives the more, the more labor it sucks." Karl Marx

If Karl Marx and V. I. Lenin were alive today, they would be leading contenders for the Nobel Prize in economics.

Marx predicted the growing misery of working people, and Lenin foresaw the subordination of the production of goods to financial capital’s accumulation of profits based on the purchase and sale of paper instruments. Their predictions are far superior to the "risk models" for which the Nobel Prize has been given and are closer to the money than the predictions of Federal Reserve chairmen, US Treasury secretaries, and Nobel economists, such as Paul Krugman, who believe that more credit and more debt are the solution to the economic crisis.

In this first decade of the 21st century there has been no increase in the real incomes of working Americans. There has been a sharp decline in their wealth. In the 21st century Americans have suffered two major stock market crashes and the destruction of their real estate wealth.

Some studies have concluded that the real incomes of Americans, except for the financial oligarchy of the super rich, are less today than in the 1980s and even the 1970s. I have not examined these studies of family income to determine whether they are biased by the rise in divorce and percentage of single parent households. However, for the last decade it is clear that real take-home pay has declined.

The main cause of this decline is the offshoring of US high value-added jobs. Both manufacturing jobs and professional services, such as software engineering and information technology work, have been relocated in countries with large and cheap labor forces.

The wipeout of middle class jobs was disguised by the growth in consumer debt. As Americans’ incomes ceased to grow, consumer debt expanded to take the place of income growth and to keep consumer demand rising. Unlike rises in consumer incomes due to productivity growth, there is a limit to debt expansion. When that limit is reached, the economy ceases to grow.

The immiseration of working people has not resulted from worsening crises of over-production of goods and services, but from financial capital’s power to force the relocation of production for domestic markets to foreign shores. Wall Street’s pressures, including pressures from takeovers, forced American manufacturing firms to "increase shareholders’ earnings." This was done by substituting cheap foreign labor for American labor.

Corporations offshored or outsourced abroad their manufacturing output, thus divorcing American incomes from the production of the goods that they consume. The next step in the process took advantage of the high speed Internet to move professional service jobs, such as engineering, abroad. The third step was to replace the remains of the domestic work force with foreigners brought in at one-third the salary on H-1B, L-1, and other work visas.

This process by which financial capital destroyed the job prospects of Americans was covered up by "free market" economists, who received grants from offshoring firms in exchange for propaganda that Americans would benefit from a "New Economy" based on financial services, and by shills in the education business, who justified work visas for foreigners on the basis of the lie that America produces a shortage of engineers and scientists.

In Marx’s day, religion was the opiate of the masses. Today the media is. Let’s look at media reporting that facilitates the financial oligarchy’s ability to delude the people.

The financial oligarchy is hyping a recovery while American unemployment and home foreclosures are rising. The hype owes its credibility to the high positions from which it comes, to the problems in payroll jobs reporting that overstate employment, and to disposal into the memory hole of any American unemployed for more than one year.

On October 2 statistician John Williams of shadowstats.com reported that the Bureau of Labor Statistics has announced a preliminary estimate of its annual benchmark revision of 2009 employment. The BLS has found that employment in 2009 has been overstated by about one million jobs. John Williams believes the overstatement is two million jobs. He reports that "the birth-death model currently adds [an illusory] net gain of about 900,00 jobs per year to payroll employment reporting."

The non-farm payroll number is always the headline report. However, Williams believes that the household survey of unemployment is statistically sounder than the payroll survey. The BLS has never been able to reconcile the difference in the numbers in the two employment surveys. Last Friday, the headline payroll number of lost jobs was 263,000 for the month of September. However the household survey number was 785,000 lost jobs in the month of September.

The headline unemployment rate of 9.8% is a bare bones measure that greatly understates unemployment. Government reporting agencies know this and report another unemployment number, known as U-6. This measure of US unemployment stands at 17% in September 2009.

When the long-term discouraged workers are added back into the total unemployed, the unemployment rate in September 2009 stands at 21.4%.

The unemployment of American citizens could actually be even higher. When Microsoft or some other firm replaces several thousand US workers with foreigners on H-1B visas, Microsoft does not report a decline in payroll employment. Nevertheless, several thousand Americans are now without jobs. Multiply this by the number of US firms that are relying on "body shops" to replace their US work force with cheap foreign labor year after year, and the result is hundreds of thousands of unreported unemployed Americans.

Obviously, with more than one-fifth of the American work force unemployed and the remainder buried in mortgage and credit card debt, economic recovery is not in the picture.

What is happening is that the hundreds of billions of dollars in TARP money given to the large banks and the trillions of dollars that have been added to the Federal Reserve’s balance sheet have been funneled into the stock market, producing another bubble, and into the acquisition of smaller banks by banks "too large to fail." The result is more financial concentration.

The expansion in debt that underlies this bubble has further eroded the US dollar’s credibility as reserve currency. When the dollar starts to go, panicked policy-makers will raise interest rates in order to protect the US Treasury’s borrowing capability. When the interest rates rise, what little remains of the US economy will tank.

If the government cannot borrow, it will print money to pay its bills. Hyperinflation will hit the American population. Massive unemployment and massive inflation will inflict upon the American people misery that not even Marx and Lenin could envisage.

Meanwhile America’s economists continue to pretend that they are dealing with a normal postwar recession that merely requires an expansion of money and credit to restore economic growth

Paul Craig Roberts [ email him ] was Assistant Secretary of the Treasury during President Reagan's first term. He was Associate Editor of the Wall Street Journal . He has held numerous academic appointments, including the William E. Simon Chair, Center for Strategic and International Studies, Georgetown University, and Senior Research Fellow, Hoover Institution, Stanford University. He was awarded the Legion of Honor by French President Francois Mitterrand. He is the author of Supply-Side Revolution : An Insider's Account of Policymaking in Washington ; Alienation and the Soviet Economy and Meltdown: Inside the Soviet Economy , and is the co-author with Lawrence M. Stratton of The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice . Click here for Peter Brimelow's Forbes Magazine interview with Roberts about the recent epidemic of prosecutorial misconduct.

This article was found at The Market Oracle

The worst thing in the world for the US economy

If the Arab Nations stop using the US Dollar as the standard for oil purchases, we're screwed.

By Robert Fisk
The Independent
October 6, 2009

In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.

The Americans, who are aware the meetings have taken place – although they have not discovered the details – are sure to fight this international cabal which will include hitherto loyal allies Japan and the Gulf Arabs. Against the background to these currency meetings, Sun Bigan, China’s former special envoy to the Middle East, has warned there is a risk of deepening divisions between China and the US over influence and oil in the Middle East. “Bilateral quarrels and clashes are unavoidable,” he told the Asia and Africa Review. “We cannot lower vigilance against hostility in the Middle East over energy interests and security.”

This sounds like a dangerous prediction of a future economic war between the US and China over Middle East oil – yet again turning the region’s conflicts into a battle for great power supremacy. China uses more oil incrementally than the US because its growth is less energy efficient. The transitional currency in the move away from dollars, according to Chinese banking sources, may well be gold. An indication of the huge amounts involved can be gained from the wealth of Abu Dhabi, Saudi Arabia, Kuwait and Qatar who together hold an estimated $2.1 trillion in dollar reserves.

The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. “One of the legacies of this crisis may be a recognition of changed economic power relations,” he said in Istanbul ahead of meetings this week of the IMF and World Bank. But it is China’s extraordinary new financial power – along with past anger among oil-producing and oil-consuming nations at America’s power to interfere in the international financial system – which has prompted the latest discussions involving the Gulf states.

Brazil has shown interest in collaborating in non-dollar oil payments, along with India. Indeed, China appears to be the most enthusiastic of all the financial powers involved, not least because of its enormous trade with the Middle East.

China imports 60 per cent of its oil, much of it from the Middle East and Russia. The Chinese have oil production concessions in Iraq – blocked by the US until this year – and since 2008 have held an $8bn agreement with Iran to develop refining capacity and gas resources. China has oil deals in Sudan (where it has substituted for US interests) and has been negotiating for oil concessions with Libya, where all such contracts are joint ventures.

Furthermore, Chinese exports to the region now account for no fewer than 10 per cent of the imports of every country in the Middle East, including a huge range of products from cars to weapon systems, food, clothes, even dolls. In a clear sign of China’s growing financial muscle, the president of the European Central Bank, Jean-Claude Trichet, yesterday pleaded with Beijing to let the yuan appreciate against a sliding dollar and, by extension, loosen China’s reliance on US monetary policy, to help rebalance the world economy and ease upward pressure on the euro.

Ever since the Bretton Woods agreements – the accords after the Second World War which bequeathed the architecture for the modern international financial system – America’s trading partners have been left to cope with the impact of Washington’s control and, in more recent years, the hegemony of the dollar as the dominant global reserve currency.

The Chinese believe, for example, that the Americans persuaded Britain to stay out of the euro in order to prevent an earlier move away from the dollar. But Chinese banking sources say their discussions have gone too far to be blocked now. “The Russians will eventually bring in the rouble to the basket of currencies,” a prominent Hong Kong broker told The Independent. “The Brits are stuck in the middle and will come into the euro. They have no choice because they won’t be able to use the US dollar.”

Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years’ time. The current deadline for the currency transition is 2018.

The US discussed the trend briefly at the G20 summit in Pittsburgh; the Chinese Central Bank governor and other officials have been worrying aloud about the dollar for years. Their problem is that much of their national wealth is tied up in dollar assets.

“These plans will change the face of international financial transactions,” one Chinese banker said. “America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate.”

Iran announced late last month that its foreign currency reserves would henceforth be held in euros rather than dollars. Bankers remember, of course, what happened to the last Middle East oil producer to sell its oil in euros rather than dollars. A few months after Saddam Hussein trumpeted his decision, the Americans and British invad

Good Billions After Bad

The Treasury Department’s Cash Room and the C.E.O.’s of the first banks to get bailout money. From left: Kenneth Lewis (Bank of America), John Mack (Morgan Stanley), Vikram Pandit (Citigroup), Ronald Logue (State Street), Lloyd Blankfein (Goldman Sachs), John Thain (Merrill Lynch), Richard Kovacevich (Wells Fargo), Jamie Dimon (J. P. Morgan Chase), and Robert Kelly (Bank of New York Mellon). Photo illustration by Chris Mueller
By Donald L. Barlett and James B. Steele

Vanity Fair, October 2009

The Bailout Nine
As the Bush administration waned, the Treasury shoveled more than a quarter of a trillion dollars in tarp funds into the financial system—without restrictions, accountability, or even common sense. The authors reveal how much of it ended up in the wrong hands, doing the opposite of what was needed.

Just inside the entrance to the U.S. Treasury, on the other side of a forbidding array of guard stations and scanners that control access to the Greek Revival building, lies one of the most beautiful interior spaces in all of Washington. Ornate bronze doors open inward to a two-story-high chamber. Chandeliers line the coffered ceiling, casting a soft glow on the marble walls and richly inlaid marble floor.

In this room, starting in 1869 and for many decades thereafter, the U.S. government conducted many of its financial transactions. Bags of gold, silver, and paper currency arrived here by horse-drawn vans and were carted upstairs to the vaults. On the busy trading floor, Treasury clerks supplied commercial banks with coins and currency, exchanged old bills for new, cashed checks, redeemed savings bonds, and took in government receipts. In those days, anyone could observe all this activity firsthand—could actually witness the government and the nation’s bankers doing business. The public space where this occurred became known as the Cash Room.

Today the Cash Room is used for press conferences, ceremonial functions, and departmental parties. And that’s too bad. If Treasury still used the room as it once did, then perhaps we’d have more of a clue about what happened to the billions of dollars that flew out of Treasury to selected American banks in the waning days of the Bush administration.

Last October, Congress passed the Emergency Economic Stabilization Act of 2008, putting $700 billion into the hands of the Treasury Department to bail out the nation’s banks at a moment of vanishing credit and peak financial panic. Over the next three months, Treasury poured nearly $239 billion into 296 of the nation’s 8,000 banks. The money went to big banks. It went to small banks. It went to banks that desperately wanted the money. It went to banks that didn’t want the money at all but had been ordered by Treasury to take it anyway. It went to banks that were quite happy to accept the windfall, and used the money simply to buy other banks. Some banks received as much as $45 billion, others as little as $1.5 million. Sixty-seven percent went to eight institutions; 33 percent went to the rest. And that was just the money that went to banks. Tens of billions more went to other companies, all before Barack Obama took office. It was the largest single financial intervention by Treasury into the banking system in U.S. history.

But once the money left the building, the government lost all track of it. The Treasury Department knew where it had sent the money, but nothing about what was done with it. Did the money aid the recovery? Was it spent for the purposes Congress intended? Did it save banks from collapse? Paulson’s Treasury Department had no idea, and didn’t seem to care. It never required the banks to explain what they did with this unprecedented infusion of capital.

Exactly one year has elapsed since the onset of the financial crisis and the passage of the bailout bill. Some measure of scrutiny and control has since been imposed by the Obama administration, but even today it’s hard to walk back the cat and trace the money. Up to a point, though, it’s possible to reconstruct some of what happened in the first chaotic and crucial three months of the bailout, when Treasury was still in the hands of Henry Paulson and most of the money was disbursed. Needless to say, there is no central clearinghouse for information about the tarp money. To get details of any kind means starting with the hundreds of individual recipients, then poring over S.E.C. filings, annual reports, and other documentation—in other words, performing the standard due diligence that the government itself failed to perform. In the report that follows, we have no more than dipped a toe into the morass, but one fact emerges clearly: a lot of the money wound up in the coffers of some very surprising institutions— institutions that should have been seen as “troubling” as much as “troubled.”

A Reverse Holdup

The intention of Congress when it passed the bailout bill could not have been more clear. The purpose was to buy up defective mortgage-backed securities and other “toxic assets” through the Troubled Asset Relief Program, better known as tarp. But the bill was in fact broad enough to give the Treasury secretary the authority to do whatever he deemed necessary to deal with the financial crisis. If tarp had been a credit card, it would have been called Carte Blanche. That authority was all Paulson needed to switch gears, within a matter of days, and change the entire thrust of the program from buying bad assets to buying stock in banks.

Why did this happen? Ostensibly, Treasury concluded that the task of buying up toxic assets would take too long to help the financial system and unlock the credit markets. So, theoretically, something more immediate was needed—hence the plan to inject billions into banks, whether or not they wanted or needed the money. To be sure, Citigroup and Bank of America were in precarious condition. So was the insurance giant A.I.G., which had already received an infusion from the Federal Reserve and ultimately would receive more tarp money—$70 billion—than any single bank. But rather than just aiding institutions in distress, Treasury set out to disburse money in a more freewheeling way, hoping it would pass rapidly into the financial system and somehow address the system-wide credit crunch. Even at this early stage, it was hard to escape the feeling that the real strategy was less than scientific—amounting to a hope that if a massive pile of money was simply thrown at the economy, some of it would surely do something useful.

On Sunday, October 12, between 6:30 and 7 p.m., Paulson made a series of calls to the C.E.O.’s of the biggest banks—the so-called Big 9—and asked them to come to Treasury the next afternoon for a meeting on the financial crisis. He was short on details, as he would be throughout the crisis. A series of e-mails obtained by Judicial Watch, a Washington public-interest group, offers a window on the moment. The C.E.O. of Citigroup, Vikram Pandit, had agreed to attend, but asked his staff to scope out the purpose. “Can you find out soon as possible what Paulson invite to VP [Vikram Pandit] for meeting at Treasury this afternoon is about?” a Citigroup executive in New York wrote the bank’s Washington office. When Citi’s high-powered lobbyist Nicholas Calio called Paulson’s office, he was told only that Pandit should attend.

Top Treasury staffers were likewise in the dark. Paulson’s chief of staff, James Wilkinson, sent out a 7:30 a.m. e-mail: “Can someone tell Michele Davis, [Kevin] Fromer and me who the ‘Big 9’ are?”

By midmorning, people finally had the names—Vikram Pandit, of Citigroup; Jamie Dimon, of J. P. Morgan Chase; Kenneth Lewis, of Bank of America; Richard Kovacevich, of Wells Fargo; John Thain, of Merrill Lynch; John Mack, of Morgan Stanley; Lloyd Blankfein, of Goldman Sachs; Robert Kelly, of the Bank of New York Mellon; and Ronald Logue, of State Street bank. Their destination was Room 3327, the Secretary’s Conference Room, on the third floor.

Paulson laid before them a one-page memo, “CEO Talking Points.” He wasn’t there to ask for their help, Paulson would say; he was there to tell them what he expected from them. To “arrest the stress in our financial system,” Treasury would unveil a $250 billion plan the next day to buy preferred stock in banks. Paulson’s memo told the bankers bluntly that “your nine firms will be the initial participants.” Paulson wasn’t calling for volunteers; he made it clear the banks had no choice but to allow Treasury to buy stock in their companies. It was basically a reverse holdup, with Paulson holding the gun and forcing the banks to take the money.

Some of the C.E.O.’s had misgivings, fearing that by accepting tarp money their banks would be perceived as shaky by investors and customers. Paulson explained that opting out wasn’t an option. “If a capital infusion is not appealing,” the memo continued, “you should be aware that your regulator will require it in any circumstance.” Paulson gave the bankers until 6:30 p.m. to clear everything with their boards and sign the papers.

Treasury had prepared a form with blank spaces for the name of the bank and the amount of tarp money requested. Each C.E.O. filled in the two blanks by hand—$10 billion, $15 billion, $25 billion, whatever—and then signed and dated the document. That was all it took.

"There Is No Problem Here"

But this was just the beginning. It’s one thing to call nine big banks into a room and give them what turned out to be a total of $125 billion. That required little more than a few hours. It’s quite a different matter to look out over the landscape of 8,000 other U.S. banks and decide which ones should get slices of the tarp pie. Moreover, the guiding principle was never clear. Was it to give money to essentially sound banks, so that they could help inject more money into the credit markets? Was it to pull troubled banks into the clear? Was it both—and more?

Regardless, the mechanism to disburse all this money even more widely was an entity called the Office of Financial Stability. Unfortunately, it wasn’t a functioning office yet—it was just a name written into a piece of legislation. To lead it, Paulson picked Neel Kashkari, a 35-year-old former Goldman Sachs banker who had followed Paulson to Treasury when he became secretary, in July 2006. Kashkari was an odd choice to oversee a federal bailout of private companies. A free-market Republican, he had downplayed the gravity of the subprime-mortgage crisis only months before his appointment, reportedly sending the message to one gathering of bankers, “There is no problem here.”

The Bailout Nine

Kashkari and other Paulson aides cobbled together the Office of Financial Stability under immense time pressure. They press-ganged people from elsewhere in Treasury and from far-flung government departments. By the end of the year, there were more “detailees” on loan from other offices (52) than there were permanent staff (38). They were spread out all over Treasury, from the ground floor to the third. Some occupied space in leased offices six blocks away. It was a strange agglomeration of people—stretching from Washington to San Francisco—who had never worked together before.

There were no internal controls to gauge success or failure. The goal was simply to dispense as much money as possible, as fast as possible. When Treasury began giving billions to the banks, the department had no policies in place to ensure that the banks were using the money in ways that met the purposes of the program, however defined. One main purpose, as noted, was to free up credit, but there was no incentive to lend and nothing to stop a bank from simply sitting on the money, bolstering its balance sheet and investing in Treasury bills. Indeed, Treasury’s plan was expressly not to ask the banks what they did with the money. As the Government Accountability Office later learned, “the standard agreement between Treasury and the participating institutions does not require that these institutions track or report how they plan to use, or do use, their capital investments.” When the G.A.O. asked Treasury if it intended to ask all tarp recipients to provide such an accounting, Treasury said it did not—and would not. “There’s not a bank in this country that would lend money under [these] terms,” Elizabeth Warren, the chair of a Congressional Oversight Panel that was eventually charged by Congress with overseeing tarp activities, would tell a Senate committee.

There wasn’t even anyone within the tarp office to keep track of the money as it was being disbursed. tarp gave that job—along with a $20 million fee—to a private contractor, Bank of New York Mellon, which also happened to be one of the Big 9. So here was a case of a beneficiary helping to oversee a process in which it was a direct participant. Most of the tarp contracts—for everything from legal services to accounting—were awarded under an expedited procedure that government watchdogs regard as “high-risk,” because it lacks a wide array of routine safeguards. In its first three months of operation, the Office of Financial Stability awarded 15 contracts worth tens of millions of dollars to law firms, fiscal agents, management consultants, and providers of various other services. There was enormous potential for conflicts of interest, and no procedure to deal with them. When the possibility of conflict of interest was raised, two of the contractors voiced vague promises to maintain an “open dialog” and “work in good faith” with Treasury, and left it at that.

When Henry Paulson unveiled the bank-rescue plan, he emphasized that it wasn’t a bailout. “This is an investment, not an expenditure, and there is no reason to expect this program will cost taxpayers anything,” he declared. For every $100 Treasury invested in the banks, he maintained, it would receive stock and warrants valued at $100. This claim proved optimistic. The Congressional Oversight Panel that later reviewed the 10 largest tarp transactions concluded that Treasury “paid substantially more for the assets it purchased under the tarp than their then-current market value.” For each $100 spent, Treasury received assets worth about $66.

Ask and You Shall Receive

In those first few weeks, money gushed out of Treasury and into the tarp pipeline at a torrential rate. After giving $125 billion to the big banks, Treasury moved on to the second round, wiring $33.6 billion to 21 other banks on November 14 in exchange for preferred stock. A week later it sent $2.9 billion to 23 more banks. As noted, by the time Barack Obama took office, the tarp tab totaled more than a quarter of a trillion dollars. In its first six months, the new administration disbursed an additional $125 billion to banks, mortgage companies, A.I.G., and the big auto manufacturers.

To the public, the bailout looked like a gold rush by banks competing for tarp money. It was indeed partly that, but the reality is more complex. While some banks lobbied aggressively for tarp money, many others that had no interest in the money were pressured to take it. Treasury’s explanation is that regulators knew which banks were strongest and wanted to get more capital into their hands in order to free up credit. But it’s also true that spreading the money around to a large number of small and medium-size banks helped create the impression that the bailout wasn’t just for a few big boys on Wall Street.

It’s impossible to overstate how casual the process was, or how little Treasury asked of the banks it targeted. Like most bankers, Ray Davis, the C.E.O. of Umpqua Bank, a solid, respectable local bank in Portland, Oregon, followed with great interest all the news out of Washington last fall. But he didn’t see that tarp had much relevance to his own bank. Umpqua was well run. It wasn’t bogged down by a portfolio of bad loans. It had healthy reserves.

Then he got a call from a Treasury Department representative asking if Umpqua would like to participate in the Treasury program and suggesting it would be a good thing for Umpqua to do. Davis listened politely, but the fact was, he says, that Umpqua “didn’t need the funds. Our capital resources were very high.”

The next day, Davis was in his office when another call came through from the same Treasury representative. “Basically what he said was that the secretary of the Treasury would like to have your application on his desk by five o’clock tomorrow afternoon,” Davis recalls.

The “application” was the paperwork for a capital infusion, and Davis was told it would be faxed over right away. By now he was sold on participating. “Here was somebody from the secretary of the Treasury calling,” Davis says, “and complimenting us on the strength of our company and saying you need to do this, to help the government, to be a good American citizen—all that stuff—and I’m saying, ‘That’s good. You’ve got me. I’m in.’”

The most urgent task was to complete the application and get it back to Treasury the next day, and this had Davis in a sweat: “I pictured this 200-page fax that would take me three weeks of work crammed into one evening.” Imagine Davis’s surprise when a staff member walked in soon afterward with the official “Application for tarp Capital Purchase Program.” It consisted of two pages, most of it white space.

If tarp accomplishes nothing else, it has struck a mighty blow for simplicity in government. The application was only 24 lines long, and asked such tough questions as the name and address of the bank, the name of the primary contact, the amount of its common and preferred stock, and how much money the bank wanted. Anyone who has filled out the voluminous federal forms required in order to be eligible for a college loan would die for such an application. Davis recalls that, when the two faxed pages were brought to him, all he could say was “Really?” As soon as Umpqua’s application was approved, Treasury wired $214 million to Umpqua’s account.

What happened in Portland happened elsewhere across the country. Peter Skillern, who heads the Community Reinvestment Association, a nonprofit group in North Carolina, describes a conference he attended where bankers explained that they had been “contacted by their regulators and told by them that they would be taking tarp.”

One policy that tarp did decide to adopt was to keep confidential the name of any bank that was denied tarp funds—but it never had to invoke this rule. In those early months, with billions being wired all across the country, no financial institution that asked for tarp money was turned away.

Small Bank, Sharp Teeth

With few restrictions or controls in place, bailout money found its way not only to banks that didn’t really need it but also to banks whose business practices left much to be desired. On November 21, $180 million in tarp money wound up in the affluent seaside community of Santa Barbara, California. The tarp dollars flowed mostly into the coffers of a beige, Spanish-style building on Carrillo Street, home to the Santa Barbara Bank & Trust.

This might appear to be just the kind of regional bank that Treasury had in mind as an ideal beneficiary of tarp. The bank has been a fixture in Santa Barbara for decades, serving small businesses as well as wealthy individuals. It sponsors Little League teams, funds scholarships to send local kids to college, and takes an active role in community groups. It plays up its “longstanding commitment to giving back to the communities we serve.”

How much tarp money made its way through S.B.B.&T. and into the local community is not known. But, as it happens, the bank also operates a little-known and controversial program far from the lush enclaves of Santa Barbara. Like an absentee landlord, the community bank with the “give back” philosophy in Santa Barbara turns out to be a big player in poor neighborhoods throughout the country. And not in a nice way. Outside Santa Barbara, S.B.B.&T. peddles what are known as refund-anticipation loans (rals)—high-interest loans to the poor that are among the most predatory around.

A ral is a short-term loan to taxpayers who have filed for a tax refund. Rather than waiting one or two weeks for their refund from the I.R.S., they take out a bank loan for an amount equal to their refund, minus interest, fees, and other charges. Banks operate in concert with tax preparers who complete the paperwork, and then the banks write the taxpayer a check. The loan is secured by the taxpayer’s expected refund. rals are theoretically available to everyone, but they are used overwhelmingly by the working poor. Ordinarily, the loans have a term of only a few weeks—the time it takes the I.R.S. to process the return and send out a check—but the interest charges and fees are so steep that borrowers can lose as much as 20 percent of the value of their tax refund. A recent study estimated that annual rates on some rals run as high as 700 percent.

Santa Barbara is one of three banks that dominate this obscure corner of the banking market—the other two being J. P. Morgan Chase and HSBC. But unlike the two big banks, for which rals are but one facet of a broad-based business, Santa Barbara has come to rely heavily for its financial well-being on these high-interest loans to poor people. Interest earned from rals accounted for 24 percent of the banking company’s interest earnings in 2008, second only to income generated by commercial-real-estate loans. Under pressure from consumer groups, some banks, including J. P. Morgan Chase, have lowered their ral fees. Not Santa Barbara. Chi Chi Wu, of the National Consumer Law Center, in Boston, calls Santa Barbara Bank & Trust “a small bank with sharp teeth.”

The U.S. Department of Justice and state authorities in California, New Jersey, and New York have taken action against tax preparers with whom S.B.B.&T. works, charging them with deceptive advertising and with preparing fraudulent returns. Santa Barbara later took a $22 million hit on its books because of unpaid refund-anticipation loans.

The bank insists that its tarp money didn’t go to finance ral. “The capital received by Santa Barbara Bank & Trust under the U.S. Treasury Department’s Capital Purchase Program was not intended nor is it being used to fund or provide liquidity for any Refund Anticipation Loans,” according to Deborah L. Whiteley, an executive vice president of Pacific Capital Bancorp, Santa Barbara’s parent company. Other banks that have received tarp money have made similar statements, contending that money received from Washington simply became part of their capital base and was not earmarked for any specific purpose. But in a conference call with analysts on November 21, Stephen Masterson, the chief financial officer of Pacific Capital Bancorp, admitted that tarp “obviously helps us .… We didn’t take the tarp money to increase our ral program or to build our ral program, but it certainly helps our capital ratios.”

Indeed, the infusion from Treasury may well have been a lifeline for Santa Barbara. The Community Reinvestment Association of North Carolina, which has been tracking S.B.B.&T.’s finances and its ral program for years, concluded in 2008 that S.B.B.&T. would be losing money if it weren’t putting the squeeze on poor people around the country.

Gouging Needy Students

KeyBank of Cleveland is another institution that was given the nod by Treasury officials—and another bank whose lending practices prompt the question: What were they thinking?

Last fall KeyBank received $2.5 billion in tarp money. Its parent company is KeyCorp, a major bank holding company headquartered in Cleveland. With 989 full-service branches spread across 14 states, KeyCorp describes itself as “one of the nation’s largest bank-based financial services companies,” with assets of $98 billion. It also ranks as the nation’s seventh-largest education lender. In the summer of 2008, as banks and Wall Street firms were unraveling faster than they could count up their losses, KeyCorp delivered a decidedly upbeat report on its condition to investors. “Our costs are well controlled,” the company stated. “Our fee revenue is strong.…Our reserves are strong.…We remain well capitalized.”

What the report did not mention was a host of other problems. KeyCorp was in the midst of negotiations with the I.R.S. over questionable tax-leasing deals, and had had to deposit $2 billion in escrow with the government—forcing it to raise emergency capital and slash dividends after 43 consecutive years of annual growth. Meanwhile, consumer advocates had KeyBank in their sights because of the way it conducted its student-loan business, which they described as nakedly predatory. The Salt Lake Tribune reported that “KeyBank not only funds unscrupulous schools, it seeks them out, strikes up lucrative partnerships, and, in the process, suckers students into thinking the schools are legitimate.”

Over the years, thousands of students have secured education loans from KeyBank to attend a broad range of career-training schools—schools offering instruction in how to use or repair computers, how to become an electronics technician or even a nurse. One of the schools was Silver State Helicopters, which was based in Las Vegas and operated flight schools in a half-dozen states. During high-pressure sales pitches, people looking to change careers were encouraged to simultaneously sign up for flight school and complete a loan application that would be forwarded to KeyBank. Once approved, KeyBank, in keeping with long-standing practice, would give all the tuition money up front directly to Silver State. If a student dropped out, Silver State kept the tuition and the student remained on the hook for the full amount of the loan, at a hefty interest rate.

The same rule applied if Silver State shut itself down, which it did without warning on February 3, 2008. “Because the monthly operating expenses, even at the recently streamlined levels, continue to exceed cash flow,” an e-mail to employees explained, “the board has elected to suspend all operations effective at 5 p.m. today.” More than 750 employees in 18 states were out of work. More than 2,500 students had their training (for which they had paid as much as $70,000) cut short.

Silver State Helicopters was a flight school, but it might more accurately be thought of as a Ponzi scheme, according to critics. As long as there was a continual source of loan money, keeping the scheme afloat, all was well. KeyBank bundled the loans into securities, just as the subprime-mortgage marketers had done, and sold them on Wall Street. But when Wall Street failed to buy at an adequate interest rate, the money supply evaporated. As KeyBank dryly put it, “In 2007, Key was unable to securitize its student loan portfolio at cost-effective rates.” Without the loans—in other words, without the cooperation of Wall Street—the school had no income.

In February 2009, Fitch Ratings service, which rates the ability of debt issuers to meet their commitments, placed 16 classes of KeyCorp student-loan transactions totaling $1.75 billion on “Ratings Watch Negative,” signaling the possibility of a future downgrade in their creditworthiness.

Predator to the Rescue

The credit-card behemoth Capital One, an institution that many Americans probably don’t even realize is a bank, maintains its headquarters in McLean, in northern Virginia. Over the years, Capital One’s phenomenally successful marketing strategy has made the company the fifth-largest credit-card issuer in the U.S., and it has used its profits to expand into retail banking, home-equity loans, and other kinds of lending.

Capital One never revealed what it planned to do with the $3.5 billion tarp check it received from the U.S. Treasury on November 14, 2008, but three weeks later, the company bought one of Washington’s premier financial institutions, Chevy Chase Bank. To Washingtonians, Chevy Chase was a model corporate citizen. But outside Washington, it had a different reputation. The company’s mortgage subsidiary had engaged in practices that were at the core of the nation’s mortgage meltdown—risky loans with teaser interest rates that later went bad. The bank’s portfolio of mortgages from around the country was stuffed with a high percentage of so-called option arm—adjustable-rate mortgages with many different payment options. One of the most common kept a homeowner’s monthly payment the same for years, but the interest rate rose almost immediately. When the interest exceeded the amount of the monthly payment, the excess was tacked onto the principal, pushing homeowners ever deeper into debt. Having been lured by what a federal judge would call the “siren call” of this kind of mortgage, many Chevy Chase mortgage holders were on the brink of foreclosure, or had already fallen over the edge. By mid-2008, Chevy Chase’s “nonperforming” assets had tripled to $490 million since the previous September.

With Chevy Chase rapidly deteriorating, along came Capital One. Flush with tarp money, Capital One became a bailout czar of its own. It bought Chevy Chase for $520 million and assumed $1.75 billion of its bad loans. The purchase price was a fraction of what Chevy Chase would have brought before it wandered off into the wilderness of exotic mortgages and risky lending.

Meanwhile, even as it was bailing out Chevy Chase, Capital One was putting the squeeze on many thousands of its own credit-card holders, sharply raising their interest rates and imposing other conditions that made credit far more expensive and difficult to obtain. For many cardholders, rates jumped overnight from 7.9 percent to as much as 22.9 percent. Rather than using its multi-billion-dollar government infusion to prime the credit pump, Capital One in fact began turning off the spigot.

Capital One’s actions enraged its customers, many of whom had been cardholders for decades. The bank was engulfed with complaints. “The last I checked you were given money from the government for the specific purpose of freeing up credit to stimulate spending and help move the economy out of recession,” wrote a woman in Holland, Michigan. This was “just the opposite of what you did.” But other credit-card companies that received federal bailout money, such as Bank of America, J. P. Morgan Chase, and Citibank, would take the same route as Capital One, sharply raising interest rates, cutting off credit to millions of people, and frustrating the stated rationale for Treasury’s bailout.

After the Earthquake

Because all dollar bills are alike, and because follow-up tracking by the government has been so minimal, it’s often impossible to determine if any bank or other financial institution used tarp money for any particular, discernible purpose. Only A.I.G., Bank of America, and Citigroup were subject to any reporting requirements at all, and the reporting has been spotty. But what is possible to say is that tarp allowed many recipients to spend money in ways they would have been unable to do otherwise. It’s also the case that recipients of tarp money continued to behave as if a financial earthquake hadn’t just shaken the world economy.

The Riviera Country Club is about a mile from the Pacific Ocean, in a scenic canyon north of Los Angeles. Riviera is home to one of the most storied tournaments on the P.G.A. Tour. This year the tournament was sponsored by a tarp recipient, the Northern Trust Company of Chicago. Northern was founded more than a century ago to cater to wealthy Chicagoans, and not much about its clientele has changed since then, except that now the company caters to the wealthy not just in Chicago but everywhere. According to the bank, its wealth-management group caters to those “with assets typically exceeding $200 million.” The company manages $559 billion in assets—a sum nearly as great as what has so far been spent on the tarp program itself.

When Northern Trust received $1.6 billion in tarp funds, a spokesman for the bank said that it was “too soon to say specifically” how the money would be used. But the company’s president and C.E.O., Frederick Waddell, noted that “the program will provide us with additional capital to maximize growth opportunities.” Three months later, the bank sponsored the Northern Trust Open, flying in wealthy clients from around the country. To entertain them, the bank brought in Sheryl Crow, Chicago, and Earth, Wind & Fire. A Northern Trust spokesman declined to say how much all this cost, but explained that it was really just a business decision “to show appreciation for clients.”

Northern Trust was acting no differently from many other tarp recipients. One of the most blatant examples was Citigroup’s plan to buy a $50 million private jet to fly executives around the country. A public outcry forced Citigroup to abandon that scheme, but the bank quietly went ahead with a $10 million renovation of its executive offices on Park Avenue, in New York. Given that Citigroup had already gone to the government three times for tarp assistance totaling $45 billion, and was not a paragon of public trust, retrofitting the windows with “Safety Shield 800” blastproof window film may have just been common sense.

The excesses weren’t confined to big-city banks. A subsidiary of North Carolina–based B.B.&T., after accepting $3.1 billion in tarp money, sent dozens of employees to a training session at the Ritz-Carlton hotel in Sarasota, Florida. TCF Financial Corp., based in Wayzata, Minnesota, sent 40 “high-performing” managers, lenders, and other employees on a junket in February to Cancún, soon after receiving more than $360 million in tarp funds.

But let’s face it: episodes like these, infuriating as they may be, aren’t the real issue. The real issue is tarp itself, one of the most questionable ventures the U.S. government has ever pursued. Adopted as a plan to buy up toxic assets—one that was quickly deemed impractical even by those who first proposed it—it evolved into something more closely resembling an all-purpose slush fund flowing out to hundreds of institutions with their own interests and goals, and no incentive to deploy the money toward any clearly defined public purpose.

By and large, the cash that went to the Big 9 simply became part of their capital base, and most of the big banks declined to indicate where the money actually went. Because of the sheer size of these institutions, it’s simply impossible to trace. Bank of America no doubt used a portion of its $25 billion in tarp funds to help it absorb Merrill Lynch. Citigroup revealed in its first quarterly report after receiving $45 billion in tarp funds that it had used $36.5 billion to buy up mortgages and to make new loans, including home loans.

A.I.G., the largest single tarp beneficiary, wasn’t even a bank. The insurance company used its $70 billion in tarp funds to pay off a previous government infusion from the Federal Reserve. The original bailout money had flowed through A.I.G. to Wall Street firms and foreign banks that had incurred big losses on credit-default swaps and other exotic obligations. These were basically the casino-style wagers made by A.I.G. and the counterparties—wagers they lost. The government justified the help by saying it was necessary to prevent disruption to the economy that would be caused by a “disorderly wind-down” of A.I.G. The collapse of Lehman Brothers had occurred just days before the Fed took action, and the shock waves on Wall Street from yet another implosion might have been catastrophic. Bankruptcy court, where troubled corporations routinely wind down their disorderly affairs, would have been another option, though that prospect might not have quickly enough addressed the gathering sense of urgency and doom. We’ll never know. Certainly bankruptcy court would not have allowed A.I.G.’s clients to get full value for their bad investments.

Instead, A.I.G. was able to pay off its counterparties 100 cents on the dollar. The largest payout—$12.9 billion—went to Goldman Sachs, the Wall Street investment house presided over by Paulson before he moved into his Treasury job. Merrill Lynch, the world’s largest brokerage—then in the process of being taken over by Bank of America—received $6.8 billion. Bank of America itself received $5.2 billion. Citigroup, the nation’s largest bank, received $2.3 billion. But it wasn’t just Wall Street that benefitted. A.I.G. also funneled tens of billions of tarp dollars to banks on the other side of the Atlantic.

Some banks receiving tarp funds bristle at the notion that the taxpayer-funded program is a bailout. They say it is an investment in banks by the federal government, one that requires them to pay interest and ultimately pay back the money or face a financial penalty. In fact, many banks are making their scheduled payments to Treasury, and others have paid off billions of dollars in tarp funds (as well as interest). To tarp supporters, this is evidence of a sound investment. But at this stage it isn’t clear that every institution will be able to make the interest payments and buy back the government’s holdings. As of this writing, some banks, including Pacific Capital Bancorp, the parent of Santa Barbara Bank & Trust, have not been able to make their scheduled payments. No one can predict how many banks will ultimately come up short. But in the meantime tarp has been a very good deal for banks, because it gave them, courtesy of the taxpayers, access to capital that would have cost them substantially more in the private market, while exacting nothing from the beneficiaries in the form of a quid pro quo.

Based on the reluctance of many banks to take the money in the first place, and the swiftness with which other banks have repaid tarp funds, the main conclusion to be drawn is that relatively few were actually endangered. Rather than targeting the weak for relief—or allowing them to fail, as the government allowed millions of ordinary Americans to fail—Paulson and Treasury pumped hundreds of billions of dollars into the financial system without prior design and without prospective accountability. What was this all about? A case of panic by Treasury and the Federal Reserve? A financial over-reaction of cosmic proportions? A smoke screen to take care of a small number of Wall Street institutions that received 100 cents on the dollar for some of the worst investments they ever made?

More than five months after the bulk of the bailout money had been distributed into bank coffers, Elizabeth Warren plaintively raised the central and as yet unanswered question: “What is the strategy that Treasury is pursuing?” And she basically threw up her hands. As far as she could see, Warren went on, Treasury’s strategy was essentially “Take the money and do what you want with it.”

Donald L. Barlett and James B. Steele are Vanity Fair contributing editors.

By Daniel Acker/Bloomberg News (Kovacevich); Manuel Balce Ceneta/A.P. Images (Blankfein, Logue, Mack); Richard Drew/A.P. Images (Thain); Brendan Hoffman/Bloomberg News (Dimon); Bill Pugliano/Getty Images (Pandit); Roger L. Wollenberg/UPI/Landov (Kelly, Lewis); Jason Reed/Reuters/Corbis (background).

A letter to Republican Website

On the Republican party website they ask what we would like to see published. After just receiving one of their fund raising letters, exploiting the latest YouTube video showing school kids praising Obama, I was ready to give them a piece of my mind. This is a copy of what I wrote to them:

"I would like to see Michael Steel and the rest of you telling the world the same stuff that you send to us to raise money for the party! Say it, you bunch of mealy mouth wienies! Do you think you're fooling us as when you get on the conservative talk shows and put on your right wing hats to save your phony baloney jobs? Do you think you're fooling us when you send out fund raising letters with a hard right slant - then act all sweet and politically correct when you eat Kobe beef over at Obama's house? Get on Meet The Press and talk like that! Let me hear you tell the public what a commie freak Obama is. If you really feel that he's ruining the country then get on the TV and get the word out to the idiots that worship Obama. They need your help - not us! And talk like you believe in something. Don't tell us your BS. You need to tell the rest of America. When I hear you out there, saying the truth to the public, telling them that they better wake up to the fact that we have a socialist, Marxist for a president and a band of robbers running the government - then I'll start writing checks again. Not until!"

Sincerely, GB

Health bill puts bite on small business and wealthy

By JANET ADAMY and LAURA MECKLER

Associated Press

House Speaker Nancy Pelosi, from left, stands with House Democratic leaders Steny Hoyer, Pete Stark, Henry Waxman, Charles Rangel, and John Dingell to announce health-care legislation on Tuesday.

WASHINGTON -- House Democrats on Tuesday unveiled sweeping health-care legislation that would hit all but the smallest businesses with a penalty equal to 8% of payroll if they fail to provide health insurance to workers.

The House bill, which also would impose new taxes on the wealthy estimated to bring in more than $544 billion over a decade, came as lawmakers in the Senate raced against a self-imposed deadline of this week to introduce a bill in time for action this summer.

Senators face a tougher battle because they are striving for a bipartisan bill. Key senators are weighing a combination of several more-modest fund-raising provisions, including some new fees on health-care industries.

Under the House measure, employers with payrolls exceeding $400,000 a year would have to provide health insurance or pay the 8% penalty. Employers with payrolls between $250,000 and $400,000 a year would pay a smaller penalty, and those less than $250,000 would be exempt. Certain small firms would get tax credits to help buy coverage.

The relatively low thresholds for penalties triggered the sharpest criticism yet from employer groups, who said the burden on small business is too high and doesn't do enough to help them expand insurance coverage.

More

• Sen. Grassley Is Key to Health Deal
• Democrats' Discord Hinders Bill
• Opinion: The Small-Business Surtax
• Health Blog: Middle Class Could Feel Pinch
• Health Blog: CBO: Plan Would Enroll Less Than 5% of Americans

"This bill costs too much, it covers too few and it has way too much government involvement," said Michelle Dimarob, a lobbyist with the National Federation of Independent Business, the main trade group for small firms. "Small business doesn't want any of those things."

According to 2006 data from the federation, businesses with between five and nine workers, representing about one million employers, had an average payroll of around $375,000 a year. A report from the Kaiser Family Foundation found that only about half of firms with three to nine workers offered health benefits in 2008.

House Speaker Nancy Pelosi unveiled the measure on Tuesday, praising it as a historic step toward insuring all Americans that has eluded lawmakers for decades. "This bill is a starting point and a path to success to lower costs to consumers and businesses," the California Democrat said.

The Congressional Budget Office on Tuesday calculated the cost of the House's plan to expand insurance coverage at $1.04 trillion over 10 years, and predicted the measure would eventually lead 97% of legal American residents to have insurance. That's in line with President Barack Obama's desired budget for a health overhaul and lawmakers' pledges for expanding coverage.

The estimate doesn't factor in the plan to pay for the bill, including the new tax on wealthy Americans, or certain changes to Medicare and Medicaid, all of which could affect the final price tag.

The House bill would place new taxes on the wealthiest people to help expand insurance coverage to the nation's 46 million uninsured people. The legislation calls for a 5.4% surtax on those with annual gross incomes exceeding $1 million.

Households with annual income between $500,000 a year and $1 million would be hit with a 1.5% surtax, and those earning between $350,000 and $500,000 would face a 1% surtax. Those rates could eventually increase to 3% and 2%, respectively, if the government doesn't achieve certain health-cost savings.

The 1,018-page initiative contains several components pushed by liberal Democrats that were long expected to be part of House legislation, but which face considerable opposition in the Senate. Most notably, the House bill creates a new public health-insurance plan aimed at individuals and small businesses that otherwise can't get affordable coverage.

The House measure would bar insurance companies from denying coverage to individuals who are sick, while also requiring most Americans to carry health insurance or pay a penalty equal to about 2.5% of their gross income. It would provide families earning up to $88,000 a year with subsidies to help them buy coverage. And it would expand health-insurance coverage through the Medicaid federal-state insurance program for the poor.

The Senate legislation is also expected to include mandates on insurers to provide coverage and individuals to carry it, although the details may differ. The bigger differences will come on the financing side, where many senators are cautious about introducing major new taxes on the wealthy to pay for health care.

The White House is pushing for action before the August recess in both houses of Congress to give lawmakers time to reconcile their two versions, pass that compromise through the House and the Senate and send Mr. Obama a final bill by autumn. The Senate Health, Education, Labor and Pensions Committee could approve its health overhaul bill as soon as Wednesday.

That will get merged with a bill in the Senate Finance Committee, where lawmakers are trying to craft a bipartisan measure. Chairman Max Baucus on Tuesday was pitching his colleagues on a plan to finance the bill through a combination of more-modest tax increases. He is trying to fill a hole of about $320 billion over 10 years, after Democrats objected to a provision to tax upper-end employee health benefits.

The fresh package included a new fee on pharmaceuticals and other health-care industries, and stiffer corporate-reporting measures aimed at collecting a greater share of corporate taxes owed each year, two Senate aides said.

Under the first proposal, health industries including drug makers and insurers would be charged an assessment, with individual companies' fees based on their market share. It's not clear how large the total assessment would be.

The proposal also seeks to raise $75 billion to $100 billion over 10 years by giving states an incentive to issue bonds that would help offset the expanded federal share of Medicaid.

"The goal here is a bunch of smaller, less controversial items that can add up," one official said.

The package may still include a modified version of the plan to tax high-end employer-provided health insurance, though on a smaller scale, aides said.

Mr. Baucus spent much of the day meeting one-on-one with members of his committee, and he put on an optimistic face. "We're going to pass very significant health reform this year," the Montana Democrat said.

But the pre-recess deadline appeared in danger as Republicans expressed concern that the process is moving too quickly.

Sen. Olympia Snowe, a key Republican whom Mr. Baucus is trying to win over, said Tuesday that the legislation is far too complex to rush and that she saw little chance of moving a bill through the Senate before the August break.

"I frankly couldn't imagine at this point bringing it to the floor and completing our deliberations...before the August recess," the Maine senator said. She said "arbitrary, artificial time frames really are not realistic given the magnitude of the task we are assigned to do."

In addition to health care, the White House also hopes for action on energy and financial-sector regulation, both of which would consume time this fall.

At a White House meeting with top Democratic leaders on Monday, Mr. Obama pushed Mr. Baucus to produce legislation by Thursday.

Senators are now talking openly of keeping the chamber in session an extra week, though some say that is simply a tactic to discourage delay by senators who have plans for vacations, congressional trips and hometown activities.

A further complication is that if it looks as if the Senate can't or won't act this summer, many House Democrats are likely to hesitate about voting on a contentious issue -- including raising taxes -- for something that might never become law.

Write to Janet Adamy at janet.adamy@wsj.com and Laura Meckler at laura.meckler@wsj.com