Obama Asks Urgent Action On ‘Historic’ Econ Crisis

CHICAGO (AP) – Citing an “economic crisis of historic proportions,” President-elect Barack Obama urged Congress to pass a costly, job-creating stimulus bill as quickly as possible, a rare pre-inaugural call to action delivered as the outgoing Bush administration approved fresh billions to bail out one of the nation’s largest banks.

Stock prices surged higher – the biggest two-day percentage gain for the Dow Jones industrials in 21 years – as investors took heart Monday from the actions and words of the incoming and departing chief executives.

“If we do not act swiftly and boldly, most experts now believe that we could lose millions of jobs next year,” said Obama, 57 days shy of taking office in the shadow of the worst economic crisis since the Great Depression.

He blended criticism of Detroit’s beleaguered Big Three automakers – General Motors Corp., Ford Motor Co. and Chrysler LLC – with a pledge of support for government aid to help them survive. “We can’t allow the auto industry to … vanish,” he said, although he added that a blank check for an industry resistant to change was not the solution to its long-term decline.

At a news conference in which he introduced his administration’s top economic officials, Obama said restoring the economy to health took priority over deficit concerns. Still, he said he would be looking for “meaningful cuts and sacrifices” to restrain federal spending.

Obama and President George W. Bush spoke by telephone during the day, their first disclosed conversation since a visit at the White House more than a week ago, and each man appeared eager to show a transition proceeding smoothly.

At the same time, the juxtaposition of the outgoing and incoming chief executives grappling – publicly and simultaneously – with the economy underscored the severity of a crisis that has sent joblessness rising, caused a large spike in mortgage foreclosures and crippled the credit markets.

Bush said his administration’s dramatic overnight rescue of Citigroup Inc. was necessary to safeguard the nation’s financial system and help the economy recover. He said more such moves might follow if other institutions need help. Officials said the government might invest $20 billion in the firm, and guarantee $306 billion in risky assets.

Encouraged by the action, investors sent the Dow Jones industrials up 397 points. Coupled with Friday’s gain, that mean an 891 point increase over two trading days, the biggest percentage gain since October 1987.

Obama made a point of saying his administration “will honor the public commitments made by the current administration to address this crisis,” words of reassurance to the financial markets.

Remarkably for a president-elect, he said he wanted Congress to act “right away” on a stimulus measure that would blend spending and tax cuts. Asked for details, he said without elaboration that he wanted a measure “of a size and scope that is necessary to get this economy back on track.”

Obama’s forecast was sober. He said there are neither shortcuts nor quick fixes.

“The economy is likely to get worse before it gets better. Full recovery will not happen immediately,” he said. At the same time, he coupled those sentiments with optimism. “I know we can work our way out of this crisis because we have done it before.”

The new Congress comes into session on Jan. 6, two weeks before Obama takes the oath of office as the nation’s 44th president.

Democratic leaders have said they are eager to spend the time before then working on the legislation he wants, and Obama had scarcely made his remarks when political jockeying broke out over the details.

Senate Majority Leader Harry Reid, D-Nev., said Democrats in Congress share Obama’s “sense of urgency, which is why we will work quickly to pass a substantial economic recovery package that creates good-paying jobs here in America, cuts taxes for the middle class and stabilizes a volatile market.”

In something of a challenge, he added, “With the cooperation of our Republican colleagues, we intend to send a plan to the White House as soon as possible following President-elect Obama’s inauguration.”

House Republican Leader John Boehner of Ohio said, “I look forward to working with President-elect Obama,” but he quickly added he hoped Democrats would listen to those “who do not believe increasing government spending is the best way to put our economy back on track.”

He called for eliminating the tax on gains from investment and for cutting taxes on middle class families and small businesses among other steps.

Nominally, Obama called the news conference to introduce the top members of the economic circle of advisers who will join his administration.

As treasury secretary he turned to New York Federal Reserve President Timothy Geithner, who also has experience at the International Monetary Fund and in the Clinton administration’s Treasury Department.

In recent months, the 47-year-old Geithner has worked closely with the Bush administration on the bailout of the financial industry, and earlier in his career was involved in responding to international financial crises overseas.

Obama chose a former treasury secretary, Lawrence Summers, to head the National Economic Council. He named Christina Romer, an economics professor, as chair of his Council of Economic Advisers.

Melody Barnes, a former aide to Sen. Edward M. Kennedy, was named director of the White House Domestic Policy Council.

The appointment of Geithner was the first Cabinet selection Obama has announced, a distinction meant to underscore the economy’s importance as he prepares to take office.

Democratic officials have said previously the president-elect is on track to name former rival Hillary Rodham Clinton, the New York senator, as secretary of state, and former Clinton administration Justice Department official Eric Holder as attorney general.

Robert Gates, defense secretary during Bush’s last two years in office, is a possible holdover, at least for several months, aides to Obama have said.

Obama offered few details about the economic stimulus measure he wants from the new Congress, saying he would ask his new team of advisers to consult with lawmakers.

As a candidate, he supported a $175 billion measure, but the economy has worsened since then, and many lawmakers and economists argue for a more robust jolt. Obama said his goal is to create 2.5 million jobs by “rebuilding our infrastructure, our roads, our bridges, modernizing our schools and creating the clean energy infrastructure of the 21st century.”

Asked about the effect on the deficit, already on the way to smashing previous records, the president-elect said, “We have to first focus on making sure that we’re creating those 2.5 million jobs.”

Obama said he wants to move ahead with his campaign pledge to cut taxes for the middle class. But he was vague about his promise to roll back Bush-era tax breaks for the wealthy, and aides said his plan won’t include the increases he had long advocated on people earning more than $250,000.

Without congressional action, the Bush tax cuts will expire in 2011 on their own, and most economists argue that raising taxes in a recession would only worsen the economy.

By BETH FOUHY and DAVID ESPO, Associated Press Writers

David Espo reported from Washington. AP Writer Jeannine Aversa contributed from Washington.

(Copyright 2008 by The Associated Press. All Rights Reserved.)