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Confidence among U.S. consumers unexpectedly dropped in December to a record low as Americans grew increasingly concerned about jobs, raising the risk that spending will keep weakening into the new year.

The Conference Board’s index of consumer confidence fell to 38, the lowest level since records began in 1967, from 44.7 in November, the New York-based private research group said today. Another report showed declines in property values accelerated.

Rising unemployment, mounting foreclosures and declining household wealth have dimmed the outlook for consumer spending, which accounts for 70 percent of the economy. This year’s holiday season, the most important for retailers, was probably the worst in at least four decades.

“The deterioration going on right now in the labor market made people feel much worse,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “If people are worried about their jobs, they are not going to spend. That is extremely negative.”

Economists surveyed by Bloomberg News forecast the confidence figure would increase to 45.5 from a previously reported 44.9 for November, according to the median of 52 projections. Estimates ranged from 40 to 51.1.

Earlier today, reports showed the decline in home prices accelerated in October as credit dried up and foreclosures mounted, and business activity in December contracted for a third month.

Home Prices Drop

The S&P/Case-Shiller home-price index of 20 U.S. metropolitan areas fell a record 18 percent in October from a year earlier, led by declines in Phoenix and Las Vegas. All 20 cities showed a decline in the year ended in October.

The Institute for Supply Management-Chicago said its business index climbed to 34.1 this month from a 26-year low of 33.8 in November. Readings less than 50 signal contraction.

Stocks trimmed gains following the reports and Treasury securities fell. The Standard & Poor’s 500 index rose 0.7 percent to 875.7 at 10:15 a.m.

The share of consumers who said jobs are plentiful fell to 6.2 percent, the lowest level in 16 years, from 8.7 percent last month, today’s report showed. The proportion of people who said jobs are hard to get increased to 42 percent from 37.1 percent.

Americans’ views about their financial well-being in future months deteriorated. The Conference Board’s gauge of the outlook for the next six months decreased to 43.8 from 46.2 in November payday cash advance.

The share of respondents expecting their incomes to rise over the next six months fell to 12.7 percent from 13.1 percent. Americans were more hopeful of finding jobs in the future.

The measure of present conditions dropped to 29.4 from 42.3.

‘Dismal’ Outlook

“The overall economic outlook remains quite dismal for the first half of 2009,” Lynn Franco, director of the Conference Board’s consumer survey, said in a statement.

The grimmer view on jobs swamped the effects of the drop in gasoline prices that helped other confidence measures climb this month. The Reuters/University of Michigan’s sentiment gauge rose from November’s 28-year low.

The average price of a gallon of regular gasoline dropped to $1.62 on Dec. 28, down 61 percent from July’s record.

Even so, the decline isn’t enough to undo the damage from the loss of 1.9 million jobs so far this year and the record destruction in household wealth caused by the slump in home and stock prices.

Economy to Shrink

Gross domestic product contracted at a 0.5 percent annual pace in the third quarter, the worst performance in seven years, the Commerce Department said last week. Economists surveyed by Bloomberg earlier this month projected the economy will contract at a 4.3 percent rate this quarter, hurt by another decline in consumer spending.

The jobless rate could reach 8.2 percent at the end of next year compared with last month’s 15-year high of 6.7 percent, according to the survey.

President-elect Barack Obama has expanded his economic stimulus goals and called for creating or saving 3 million jobs over the next two years. Vice President-elect Joe Biden said Dec. 23 the incoming administration and congressional leaders are nearing an agreement on the broad principles of a stimulus policy.

The International Council of Shopping Centers projects this was the worst holiday shopping season, the most important period for retailers, in at least four decades.

“It’s dismal,” Patrick Byrne, chief executive officer of Overstock.com, the Internet seller of discounted brand-name goods, said Dec. 24 in an interview on Bloomberg Television. “It seems the entire retail nation is running a going-out-of-business sale. It means the pricing is very competitive.”

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Japan’s recession deepened in November as companies cut production at the fastest pace in 55 years and rising unemployment prompted households to pare spending.

Factory output plunged 8.1 percent from October, the Trade Ministry said today in Tokyo, more than the 6.8 percent estimated by economists. The jobless rate climbed to 3.9 percent from 3.7 percent. Household spending slid 0.5 percent, a ninth drop.

Simultaneous recessions in the U.S. and Europe have weakened demand for Japan’s exports, prompting companies from Toyota Motor Corp. to Sony Corp. to idle plants and fire workers. The Bank of Japan has little room to spur the economy after cutting interest rates close to zero last week, and Prime Minister Taro Aso has yet to implement two stimulus packages.

“We’re not at the worst yet,” Kyohei Morita, chief Japan economist at Barclays Capital in Tokyo, told Bloomberg Television. “In terms of the stimulation of the real economy, what matters is fiscal policy, not monetary policy.”

The yen traded at 90.43 per dollar as of 1:26 p.m. in Tokyo from 90.46 before the reports. The Nikkei 225 Stock Average rose 0.8 percent. The gauge has lost 43 percent this year, heading for its worst annual decline. The yield on Japan’s 10-year bond fell 2 basis points to 1.195 percent, matching a three-year low.

The decline in production was the biggest since comparable figures were first made available in February 1953. Shipments also fell the most on record. The ministry downgraded its assessment of output, saying it’s “declining rapidly.”

No End in Sight

There’s no end in sight to the recession that began when the economy shrank in the past two quarters. Companies surveyed by the ministry planned to reduce output a further 8 percent this month and 2.1 percent in January. Should December’s forecast be realized, production would slide a record 11.1 percent this quarter.

“The output numbers were just horrible,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “Economic conditions are going to deteriorate rapidly.”

Fuji Heavy Industries Ltd. announced additional production cuts today. The maker of Subaru-brand cars will lower output by a further 10,000 vehicles in the year ending March, bringing total reductions to 70,000 worldwide. It will also shed 300 temporary jobs on top of 800 eliminations announced last month.

Japan’s exports plunged 26.7 percent in November, the sharpest drop since at least 1980, a report showed this week.

The Bank of Japan last week lowered its benchmark interest rate to 0.1 percent, increased purchases of government debt and announced plans to buy commercial paper for the first time.

Signs of Deflation

The inflation rate eased the most in a decade in November as prices of oil and other commodities plunged, indicating deflation may be returning to the world’s second-largest economy pay day loans. Consumer prices excluding fresh food rose 1 percent from a year earlier, the slowest pace since April, the statistics bureau said today.

“Data clearly indicate the problem for Japan is deflation, not inflation,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo.

Economic and Fiscal Policy Minister Kaoru Yosano said “the government, companies and politicians need to make an effort to keep the economy from falling apart next year.” Prime Minister Aso has unveiled two stimulus plans since becoming Japan’s leader in September; both await approval by parliament.

The measures “may help to ease the economy’s decline once they’re actually implemented,” Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo, said on Bloomberg Television. “But there’s still little hope that Japan’s economy will show any clear signs of a turnaround in 2009.”

Yen Pain

The yen’s 23 percent gain against the dollar this year is compounding exporters’ woes by eroding their profits. Japan’s currency surged to a 13-year high of 87.14 on Dec. 17.

Japanese carmakers have been hit by the recession in the U.S., where consumer credit is drying up and households are spending less. Toyota this week forecast its first operating loss in seven decades for the year ending March. Last month the automaker, the world’s second largest, said it would fire 3,000 temporary staff.

Temporary and part-time workers are the hardest hit by the downturn. Companies plan to fire 85,012 such staff by the end of the business year, more than double the 30,067 forecast last month, the Labor Ministry said today.

The ratio of jobs available to each applicant dropped for a 10th month in November to 0.76, extending the longest losing streak since 1998. Wages fell 1.9 percent, the most in four years, underscoring why consumer sentiment slumped to a record low.

Retail sales slid 0.9 percent from a year earlier, the biggest drop in 16 months, the Trade Ministry said today. Weaker personal spending is prompting retailers to reconsider investments.

LVMH Moet Hennessy Louis Vuitton SA last week scrapped plans to open a 12-story Tokyo store. Isetan Mitsukoshi Holdings Ltd., Japan’s largest department store, will delay renovating its two flagship outlets in Tokyo, broadcaster NHK reported last week.

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China cut interest rates for the fifth time in three months to support the world’s fourth-biggest economy after trade growth collapsed because of recessions in the U.S., Europe and Japan.

The one-year lending rate will drop by 0.27 percentage point to 5.31 percent and the deposit rate by the same amount to 2.25 percent from tomorrow, the People’s Bank of China said on its Web site. The central bank also reduced the proportion of deposits lenders must set aside as reserves by 0.5 percentage point.

Exports fell for the first time in seven years last month, imports plunged and manufacturing contracted by a record. China’s slowdown will deepen before a 4 trillion yuan ($584 billion) stimulus package kicks in from the second quarter of next year, Liu He, a senior policy official, said Dec. 12.

“The central bank won’t stop the rate-cutting cycle until the economy starts to recover,” said Li Wei, an economist at Standard Chartered Bank Plc in Shanghai. “It may not boost borrowing, but the government needs to show that it’s doing something.”

The reserve requirement will drop to 15.5 percent for big banks and to 13.5 percent for smaller ones effective Dec. 25.

China reduced rates by the most in 11 years last month and announced the package of spending through 2010 on infrastructure and low-cost housing. The State Council pledged Dec. 13 to boost money supply by 17 percent next year to encourage lending and buoy domestic consumption.

Still, economic growth may slump to 5 percent in the first half of next year, less than half the 11.9 percent expansion in all of 2007, according to Royal Bank of Scotland Plc health insurance.

The slowdown threatens to trigger social unrest as factories close and unemployment climbs in the world’s most populous nation. It may also reduce the nation’s contribution to global growth, forecast by Merrill Lynch & Co. at 80 percent next year.

Uniden Corp., a Japanese maker of wireless communication gear including cordless phones, said Dec. 11 it will eliminate 6,200 jobs in China. Zhang Ping, China’s top economic planner, warned last month of the risk of “massive unemployment.”

Besides the trade collapse, weakness in the property market is undermining investment, construction, consumption and economic growth. Home sales dropped 20.6 percent in the first 11 months from a year earlier, according to the statistics bureau.

The government has switched from battling inflation in the first half of the year to guarding against the risk that falling prices will contribute to the economy spiraling down. Inflation was the slowest in 22 months in November.

China needs to prepare for a “worst case scenario” as the global economic slump deepens, central bank Governor Zhou Xiaochuan said Dec. 4.

China’s economy will expand by 7.5 percent next year, the least in almost two decades, the World Bank forecast last month. The nation is targeting an 8 percent expansion to generate jobs and avoid social instability, China Banking Regulatory Commission Chairman Liu Mingkang said in Beijing on Dec. 13.

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The Federal Reserve opened a new era in U.S. monetary history, cutting interest rates to as low as zero and pledging to buy unlimited quantities of securities, after conventional policies failed to arrest what may be the worst recession since World War II.

The new strategy is likely to involve unusually close cooperation with the Treasury of President-elect Barack Obama, which is still formulating its economic-rescue plans. The aim is to kick-start borrowing and spending to propel the economy toward a recovery by the middle of next year.

“It’s going to take a combination of fiscal and monetary stimulus to get the job done,” said former Fed Governor Lyle Gramley, now senior economic adviser at Stanford Group Co. in Washington. The central bank has signaled it will “make sure that the fiscal stimulus package, which is going to be a big one, is fully supported” and “in effect financed by the Fed.”

Possible steps by the Fed in coming months include financing for a new package to shore up the housing industry, and expanding a $200 billion program to undergird credit card and student loans. The new plan is risky: market pricing could be distorted for months or years, with insolvent borrowers kept afloat as central bankers force yields below levels investors deem appropriate given the risks.

The Fed’s Open-Market Committee yesterday said it will use “all available tools” to generate a resumption in growth. The FOMC also effectively retired its benchmark interest rate, bringing the target for overnight loans between banks down to zero to 0.25 percent from 1 percent previously.

Investors React

Stocks surged as the clarity of the Fed’s commitment exceeded some investors’ forecasts. Treasuries jumped in anticipation of Fed purchases, and mortgage bonds rallied. The Standard & Poor’s 500 Stock Index rose 5.1 percent to a five- week high. Benchmark 10-year note yields fell more than a quarter point, to 2.26 percent.

Among new ideas the Fed is open to is buying lower-rated securities, with backing from the Treasury, a senior Fed official told reporters yesterday in Washington. Central bankers plan to discuss possible strategies with Obama’s Treasury, the person said.

Obama’s pick for Treasury secretary is Timothy Geithner, the president of the New York Fed, who has been Bernanke’s closest adviser on the emergency lending programs that the central bank has already introduced during the 16-month financial crisis.

Obama Meeting

Obama met with Geithner, former Treasury Secretary Lawrence Summers and other members of his economic team yesterday in Chicago as he assembles plans for a two-year fiscal stimulus package after he takes office Jan. 20. Among his other priorities is a new, comprehensive effort to use taxpayer funds to stem record mortgage foreclosures.

“We are running out of the traditional ammunition that is used in a recession,” Obama said at a news conference yesterday. While the Fed is going to have “more tools available to it, it is critical that the other branches of government step up,” he said payday loans for bad credit.

The Fed said yesterday it may expand its $600 billion initiative to buy debt issued or backed by government-chartered mortgage-finance companies. It is also “evaluating” purchases of longer-term Treasury securities.

“The only meaningful limitation right now is their capacity to be creative,” said David Resler, chief economist at Nomura Securities International Inc., New York. “The Fed is telling us there is just about nothing off the table.”

Other existing programs include an unlimited effort to buy commercial paper from companies and financial firms and a backstop for money-market mutual funds.

Targeted Strategy

The central bank can make a difference in credit markets where yields are higher than they would otherwise be because of a lack of liquidity due to the financial crisis, the senior Fed official said. Still, inserting the Fed as a main purchaser in those markets raises the danger of delaying a recovery in private lending, some observers said.

“The availability of Fed credit might deter private credit,” said Vincent Reinhart, resident scholar at the American Enterprise Institute in Washington and former director of the Division of Monetary Affairs at the Fed Board. “The lender of last resort becomes the lender of only resort.”

The composition and size of the balance sheet will be the Fed’s new policy focus, the senior central bank official said in a conference call. Unlike Japan’s quantitative easing policies earlier this decade, the Fed is targeting specific assets for purchase to lower credit spreads rather than expanding the amount of cash in the banking system, the senior official said.

‘American Style’

“Quantitative easing American style is what they’re giving us,” said Allen Sinai, chief global economist at Decision Economics Inc., New York. “The Japanese style was to buy government maturities. The U.S. style is directly buying agency securities, buying mortgage-backed securities and lending money right into the private sector.”

The central bank is also considering whether to provide more information about the composition and targeted size of its balance sheet, the senior Fed official said on condition of anonymity.

“The focus of the committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level,” the FOMC said.

The deepening economic slump pushed unemployment to 6.7 percent last month, the highest level since 1993, while builders broke ground on the fewest new homes since record-keeping began in 1947.

Consumer prices fell the most on record in November, the Labor Department said Tuesday. Fed officials don’t see an immediate risk of a collapse in prices, or deflation, the senior official said.

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Japan's economy, the world's second largest, entered its first recession since 2001 last quarter and the government and economists say conditions may get even worse.

Gross domestic product shrank an annualized 0.4 percent in the three months ended Sept. 30, the Cabinet Office said today in Tokyo. Economists predicted the economy would grow 0.1 percent after contracting a revised 3.7 percent in the previous period.

The slowdown may deepen as the global financial crisis hurts exports, prompting companies from Toyota Motor Corp. to Canon Inc. to slash profit forecasts and cut investments. Japan has the lowest interest rates among the 20 biggest economies and public debt that exceeds 180 percent of GDP, limiting the government's ability to stimulate growth.

“It's only going to get worse,'' said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. “Japan may be entering its deepest recession in a decade as the global financial crisis cools demand overseas.''

The Nikkei 225 Stock Average closed 0.7 percent higher, reversing declines of as much as 2.9 percent, as investors bought shares of drug and utilities companies, which are less vulnerable to a slowdown. The gauge has lost 43 percent this year. The yield on Japan's 10-year bond fell two basis points to 1.48 percent.

The yen fell to 97.21 per dollar as of 4:16 p.m. in Tokyo from 96.09 before the report as a stock-market rally across Asia prompted investors to fund purchases of higher-yielding overseas assets in the Japanese currency. The yen has gained 9.2 percent since the end of September, compounding exporters' woes.

Europe, U.S.

The economy last contracted over two consecutive quarters — the technical definition of a recession — in 2001. Germany also fell into a recession last quarter, as did the entire euro zone, reports showed last week, and the U.S. is probably in one also.

“There is more bad news to come in the next few quarters as the global downturn hits hard,'' said Julian Jessop, chief international economist at Capital Economics Ltd. in London.

Leaders from the Group of 20 nations this weekend agreed to take a “broader policy response'' by using interest-rate cuts and fiscal stimulus to shore up the weakening global economy. The Bank of Japan has little scope to contribute further after lowering the benchmark rate to 0.3 percent last month, and a 5 trillion yen ($52 billion) stimulus plan announced by Prime Minister Taro Aso last month risks worsening the public debt.

Economic and Fiscal Policy Minister Kaoru Yosano confirmed that the economy had entered a recession that may deepen.

“Given that the global economy is decelerating, Japan's downturn will continue,'' Yosano said. He said there's a risk that that the slump will become “more severe'' because the global financial crisis is spreading to emerging economies.

Businesses Cut Back

Growth in China, which became Japan's biggest customer in July, slowed to 9 percent last quarter, the weakest since 2003 freecreditscore.

Quarter-on-quarter, Japan's economy shrank 0.1 percent, today's report showed. Capital spending fell 1.7 percent from the previous three months, compared with economists' expectations of a 2 percent drop.

Toyota, which makes more than three-quarters of its sales abroad, forecast profit will fall this fiscal year by almost 70 percent. The carmaker will fire 3,000 workers by March, and the Nikkei newspaper reported this month that it will delay adding capacity at a domestic plant that makes Lexus sedans.

Canon, the world's largest camera maker, last month forecast profit growth would fall for the first time in nine years and said it will cut capital spending 4.7 percent in 2008 to 410 billion yen.

“The economy is still so sensitive to the global business cycle,'' said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG in Tokyo. “A long as the global economy keeps sinking, Japan will probably experience a deep recession.''

Exports Weaken

Net exports subtracted 0.2 percentage point from growth after imports outweighed an increase in shipments abroad. Exports rose 0.7 percent, less than the 1.2 percent expected. Imports climbed 1.9 percent as oil surged to a record in the quarter. Economists predicted a 1.5 percent gain.

Still, Japan will probably suffer less than its biggest counterparts after companies shed debt and streamlined labor forces following the bursting of the property and asset bubble in the early 1990s. Asia's biggest economy will shrink 0.1 percent next year, according to the Organization for Economic Cooperation and Development, less than the 0.9 percent and 0.5 percent contractions in the U.S. and Europe.

Consumers are getting some relief as inflation abates and the government prepares to provide households with at least 12,000 yen ($125) each as part of the stimulus plan. Consumer spending increased 0.3 percent last quarter, more than the 0.1 percent economists expected, today's report showed.

Not a Good Sign

“It's difficult to take it as a good sign because the figure was boosted by seasonal factors such as the hot summer and the Olympics,'' said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “Consumption will probably turn negative in the fourth quarter'' and the economy won't recover until 2010, she said.

The ratio of jobs to applicants has fallen for eight months and the deteriorating profit outlook for companies is also putting pressure on wages. Winter bonuses, which typically account for about 10 percent of a fulltime worker's annual pay, will fall 2.9 percent this year, the Nikkei reported last week.

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Gov. Linda Lingle and Lt. Gov. James “Duke” Aiona will travel to Asia next week to promote travel to Hawaii.

They will travel separately, visiting Indonesia, Taiwan, China, Japan and South Korea with the goal of increasing Asian visitors to the state.

The China and Korea markets are of special interest because travel restrictions recently were eased for leisure travel to the United States.

The trips will run Nov. 11-22. Lingle will travel to China, Taiwan and Indonesia. Aiona will visit Japan and South Korea. Both will be out of the country at the same time for about seven days, leaving Attorney General Mark Bennett as acting governor.

Lingle also will meet with Asian airline officials to discuss the possibility of increasing the number of flights and seats from Asian cities to Hawaii.

“It is critical that we do all we can to reach out to our traditional visitor base in Japan as well as emerging markets such as China and Korea to encourage people to visit Hawaii, and to ensure our state is well-positioned with increased flights and air seat capacity,” Lingle said in a prepared statement payday advance loans.

The trip is a result in part of meetings earlier this year with local hotel executives and industry leaders who encouraged the governor to increase Hawaii’s tourism outreach and marketing.

Travel expenses will be covered by several sources, including the East-West Center, the Hawaii Department of Transportation and the Hawaii Department of Business, Economic Development and Tourism.

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Continental Airlines Inc. is waiving the first checked bag fee for its Chase credit and debit cardmembers.

On Oct. 7 the Houston airline began charging $15 each way for some economy-class passengers checking a bag.

Customers traveling with the primary cardmember are also be eligible for the waived fees if they are listed in the same reservation and check in at the same time.

Presidental Plus cardmembers can check up to two bags free, according to Continental (NYSE: CAL) one hour cash loan.

There are more than one million customers carrying some form of the airline’s credit or debit card, said Mark Bergsrud, senior vice president of marketing programs and distribution, in a statement.

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The outlook for U.S. stock markets improved dramatically Wednesday morning after the Federal Reserve and European central bankers announced a coordinated emergency rate cut.

The Federal Reserve reduced its benchmark discount rate by 0.5 percent to 1.5 percent. The European Central bank reduced its benchmark to 3.75 percent and the Bank of England cut its benchmark to 4.5 percent. Canada, Sweden, and Switzerland also reduced rates. In a joint statement, the central bankers said they were taking the acting because “the recent intensification of the financial crisis has augmented the downside risks to growth.”

Futures on the Standard & Poor’s 500 Index jumped to a 24.10 point gain to 1,029.90 at 7:02 a.m., two minutes after the Fed’s announcement. Dow Jones Industrial Average futures were up 512 points to 9,690 (payday loan).00 and Nasdaq 100 futures were up 27.25 points to 1,364.25.

Prior to the Fed’s announcement, the S&P 500 futures contract had tumbled as much as 43 points on the heels of steep declines overseas. The Nikkei 225 declined more than 9 percent on the Tokyo Stock Exchange as investors fretted about a global recession and the S&P 500 Index below the 1000 level for the first time in five years Tuesday.

European stock markets rebounded swiftly; nearly erasing loses of as much as 5 percent. The FTSE 100 Index was down 20 points, or 0.24 percent, to 4585.11 on the London Stock Exchange at 7:06 a.m.

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U.S. District Court Magistrate Judge Timothy Black has granted class-action status to a 2005 lawsuit filed against Fifth Third Bancorp officials, including members of its board of directors, alleging that they mismanaged the company’s employee retirement plan by investing in Fifth Third stock.

The lawsuit was filed by Conn.-based law firm Scott+Scott on behalf of all plan members from September 2001 to the present. It also claims that Fifth Third officials breached their fiduciary duties by charging the plan excessive investment management fees, including by double- or triple-dipping by investing plan assets in Fifth Third’s family of mutual funds through Fifth Third investment affiliates. Fifth Third and the individual defendants have denied the allegations (instant payday loan).

The lawsuit has been split into two for trial purposes, one to consider claims related to the company’s internal controls following its acquisition of Old Kent Financial in 2001 and the other to consider the excessive fees allegations. The former trial is set to begin next March; the latter in September.

Fifth Third and its employees are being defended by lawyers at Keating Muething & Klekamp. Most of the outside directors are being represented by lawyers at the Cincinnati office of Vorys Sater Seymour & Pease.

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The Bush administration sought unchecked power from Congress to buy $700 billion in bad mortgage investments from financial companies in what would be an unprecedented government intrusion into the markets.

Through his plan, Treasury Secretary Henry Paulson aims to avert a credit freeze that would bring the financial system and the world's largest economy to a standstill. The bill would prevent courts from reviewing actions taken under its authority.

“He's asking for a huge amount of power,'' said Nouriel Roubini, an economist at New York University. “He's saying, `Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy.''

As congressional aides and officials scrutinized the proposal, the Treasury late yesterday clarified the types of assets it would purchase. Paulson would have authority to buy home loans, mortgage-backed securities, commercial mortgage- related assets and, after consultation with the Federal Reserve chairman, “other assets, as deemed necessary to effectively stabilize financial markets,'' the Treasury said in a statement.

The Treasury would also have discretion, after discussions with the Fed, to make non-U.S. financial institutions eligible under the program.

The plan would raise the ceiling on the national debt and spend as much as the combined annual budgets of the Departments of Defense, Education and Health and Human Services. Paulson is asking for the power to hire asset managers and award contracts to private companies. Most provisions of the proposal expire after two years from the date of enactment.

Schumer Warning

A failure by the government to support the U.S. financial system could lead to “a depression,'' Senator Charles Schumer, a New York Democrat told reporters yesterday. “To do nothing is to risk the kind of economic downturn this country hasn't seen in 60 years.''

The Treasury is seeking authority to step in as buyer of last resort for mortgage-linked assets that few other financial institutions in the world want to buy, following government takeovers of mortgage giants Fannie Mae and Freddie Mac and insurer American International Group Inc.

“Democrats will work with the administration to ensure that our response to events in the financial markets is swift,'' House Speaker Nancy Pelosi said in a statement.

The majority party will seek to reduce mortgage foreclosures and create “fast-track authority'' for an overhaul of financial regulation, Pelosi said. Democrats will ensure “the government is accountable to the taxpayers in any future actions under this broad grant of authority, implementing strong oversight mechanisms.''

Executive Pay

The proposal will include curbs on executive pay for the companies whose assets the government will be buying, Steve Adamske, a spokesman for Representative Barney Frank, said yesterday in an interview.

Democrats also will include a plan to stem foreclosures, which may involve tapping the loan-modification abilities of the Federal Housing Administration, the Federal Deposit Insurance Corp., and Freddie Mac and Fannie Mae, Adamske said. Frank, a Democrat from Massachusetts, is chairman of the House Financial Services Committee.

“The consequences of inaction could be catastrophic,'' Senate Majority Leader Harry Reid said in a statement.

“While the Bush proposal raises some serious issues, we need to resolve them quickly,'' he said. “I am confident that, working together, we will.''

House minority leader John Boehner, an Ohio Republican, said yesterday he is reviewing the proposal but didn't say whether he was inclined to support it.

`Furious' Boehner

“The American people are furious that we're in this situation, and so am I,'' Boehner said in a statement. “We need to do everything possible to protect the taxpayers from the consequences of a broken Washington.''

Congress, which may pass legislation as soon as Sept. 26, needs to “make sure there are protections built in for taxpayers,'' said Schumer, a New York Democrat on the banking committee overnight payday loans. Lawmakers should ensure “taxpayers who gave the money will be put ahead of the stockholders, bondholders and others.''

Paulson is seeking an expansion of federal influence over markets that hasn't been seen since the Great Depression, said Charles Geisst, author of “100 Years of Wall Street'' and a finance professor at Manhattan College in New York.

Hoover Era

Geisst likened the plan to the Reconstruction Finance Corp., which was chartered by Herbert Hoover in 1932 with the goal of boosting economic activity by lending money after credit markets seized up.

President George W. Bush said he called leaders in both houses of Congress and “found a common understanding of how severe the problem is and how necessary it is to get something done quickly.''

“This is going to be a big package because it's a big problem,'' Bush said following a meeting with Colombian President Alvaro Uribe at the White House. “We need to get this done quickly, and the cleaner the better.''

Democratic presidential nominee Barack Obama said in a radio address that he “fully supports'' Paulson and Fed Chairman Ben S. Bernanke's efforts to stabilize the financial system. The plan, however, should benefit both main street and Wall Street, he said.

Republican Presidential nominee John McCain “looks forward'' to reviewing the proposal while focusing at least in part on “minimizing the burden on the taxpayer,'' said Jill Hazelbaker, communications director for the McCain campaign.

Ban Legal Challenges

The ban on legal challenges of actions by Treasury is “distasteful, it's unfortunate and it's bad precedent, but this is an emergency and you have to act,'' said Jerry Markham, a law professor at Florida State University and author of “A Financial History of the United States.''

“What you don't want happen is to have lawsuits that will slow things down and cause problems,'' he said.

The proposal would raise the nation's debt ceiling to $11.315 trillion from $10.615 trillion and require the Treasury secretary to report back to Congress three months after Treasury first uses its new powers, and then semiannually after that.

Paulson would gain discretion to act as he “deems necessary'' to hire people, enter into contracts and issue regulations related to a revival of U.S. mortgage finance, according to a three-page proposal. The Treasury would “take into consideration'' protecting taxpayers and promoting market stability.

Hiring Authority

The Treasury may hire managers to purchase the assets through so-called reverse auctions, seeking the lowest prices, Treasury said yesterday. The document specifies that Treasury may buy only assets issued or originated on or before Sept. 17.

The House will pass legislation to implement the plan by the end of this week, and the Senate will act soon after, Frank said on Sept. 19 in an interview on Bloomberg Television's “Political Capital with Al Hunt.''

Bush said yesterday he's unconcerned that the price tag on the package may seem high.

“I'm sure there are some of my friends out there that are saying, `I thought this guy was a market guy, what happened to him?''' the president said. “My first instinct was to let the market work, until I realized, while being briefed by the experts, how significant this problem became.''

The Bush administration seeks “dictatorial power unreviewable by the third branch of government, the courts, to try to resolve the crisis,'' said Frank Razzano, a former assistant chief trial attorney at the Securities and Exchange Commission now at Pepper Hamilton LLP in Washington. “We are taking a huge leap of faith.''

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