Banking Industry

A congressional watchdog has concluded that the federal government gave financial institutions a $78-billion subsidy last year by overpaying for stocks and other assets as part of its massive Wall Street rescue plan. In a report scheduled for release today, the congressional oversight panel for the bailout funds found that in some cases the government paid dramatically more than the value of the stocks at the time of the transactions. Ailing insurance giant American International Group Inc.

The recession hasn't been kind to MBH Architects. As its clients have stopped placing orders for its design services, revenue has plunged 50%, forcing the firm to lay off 160 of its 220 employees. To make matters worse, in December, City National Bank froze MBH's credit line and said it might demand immediate repayment of another loan. The way founder John McNulty sees it, MBH, with offices in Newport Beach and Alameda, Calif.

To rid banks of their toxic loans, the Obama administration apparently wants to rely on purchases of those assets by private investors -- but with the government's help. Whether investors will step up depends on how favorable Uncle Sam makes the terms. And the better for them, conceivably, the worse for taxpayers. Today, Treasury Secretary Timothy F. Geithner is set to announce the administration's plan for Phase 2 of the $700-billion financial system bailout enacted in the fall.

Amid growing public consternation with the federal banking bailout, the Treasury Department's special inspector general has opened an examination of political influence in handing out some of the $350 billion in federal bank bailout funds, The Times has learned. The audit, which has just begun, is broad in scope but will focus on lobbying activities by financial institutions and what the special inspector general, Neil Barofsky, has called "outside influences."

The nation's major banks modestly reduced their overall lending in recent months, even while they were collecting nearly $200 billion in federal bailout funds, the Treasury Department said Tuesday in its first progress report on the banking rescue program.

The worst thing about ideological sloganeering is that it obscures, rather than clarifies, the facts of a situation. Exhibit A: The question of whether we should "nationalize" our crippled banks. To the political right, the very word smacks of the world of banana republics. To the left, it's just what those idiots on Wall Street deserve, and long overdue. To the center -- let's call it the Obama administration -- it's an intriguing concept, but not really suitable for these United States.

Having thrown his support behind a $2.5-trillion rescue for the banking industry, a $787-billion economic stimulus package and a $75-billion foreclosure prevention initiative, President Obama will convene a "fiscal responsibility summit" Monday to help craft a strategy for addressing the burgeoning national debt. It's almost too late for that -- a new Brookings Institution study says the debt will grow by an average of $1 trillion a year for the next decade.

For weeks, President Obama has been pushing hard on his plan to revive the nation's economy, driving the $787-billion stimulus package through Congress, following up with a plan for homeowners facing foreclosure and readying a strategy for reviving the moribund credit system.

This week, Washington gets another chance to prove to Wall Street it means business. Investors are expecting details on the Treasury Department's plans to fix the financial industry. The questions they want answered: How the government will decide which banks are healthy enough to be saved, how their toxic assets will be priced and how officials will persuade private investors to buy them. The Obama administration has yet to galvanize confidence on Wall Street.

After months of relentlessly dismal financial news, the nation's chief economic policymakers delivered an unexpected message Tuesday: All is not lost. President Obama, in an address to a joint session of Congress, sounded notes of optimism for the future while still offering an unvarnished portrait of an economy in crisis. "The impact of this recession is real, and it is everywhere," Obama said. "But . . .