Obama Promises New Strategy to Revive Credit Markets

Jan. 31 (Bloomberg) -- President Barack Obama said his administration is readying a plan to unlock credit markets and lower mortgage rates, and vowed that company executives will be stopped from siphoning money intended for economic recovery.

“Soon my Treasury secretary, Timothy Geithner, will announce a new strategy for reviving our financial system that gets credit flowing to businesses and families,” Obama said today in his weekly radio address. He didn’t provide specifics.

“We’ll help lower mortgage costs and extend loans to small businesses so they can create jobs,” Obama said. “We’ll ensure that CEOs are not draining funds that should be advancing our recovery.”

Obama expressed outrage earlier this week after the New York state comptroller reported that Wall Street firms disbursed $18.4 billion in bonuses last year as the U.S. sank into a recession. While the figure represents a 44 percent decline from the previous year amid record losses in the securities industry, the bonus pool was the sixth-largest ever, the comptroller said in a yearly report.

Geithner will “have something to say about” bonuses as early as next week, Obama’s senior adviser David Axelrod said in an interview yesterday on Bloomberg Television’s “Political Capital with Al Hunt.”

Compensation Limits

Axelrod didn’t embrace a ban on bonuses for companies receiving bailout funds. He said the administration will take steps toward “limiting some of this executive compensation” as part of rallying public support for financial-rescue efforts.

“It’s very hard for the American people to understand how a bank executive should get a multimillion dollar bonus at a time when he’s asking the government to essentially bail out his institution,” Axelrod said.

Senator Claire McCaskill, a Missouri Democrat, yesterday introduced legislation to restrict compensation at companies receiving bail-out money to $400,000, the equivalent of the U.S. president’s salary.

“We have a bunch of idiots on Wall Street that are kicking sand in the face of the American taxpayer” by taking multimillion-dollar bonuses, McCaskill said.

Axelrod said the administration is crafting a plan that will “set up new rules of the road” for spending the remaining $350 billion of the financial-rescue package, known as the Troubled Asset Relief Program, approved under the Bush administration.

‘Strong’ Banks

The administration is committed to “a strong, private financial sector” in the bailout, he said when asked whether there are discussions to partially nationalize U.S. banks.

“Obviously, we’re trying to help these institutions on a temporary basis, but that’s our goal,” Axelrod said. “We’re going to provide assistance to these institutions and hope that they -- hope and expect that they’ll -- get back on their feet and that credit will flow.”

Axelrod defended Geithner, who sparked controversy during his confirmation hearings last week by saying Obama believes China is “manipulating its currency.”

“What Tim said was akin to what the president said during the campaign, these are issues that we have to work through,” Axelrod said. “We weren’t blazing new ground there.”

Obama spoke with President Hu Jintao of China this week following Geithner’s testimony. Axelrod wouldn’t say whether Obama reassured the Chinese leader on this issue.

Hurdle Cleared

Obama’s economic recovery plan cleared a hurdle this week with House passage of an $819 billion stimulus measure, which now goes to the Senate for approval.

Even though Obama took the unusual step of traveling to Capitol Hill to ask for support from Republican lawmakers, not a single House Republican voted for the bill.

Obama in his radio address today, said an economic recovery will “take years, not months,” and urged the Senate to pass the $819 billion fiscal stimulus package that cleared the House on Jan. 28.

Senate Republicans say they will push for revisions to the legislation.

“Democratic lawmakers in the House of Representatives produced a massive bill that many analysts say is unlikely to create new jobs or boost the economy anytime soon,” Senate Republican Leader Mitch McConnell of Kentucky said in his party’s weekly radio address today.

‘Wasteful Spending’

“Most of the infrastructure projects it includes won’t impact the economy for at least another year,” McConnell said. “Permanent spending would be expanded by about $240 billion, an increase that would lock in bigger and bigger deficits every year. And the bill is loaded with wasteful spending.”

Senate Democrats also have backed changes to the House bill. The Senate Finance Committee voted this week to add a $70 billion alternative-minimum tax cut to the package.

Obama cautioned that “no one bill, no matter how comprehensive, can cure what ails our economy.” Restoring credit markets must coincide with the stimulus package, he said.

“So just as we jumpstart job creation, we must also ensure that markets are stable, credit is flowing, and families can stay in their homes,” he said.

The economy shrank at a 3.8 percent annual pace in the fourth quarter, the most since 1982, as consumers and companies cut spending, a government report showed yesterday.

Companies from Starbucks Corp. to Eastman Kodak Co. have announced job cuts this month. The Dow Jones Industrial Average dropped 76.70 points this week to 8,000.86, driving its monthly loss to 8.8 percent.