The Fed: Life after zero

The Federal Reserve wraps up its two-day meeting about what to do with interest rates Wednesday afternoon. But that's probably two more days than the central bank needed.

With the Fed having already cut its key interest rate to near zero last month, there is little suspense about what the central bank's Federal Open Market Committee will announce.

In fact, the Fed said in its statement last month that it would likely keep rates near zero "for some time" due to the weakness in the economy.

Still, the rate-setting FOMC, which includes Fed governors and a selection of the presidents from the Fed's twelve district banks, is set to meet eight times this year. And while the Fed probably has more tricks up its sleeve to help the economy, don't expect them to be announced Wednesday.

"I think the Fed always has bullets left, but as a practical matter, the FOMC can disband," quipped Sung Won Sohn, economics professor at Cal State University Channel Islands. "There's not a whole lot they can do right now. "

Of course, the Fed has been unusually creative in the past year. It has established several new programs to pump more than $1 trillion into the economy in an effort to help spur the economy and get banks to start lending again.

But most of these initiatives were approved by the Fed's Board of Governors, not the FOMC. And it's quite likely that even if the Fed comes up with new programs to try to help get credit flowing again, they also won't need the approval of the FOMC.
What will the Fed be talking about?

With that in mind, the Fed provided some hints last month about what to expect at future FOMC meetings. A senior Fed official told reporters that the FOMC would continue to meet on its regular schedule, and it would provide statement's about the central bank's view of the state of economy.

The official said the FOMC would also work in conjunction with the Fed's board of governors on decisions about the Fed's balance sheet, which has ballooned in the past few months due to the various new lending programs.

So once the FOMC is ready to start raising rates again, it may want to see the balance shrink in size by having some of these programs wind down.

The district presidents on the FOMC are also important because they act as the Fed's eyes and ears to banks and businesses throughout the country. Given the economic crisis, former Fed governor Lyle Gramley, who is now an economist with the Stanford Group, said it's more important than ever to have the FOMC discussing policy changes.

"Until we get clear evidence that the economy is turning around, things are going to stay very hectic at the Fed," he said.

Other economists say its clear that Fed Chairman Ben Bernanke wants to keep the Fed's district banks involved in various programs, such as the soon-to-be-implemented plan to back $200 billion in consumer and business loans.

It's also important to have the Fed speaking with one voice on the need for action, rather than having Fed presidents roaming the country criticizing actions by the Fed's governors.

"The fact that the board can do these things without consulting with the bank presidents doesn't mean they should do it that way," said David Wyss, chief economist for Standard & Poor's. "They want to make sure everyone is reasonably informed, but also that there is a consensus that they're doing it right."
Watching what the Fed says

Few expect any new program to be announced Wednesday. Instead, economists will be looking at the language in the Fed's statement for clues the Fed might send about its next policy step.

"At some point, it seems that they'll have to offer a clearer view of what comes next," said Tom Schlesinger, executive director of the Financial Markets Center, a think tank that follows the Fed.

For example, Wyss said that if the Fed includes a mention of the problem caused by troubled assets now held by banks, it will be taken as a signal that the Fed is close to announcing a so-called "bad bank" program to purchase toxic assets.

But Wyss cautions that despite the attention every word and comma in the statement is likely to receive, there probably will be far less concrete information than hoped for by economists and investors.

"People will be picking [the statement] apart because they don't have anything else to analyze," said Wyss. "But that doesn't mean they'll learn anything."

New doubts about a once sure bet

Retirement investors have long viewed annuities as an effective way to protect their nest egg. But the recent financial crisis has highlighted an inherent paradox: While annuities offer safety and guarantees, their benefits are tied to the financial strength of an insurer. If the company fails, you could be looking at a loss in the very part of your portfolio that you were counting on to be rock solid.

So at a time when one of the world's largest insurers, AIG, has needed government help to stay solvent and other insurers have seen their stocks drop 70% or more in just a few months, should you still consider putting a portion of your retirement assets in an annuity?

I believe the answer is yes. With their unique features - in particular an immediate or income annuity's ability to turn your savings into lifetime payments - annuities can play a valuable role in your retirement. But given the heightened level of risk today, it's more important than ever to follow a few crucial steps when you shop for an annuity. Otherwise, you may be buying only the illusion of security.
Understand what you're buying

I get lots of e-mails about annuities. And what's strikingly clear is that the majority of annuity holders have a pretty vague notion of what they own.

For example, you may know that a return or monthly payment is guaranteed, but do you know how that promise works? Many variable annuities tout guaranteed growth rates of 5% or more a year. What you may not realize is that this return typically applies not to your account value but to the annuity's "benefit base," a hypothetical value the insurer uses to calculate how much income you can draw from your annuity. If the market drops and you want to cash out, you'd get your actual account value, which could be down right along with the market.

Before you commit to an annuity, demand that the salesperson explain what you're buying in terms you comprehend.
Know the cost of getting in - and out

Few investments can match annuities when it comes to confusing fees. Variable annuities, for example, have three layers of annual costs - insurance charges, investment fees and the cost of guarantees and riders - that can easily total 2% to 3%. Surrender fees - what you may owe when you exit the annuity - can range as high as 15%.

These fees are buried in pages of bewildering prose in the prospectus or contract. A consortium of insurance groups is working on ways to simplify fee disclosure. Until that becomes a reality, ask your adviser to break down each fee separately in writing and total them. Better yet, have the adviser fill out the simplified disclosure checklist I proposed last year.
Go for quality, then diversify

To date, no major insurer has failed in this crisis. But when you see firms like Lehman Brothers bite the dust, it's clear that anyone can go down if a meltdown is severe enough.

To reduce your odds of getting swept up in a failure, stick to insurers that get grades of A or better from ratings firms like Standard & Poor's and A.M. Best. That may mean accepting a lower yield or payout, but you're not looking to take chances with this money.

For an additional measure of safety, divvy up your money among two or three insurers. All states have guaranty associations that provide coverage of $100,000 or more per insurer (find your state's limit at nolhga.com). By keeping your exposure to any single firm below your state's coverage ceiling, you ensure you'll be fully covered even in a worst-case scenario.

It's a tech wreck

So much for the tech sector keeping the economy afloat.

Despite strong earnings reports from IBM (IBM, Fortune 500) and Apple (AAPL, Fortune 500) in the past two days, the news Thursday morning that Microsoft (MSFT, Fortune 500) was cutting up to 5,000 employees -- including 1,400 that will be losing their job today -- is a sobering reminder that few companies, even in technology, are immune from this recession.

Tech stocks, not surprisingly, took it on the chin Thursday. Microsoft plunged 8.5%, helping to drag down the Nasdaq by more than 3%.

One bright spot was Apple, which gained about 7% Thursday morning following the company's better-than-expected sales and profit report Wednesday. However, one market strategist noted that Apple is the exception, not the rule.
Talkback: Is tech in worse shape than the rest of the economy?

"The Microsoft news is a reflection of what is really going on in the technology industry as opposed to the Apple earnings," said Alan Skrainka, chief market strategist with Edward Jones in St. Louis. "Apple's news is company specific. It has had a hot hand for awhile and had products that were in strong demand during the holiday season."

Kent Mergler, chairman of Northstar Capital Management, an investment firm with about $300 million in assets based in Palm Beach Gardens, Fla., agreed that the Microsoft news is more indicative of the trend in technology than the solid reports from IBM and Apple.

"It's tough to do well in this environment, and if a company succeeds, it's a huge compliment to management," he said. "Microsoft has turned into the big old sluggish company that IBM used to be."

Mergler's firm owns shares of IBM, Apple and Microsoft, but he said he and his team will have a "serious discussion about whether or not we continue to own it," following Thursday morning's earnings and layoff news.

And based on other earnings reports, it is clear that other technology leaders are also suffering as well.

Finnish cell phone maker Nokia (NOK) disclosed Thursday morning that sales fell nearly 20% in the fourth quarter and that profit plunged almost 70% from a year earlier.

Semiconductor kingpin Intel (INTC, Fortune 500), which reported a 90% drop in quarterly profit for the fourth quarter last week, announced Wednesday it was cutting production at some facilities, affecting 6,000 manufacturing jobs. It said some of the workers could be offered positions at other facilities.

Investors are even worrying about whether Internet search leader Google (GOOG, Fortune 500), which will release its fourth-quarter results after the closing bell, will feel the pain of the economic slump.

While Google is expected to report an earnings increase of 11% -- not shabby in this market -- that is a slower growth rate than many investors have grown accustomed to.

With that in mind, it will be interesting to see if Google continues to cut back on its capital expenditures. The company has been criticized by some analysts for spending recklessly -- even when times were good. But in the third quarter, Google reported that its capital expenditures were down 18% from a year earlier.

One fund manager said that this type of fiscal discipline is necessary for all technology companies, and hinted that the layoff news from Microsoft, while bad now, could help position the company for better times ahead in the future.

Rafael Resendes, manager of the Toreador Large Cap fund, argues that the layoffs -- the company's first in its history -- show that Microsoft is taking the necessary steps to rein in costs. He said many tech companies had not adequately prepared themselves for the recession and were spending too heavily despite signs of a slowdown.

"Tech needs to circle the wagons and get their businesses ready for the future. This downturn is hopefully imprinting in managements' minds that they can't keep growing for the sake of growth forever," said Resendes, who owns Microsoft, Google, IBM and Oracle (ORCL, Fortune 500) in his fund.

Obama's top priority: the economy

Senior aides to President-elect Barack Obama say he will convene a meeting of his top economic advisers on Wednesday, his first full day in office, as the incoming president immediately tries to put the financial crisis at the center of his agenda.

Three aides said the incoming president is planning an ambitious first week that will include several other high-profile moves: a Wednesday meeting with military brass to map out a change to the mission in Iraq, appointing at least one envoy to quickly deal with the Mideast crisis, and issuing several executive orders that could spark controversies on issues ranging from the environment to detaining terror suspects.

But the Obama aides said the bulk of the executive orders are not likely to be issued on Tuesday because the incoming administration, in the words of one top aide, "does not want to cloud the first day" by overshadowing the historic swearing-in of Obama as the first African-American president.

That's why aides are pointing to Wednesday as a key marker. Obama is planning to bring together his top economic advisers to map out how to step up his own personal lobbying efforts to get Congress to pass his stimulus plan, which now has a price tag of $825 billion in the House.

"We have got to get an economic recovery and reinvestment plan in place quickly to turn the economy around," said one senior aide, citing the financial crisis as the top priority.

And on Wednesday Obama will also meet with top military commanders to discuss the war in Iraq and move to begin implementing his campaign promise of removing all combat troops within 16 months, according to aides. That is part of an effort to reassure Obama's liberal supporters that despite his heavy focus on the financial crisis, he will stay focused on changing the mission in Iraq, the stance that first propelled his presidential campaign at the grassroots level.

The Obama aides also revealed the Mideast crisis has shot to the top of the incoming president's immediate agenda. The aides said Obama himself has been pushing behind the scenes for quick, decisive action on the matter, overriding the advice of some aides who believe getting active instantly may unrealistically raise expectations for Mideast peace.

The aides told CNN one option under serious consideration is naming at least one high-profile envoy this week to help dig into the long-term problems in the region beyond just the crisis in Gaza, a move that Obama hinted at last week in an interview with USA Today.

On Sunday's "State of the Union with John King" on CNN, incoming senior White House adviser David Axelrod said the president-elect "has said repeatedly that he intends to engage early and aggressively with diplomacy all over the world and using the men and women, the professionals who are in place, who are great, and - where appropriate - special envoys."

Pressed on whether this meant moving to deal with the Mideast crisis as soon as Tuesday, Axelrod said, "I think that the events around the world demand that he act quickly, and I think you'll see him act quickly."
Executive orders

Aides say the incoming president is also mulling several high-profile executive orders that can change U.S. policy with the simple stroke of a pen, particularly major changes to the approach in the war on terror. In addition to an executive order closing the U.S. military prison at Guantanamo Bay, aides say the incoming president is considering another executive order that would specifically ban the use of torture on terror suspects.

CNN has learned that another option under consideration is an executive order raising fuel efficiency on automobiles, a move that would please environmentalists but put more pressure on the struggling U.S. auto industry.

For now, however, aides are being tight-lipped about specifically which executive orders will be issued.

Incoming White House Chief of Staff Rahm Emanuel told reporters on Saturday that "there are a number of things we're looking at" based on campaign promises the president-elect made on domestic and foreign policy.
Focus on economy

Meanwhile, aides say Obama is strongly considering an economic speech to a joint session of Congress just weeks after taking office in order to communicate directly with the American people that the financial crisis is likely to continue for a long time - even if his economic recovery plan is passed into law during the first 100 days.

Aides are expecting the speech to be delivered the week of February 23, after Congress returns from the Presidents' Day recess. Democratic leaders are aiming to get the economic recovery plan to Obama's desk for his signature before that recess.

Obama has been trying to downplay expectations for quick results from his stimulus plan in recent public speeches, which could give him some political breathing space to try and let the plan work.

"We're going to have a tough year, 2009," Obama told CNN in an interview Friday.

"I don't think that any economist disputes that we're in the worst economic crisis since the Great Depression. The good news is that we're getting a consensus around what needs to be done. We've got to have a bold, aggressive reinvestment in a recovery package. It's working its way through Congress. That's going to help create three to four million new jobs," he said.

Aides say the speech to a joint session of Congress is part of a broader strategy by the incoming president to "engage with the public" about the financial crisis to try and build trust with the American people

House Dems offer $825B stimulus bill

After weeks of talks with President-elect Barack Obama's top aides, House Democrats on Thursday released an expansive economic recovery plan that calls for $550 billion in spending and aid to states and $275 billion in tax cuts.

House Speaker Nancy Pelosi, D-Calif., said lawmakers tried to assemble a package of measures that would be most effective in stimulating the U.S. economy, which is now in its 14th month of recession.

"We wanted to get the biggest bang for the buck," she said at a press conference.

Pelosi expressed confidence that Congress would reach the mid-February deadline for getting a bill to Obama's desk.

But, she noted, "this [package] is just the first step."

The $825 billion bill will now be directed to House committees for review and possible changes and later will be sent to conference with the Senate to resolve any differences the chambers may have.

Obama is scheduled to promote the bill on Friday in Ohio, where he'll speak with workers at a wind turbine factory. The package calls for more than $50 billion to double production of alternative energy.

"This plan is a significant downpayment on our most urgent challenges," Obama said in a statement. "[I]t will contain the kind of strict, independent oversight that will allow the American people to hold Washington accountable for how and where their tax dollars are spent."

The House proposal -- the American Recovery and Reinvestment bill -- is likely the most expensive spending plan Congress has ever proposed. Obama, who takes office on Tuesday, has called it central to stemming what has become the worst economic crisis in decades.
Creating jobs, helping the vulnerable

Obama's top economic advisers have estimated that the stimulus plan they laid out, which is largely reflected in the House Democrats' bill, could create or save between 3 million and 4 million jobs by 2010 across a broad array of industries.

But members of Obama's team and other economists acknowledge that even that level of job creation wouldn't be a panacea for the economy. Rather, it would lead to a lesser rate of unemployment than would otherwise be the case if there was no economic recovery package.

The bill includes roughly $90 billion to modernize roads, bridges, mass transit and waterways, and over $140 billion, mostly to states and localities, to defray their costs for education and to modernize schools.

The bill also calls for a number of measures to help the economically vulnerable. Among them: $27 billion to continue the current extended unemployment benefits program through Dec. 31; and another $9 billion to increase the average unemployment check by $25 a week on top of the roughly $300 a week jobless workers currently receive.

There is also a provision calling for $30.3 billion to subsidize for 12 months the cost of Cobra health insurance coverage and extend the time eligible workers may keep it. Cobra coverage allows newly laid off workers to keep health insurance provided by their former employers. Workers who would be eligible are those 55 and older and those who have at least 10 years' tenure with their employer.

The bill put together by House Democrats doesn't include everything Obama wanted.

After complaints from Democrats in both chambers, negotiators dropped a $3,000-per-hire tax credit that Obama proposed to provide incentives for employers to create jobs in the United States. Critics said the measure wouldn't achieve its aim since it wasn't large enough to help employers who can't afford a worker's total compensation in the first place.

But another tax cut -- one aimed at broadening businesses' ability to write off their losses, called "net operating loss carryback" -- is still in the package, although it's unclear if it will remain in the final bill.

Although no specifics were offered in the House's summary of provisions, the package also includes a "Making Work Pay Credit," which is something that Obama campaigned on.

The credit as Obama described it would provide low- and middle-income workers with a tax cut equal to $500 a year for individuals and $1,000 for couples. The money could be delivered fairly quickly to workers, with companies reducing the tax they withhold from employees' paychecks. The credit would also be refundable, meaning eligible workers can get it even if they don't make enough money to owe income tax.

The bill also includes an expansion of the Earned Income Tax Credit, which is a refundable credit for low-income workers, and an increase in the child tax credit.
Republicans weigh in

While many Republicans in the House and Senate are on board with having a stimulus package, they have been pushing for a different balance of measures, with a much stronger emphasis on tax cuts for businesses and individuals.

House Minority Leader John Boehner, R-Ohio, on Thursday characterized the Democrats' plan as "disappointing."

"The plan ... was developed with no Republican input and appears to be grounded in the flawed notion that we can simply borrow and spend our way back to prosperity," Boehner said in a statement. "It calls for more than half a trillion dollars in questionable new government spending on programs and projects, while providing less tax relief for middle-class families and small businesses than President-elect Obama has proposed."

Alternative stimulus bill proposals were put forth by the Republican Study Committee on Wednesday. The proposals called for far more business tax cuts, such reducing the corporate income tax rate.

Obama has said he's willing to consider any ideas for stimulus that have proven to work in the past, no matter which party proposes them. The problem is there is more ideological passion about whether tax cuts or government spending works best to create jobs than there is definitive research to settle the question.

But both government spending and tax cuts can prove very expensive in the long run if they aren't successful.
Keeping a close eye on the money

A big concern for all lawmakers has been how the government will oversee the monies given to states or spent on federal projects.

The House Democrats' bill calls for several measures to ensure transparency and accountability.

Among them, the creation of a special Web site where lawmakers and the public can track how funds are spent, get contact information for the managers of programs receiving funding and a list of contract or grant recipients. Plus, there would be links to the contracts themselves.

The bill would also require state or local government agencies that receive grant money for operations to post the intended use of the grant money as well as the numbers of jobs saved or created as a result.

The legislation also offers protection to federal and state whistleblowers and calls for those making the funding decisions (i.e., governors, mayors and others) to personally certify that a project has been vetted and that the money spent is an appropriate use of taxpayer dollars.

Lastly, the bill calls for the creation of two boards:

* A Recovery Act Accountability Board, members of which will include the president's chief performance officer and others appointed by the heads of federal agencies.
* An independent advisory panel to that board, members of which will not be in the federal government but will have expertise in economics, public finance, contracting, accounting, auditing or other relevant fields.

Stocks struggle on earnings woes

Stocks were mixed Tuesday as questions about Citigroup's future and Alcoa's big quarterly loss exacerbated worries about the weak corporate profit environment.

The Dow Jones industrial average (INDU) lost 0.3%, closing lower for the fifth consecutive session. The Standard & Poor's 500 (SPX) index added 0.2%. The Nasdaq composite (COMP) gained 0.5%.

Stocks had swayed on both sides of unchanged through the afternoon, with weakness in banks and Alcoa tempering strength in technology.

But Citigroup (C, Fortune 500) managed a late-session rally after the company confirmed it was in talks with Morgan Stanley (MS, Fortune 500) to sell part of its brokerage business, as had been rumored. After the close, Citigroup confirmed that it is selling 51% of its Smith Barney unit to Morgan.

The onslaught of negative news in the new year has caused investors to step back after an end-of-2008 rally, said Gary Webb, chief executive at Webb Financial Group.

"There's just nothing out there right now that looks promising, between the corporate news and the economic news," Webb said.

"Everyone knows things are going to be bad for a while, because we've all been told that so many times," he said. "But it still doesn't seem to be fully priced into the market."

After hitting the most recent bear-market lows in late November, stocks rallied more than 20% through the first session of the year. But since then, stocks have been slipping again.

The rally was driven mostly by short-covering, said Todd Salamone, director of trading at Schaeffer's Investment Research. Short-covering is when investors who have sold stocks short to take advantage of falling prices have to buy them back as prices start to rise.

"As that rally took place, investors got more comfortable with the price action and the only fear was of missing the rally," Salamone said. "But what that did is put the market in a place where it is less able to deal with all the negative headlines we're seeing now."

On Wednesday, the government releases its December retail sales report and the November reading on business inventories. The weekly energy supply report is also due in the morning, while the afternoon brings the release of the Fed's semi-annual "beige book" reading on the economy.

Company news: Alcoa (AA, Fortune 500) started off the fourth-quarter reporting period on a down note Monday. The aluminum maker lost 28 cents per share in the quarter, versus a profit of 36 cents per share a year ago. Analysts expected Alcoa to lose 10 cents per share on average, according to a Briefing.com survey. The company also reported a bigger-than-expected rise in revenue.

Last week, Alcoa warned that it will lay off 13% of its workforce as a means of cutting costs.

Fourth-quarter results are expected to be weak amid the ongoing recession. Intel (INTC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) are among the companies due to report later this week.

Yahoo (YHOO, Fortune 500) announced that it has hired Carol Bartz, a longtime technology executive, as its new CEO.

In other corporate news, drugmaker Pfizer (PFE, Fortune 500) said it is cutting up to 800 scientist jobs. Barclays (BCS) confirmed it was going to lay off some employees, but would not give a number. Earlier reports speculated the bank could cut as many as 2,000 jobs.

Market breadth was positive. On the New York Stock Exchange, winners beat losers eight to seven on volume of nearly 1.31 billion shares. On the Nasdaq, advancers topped decliners by five to four on volume of 2.01 billion shares.

Economy: The U.S. federal budget deficit grew by $83.6 billion in December, the government said Tuesday afternoon, versus forecasts for $83 billion. That brings the total deficit for the first three month of fiscal 2009 to $485.2 billion, more than the deficit for all of 2008.

The November trade gap plunged to a five-year low as the recession cut into the demand for oil and imports from China. Exports fell too, on waning demand for American-made farm products and autos. The Commerce Department said the trade gap narrowed to $40.4 billion from $56.7 billion in October.

Speaking in London Tuesday, Federal Reserve Chairman Ben Bernanke said that the almost $800 billion stimulus plan being proposed by President-elect Barack Obama could provide a big boost to the economy. However, he also said additional bank bailouts may be needed.

Confirmation hearings took place Tuesday on Capitol Hill for various Obama nominees for the cabinet and top White House positions, including Sen. Hillary Clinton, who has been nominated for Secretary of State.

The House Financial Services Committee held a hearing on the Treasury's Troubled Asset Relief Program (TARP) Tuesday. On Monday, Obama asked Congress to release the remaining $350 billion in TARP money. Regulators echoed that request Tuesday and talked about different ways they might use the funds to better help homeowners and other consumers.

Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 2.29% from 2.30% Monday. Treasury prices and yields move in opposite directions. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last month.

Lending rates improved. The 3-month Libor rate fell to 1.09% from 1.16% Monday, according to the British Banker's Association. Overnight Libor held steady at 0.10%. Libor is a key bank lending rate.

Other markets: In global trading, Asian and European markets ended lower.

The dollar gained versus the euro and yen.

U.S. light crude oil for February delivery fell 19 cents to settle at $37.78 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery down 30 cents to settle at $820.70 an ounce.

Gasoline prices held steady at a national average of $1.79 a gallon, according to a survey of credit-card swipes released Tuesday by motorist group AAA.

Another $350 billion: Bush may soon request rest of bailout

The Bush administration may soon ask Congress for the remaining $350 billion from the $700 billion Troubled Asset Relief Program (TARP) passed in October, a Democratic leadership source confirms to CNN.

Congressional Democrats were notified Friday afternoon by the White House that they could get a request soon for the second half of the allocated bailout funds. Once Congress receives the request for the money, both chambers can try to block the release of the money if they do so within an expedited time frame.

According to the Democratic source, who did not want to be named because no decisions have been made, Democratic leaders are not sure if the votes would be there to block President Bush from accessing the funds. If President-elect Obama signs onto the Bush request, it may make it easier for Democrats to vote yes, the source said.

Lawmakers on both sides of the aisle have expressed unhappiness with the way Treasury used the first $350 billion to capitalize banks. Specifically, they object to how Treasury made investments with few strings attached and no process for tracking how the banks are using the money.

They also are unhappy that none of the $350 billion allocated to date has been used to prevent foreclosures. And while credit markets have eased since the passage of TARP, the program has hardly been a panacea.

Consequently, leading Democratic lawmakers told Treasury officials that Congress would only release the remaining $350 billion if Treasury guaranteed that some of the money would go toward helping those at risk of foreclosure and consumers in search of loans for cars and homes, among other things.

Treasury Secretary nominee Timothy Geithner is working on plans to revamp the way TARP is used to make foreclosure prevention. That could include programs to help cash-strapped municipalities, small businesses and consumers, two transition aides told CNN.

On Friday, House Financial Services Chairman Barney Frank introduced a bill that would place several restrictions on how Treasury may use the remaining TARP funds.

Frank said in a statement that his legislation "will strengthen accountability, close loopholes, increase transparency and require Treasury to take significant steps on foreclosure mitigation."

Under the bailout legislation approved by Congress in October, the administration must formally notify Congress that it wants to access the second installment of $350 billion. Unless Congress passes a resolution rejecting the request within 15 days, the Treasury department can begin tapping the funds.

If Congress rejects the request, the president could veto the resolution, allowing Treasury to proceed. If the president vetoed the resolution, Congress would have to override the veto to stop the administration from accessing the money. A veto override requires a two-thirds majority in both the House and Senate.

As congressional Democrats assess the situation and prepare for a possible vote as early as next week, the Bush administration is sending a public warning down Pennsylvania Avenue.

"If the President does decide to notify Congress of the intention to access the second $350 billion on behalf of President-elect Obama, our shared goal [of both administrations] will be to defeat a resolution of disapproval if Congress goes that route," an administration official told CNN on Saturday.

White House press secretary Dana Perino said Friday that the administration has had discussions with the Obama transition team on how to proceed, "should the President-elect determine that he would like President Bush to notify Congress on his behalf of the intent to use the remaining $350 billion."

But, she added, "No final decisions have been made."

Get ready for more pain ahead

There is no longer any doubt about the biggest problem facing the economy: the job market.

Economists believe the recession is likely to get worse until the spiraling job losses and unemployment rate start to improve.

Record low mortgage rates won't lead to higher home values and increased home sales as long as 500,000 people a month are losing their jobs.

Rising unemployment will probably make banks even less willing to lend and also lead to increased defaults on a large range of existing loans.

And with more consumers losing, or worried about losing, their jobs, that should lead to a further pullback in spending. In turn, that will make it tougher for companies to increase their profits, which could lead to even more stock market losses.

If all that weren't bad enough, economists worry that that this will put more pressure on employers to lay off even more workers -- prompting the proverbial vicious circle that can make it so hard to get out of a bad economic downturn.

"That's behind the difficulty in seeing a sustainable recovery ahead," said Lakshman Achuthan, managing director of Economic Cycle Research Institute.

With that in mind, there's a very good chance that there could be more months ahead where the economy sheds more than 500,000 jobs.

"When you have an economy in a free-fall, you have to expect job losses of this magnitude," said Rich Yamarone, director of economic research at Argus Research. "The really bad news is that there's no reason to expect this trend to reverse."

Even the people who have jobs are suffering. According to a recent survey by the Society for Human Resource Management, more companies are reporting that they are cutting pay of their employees in response to the difficult environment.

In addition, the average work week has been falling steadily during the past four months. A record 8 million workers that want full-time employment have only been able to get part-time jobs, according to the government's December labor report. That's up 37% from the total of so-called underemployed workers in August.

Pay hikes will be at best modest this year for many employees lucky enough to get increases. A survey by consultant Hewitt Associates found raises will be less than 3% for the first time in the study's 32-year history.

State and local governments are also making tough choices because of the recession, with many reporting big cutbacks in services and suggesting new taxes that could further hurt cash-strapped consumers.

Currently, 43 states have an estimated combined budget deficit of about $100 billion. With many states required by law to balance their budgets, those governments are looking at everything from reduced garbage collection and shortened school years to new taxes on everything from soda to music downloads.

And it could get worse before it gets better for states and local governments. Some retail experts expect a record number of stores to close this year, with thousands of closings beyond those already announced. Vacant storefronts and dead malls can further depress a community's property values and tax collections.

That's why some think that the only way out of the recession is to firmly address the issue of rising unemployment. Tig Gilliam, chief executive of Adecco Group North America, a unit of the world's largest employment firm, said many of his clients tell him they're preparing to make additional job cuts.

Gilliam added that it's not the credit crunch that is causing them to cut back, but the reduced sales due to weak consumer demand, which has largely been driven by job losses and job worries.

"It's not a housing problem. It's not a financial services problem. It's spread across the landscape," Gilliam said. "And it's a lack of confidence of the 92.8% of people who are employed."