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Paulson Says Bail-Out Working

The $700bn (£494bn) US bail-out package has already "clearly helped stabilize" the financial system, US Treasury Secretary Henry Paulson has said.

However he added that there would be many challenges in the future

Mr. Paulson had said the the authorities had abandoned plans to use some of the $700bn to buy up banks' bad debts.

He also warned against expanding the bail-out to automakers

Instead of buying banks' large debts, as proposed in the rescue deal, the bail-out will be used to buy shares in lenders to help boost their balance sheets.

Mr Paulson added that the Treasury Department and the Federal Reserve would continue to monitor whether bad-debt purchases could "play a useful role" in the future.

Mr Paulson's comments did little to ease continuing investor jitters, and Wall Street's main Dow Jones index ended Wednesday trading in New York down 4.7%.

However, many analysts said he was right to backtrack on the plan to buy up the bad debts, saying it was difficult to see it being workable, and that simply buying up more banking stock was more straightforward.

"The best bet is just to give them [the banks] the capital and to let them absorb the losses anyway," said Rudy Narvas, senior analyst at 4Cast.

"That is exactly what it looks like is happening."

Carmakers

Mr Paulson's comments regarding America's three main carmakers - General Motors, Ford and Chrysler - are likely to have disappointed House of Representatives Speaker and leading Democrat Nancy Pelosi.


BAIL-OUT PROGRESS
3 October - $700bn rescue bill passes through Congress
14 October - Plans announced to buy $250bn in banking stock
26 October - First $115bn spent buying shares in eight lenders
10 November - $40bn to buy stake in insurer AIG

She is now calling for the three firms - which are struggling against big losses and falling sales - to share $25m in emergency aid out of the $700bn financial sector bail-out fund.

There is, however, a great deal of opposition to a bail-out for the car industry.

"Once we cross the divide from financial institutions to individual corporations, truly, where would you draw the line?" said Jeff Sessions, Republican Senator for Alabama.

The call for help comes after General Motors (GM) announced a third-quarter operating loss of $4.2bn last week. The carmaker said it would run out of cash early in 2009 if market conditions did not improve.

GM also announced it would be forced to lay off 3,600 workers, and has since announced a further 1,900 job cuts.

Last week, Ford also reported a $2.98bn loss for the third quarter and said it would have to cut salary-related expenses in North America by 10%.

Sales at the two car giants have been hit hard as consumers tighten their belts for the impending recession. Sales at GM fell by 45% in October compared with the same month last year, while sales at Ford fell 30%.

Chrysler was also hit hard, with sales falling 35%.

At the start of October, President George W Bush signed legislation that gives GM and fellow US carmakers Chrysler and Ford access to $25bn of cheap government-backed loans to help them develop less-polluting cars.

Anti-war Activests pressure Obama to Fire Gates

Anti-war activists and arms control activists are pressurizing President-Elect Barack Obama to replace defense secretary Robert Gates with a more strident anti-war opinion.

Nominating Gates to stay “would be a violation of the mandate for change that Obama says he represents,” Medea Benjamin, co-founder of the large anti-war group Code Pink.

They say a better person the the postion is Sen. Chuck Hagel (Reb-Neb.) Someone who brings out what Code Pink likes about Gates such as his ability to deal with Russia, Iran, and Syria but with a position on the war that Code Pink finds more suitable.

Moderate democrats in congress such as Senator Harry Reid of Nevada support this move.

But when Rep. Adam B. Schiff (D-Calif.) promoted Gates appointment in a closed door meeting with Obama and House Democrats several months ago, he was booed by his colleagues.

“Senator Obama has talked about having a Cabinet of rivals along the lines of [Abraham] Lincoln, people who will not be intimidated to express a contrary view. He’s talked about the need to have a Cabinet that’s not an echo chamber, reflecting his own opinion.” Schiff said, adding Gates could bring such perspective to a young president’s inner circle, one that he may not have now.

Others suggest that Obama must appoint a Democrat so the party can shore up its national security credentials with voters. Among those being touted for the position are Sen. Jack Reed (D-R.I.) , an Army veteran who traveled with Obama during his summer tour of Iraq, Afghanistan and the Middle East.

“The only reason Barack Obama is president today, the main reason Obama is president-elect, is because of his opposition to the war in Iraq,” and Gates, a former intelligence officer and Cold Warrior, was brought in to fix the war, not end it, a defense industry official said, adding, “He is so far outside the box of what Democrats want.”

The scenario most often floated by those closely watching Obama’s emerging defense team is this: Gates would remain at the Pentagon for six months to a year. Former Navy Secretary Richard Danzig, or another Obama candidate, would be nominated as Gates’ deputy, who would take control of the Pentagon after Gates’ departure.

Obama Meets Bush at the White House

Both sides described the White House talks, which lasted just under two hours, as friendly and productive.

Few details were revealed as to their content but Iraq, the financial crisis and the issue of a smooth transition had all been expected to come up.

Meanwhile, reports suggest Mr Obama is set to tackle the Guantanamo Bay issue.

Mr Bush and Mr Obama hold talks in the Oval Office
The talks were the first time Mr Obama had stepped inside the Oval Office
The incoming president has already indicated he could reverse controversial Bush administration policies soon after he takes office on 20 January.

On Thursday his transition chief suggested executive orders on issues such as stem cell research and oil drilling could be repealed.

The latest reports suggest his team is putting together a plan under which detainees in the widely-condemned detention camp in Cuba would be released or transferred to the US.

'Broad discussion'

Mr Obama and his wife, Michelle, both visited the building that will be their home for the next four years.

The incoming and outgoing presidents shook hands before heading to the Oval Office - Mr Obama's first visit to the famous seat of power.

First Lady Laura Bush, meanwhile, gave Mrs Obama a tour of the personal quarters of the White House.

Mr Obama and Mr Bush walk to the Oval Office

In pictures: White House meeting

Both men had taken care to speak respectfully about each other ahead of the talks - arranged, analysts say, with unusual haste because the US is at war and because the transition is taking place in the midst of an economic crisis.

Afterwards a statement from the president-elect said the discussions had been wide-ranging.

Mr Bush and Mr Obama "had a broad discussion about the importance of working together throughout the transition of government in light of the nation's many critical economic and security challenges", the statement said.

White House spokeswoman Dana Perino, meanwhile, said Mr Bush had called the talks relaxed and constructive, but declined to comment on specifics.

Stem cell move

Reports from Washington suggest Mr Obama's transition team has been working hard to identify issues where early changes could be made.

Mr Obama's advisers are said to be putting together a plan to release a group of detainees from the Guanatanamo Bay detention centre and to transfer most of the rest to the American prison and courts system.

BUSH DECISIONS UNDER FIRE
Limited federal funding for medical research using human embryo stem cells
Aid groups receiving US aid barred from counselling women about abortion availability
California barred from imposing minimum standards of vehicle fuel efficiency
Utah land being opened up for oil and gas drilling

A third group who cannot be tried in public because of national security concerns could, reports the BBC's Justin Webb, be brought before a new court designed specifically for the purpose of dealing with them.

The Washington Post newspaper, meanwhile, reported that transition officials had compiled a list of some 200 executive orders to be considered.

Mr Podesta has said executive orders on stem cell research or oil drilling in Utah can easily be repealed, as no congressional action is needed.

The Washington Post said other orders affecting environmental legislation and abortion issues were also under consideration.

"There's a lot that the president can do using his executive authority without waiting for congressional action, and I think we'll see the president do that," Mr Podesta said.

Potential plans for a last-minute rush of executive decisions by the White House were also being watched carefully, he added.

Afghanistan a top challenge facing Obama

Afghanistan will be one of the toughest complication facing Obama during his presidency. The next president will have to confront the Taliban, a terrorist group that before controlled Afghanistan. President-elect Barck Obama will need to come up with a new strategy for a victory in this war.

On his July 2008 trip to the Central Asian nation, where over 30,000 U.S. troops are serving, Obama called the country the "central front" in the war on terror. He suggested a large redeployment from the troops in Iraq to Afghanistan.

NATO commander in Afghanistan, Gen. David McKiernan, has requested up to 20,000 additional U.S. troops for the war. Some have compared this request to the "Surge" in Iraq. The important element of the "Surge" was to increase U.S. presence and to work closely with tribal groups in an attempt to provide security.

What I would like to see, and, I think, what everybody would like to see, is the most rapid possible further expansion of the Afghan military forces because this needs to be an Afghan war, not an American war and not a NATO war," Defense Secretary Robert Gates said Oct. 31.

For the troops on the ground they are already realizing the challenges that face them.

"We're still very much at the beginning phases here," said Capt. Matt O'Donnell, Company Commander with 2nd Battalion, 7th Marines, who mentors and trains the Afghan National Police in southern Helmand Province.

In listing local Afghans is another concern.

"I think we're right there on the turning point, where there's a lot of them but there's not enough," Lt. Clint Harris, serving in Afghanistan with 1st Battalion, 6th Marines says of the Afghan forces. "Once we get over that tipping point, more and more are going to join. And then we can turn the security over to them."

When Obama is sworn in he will be the first president to face the problems of two wars on two fronts. Afghanistan is definitely the more volatile of the two however if the if the Afghan people continue to support the American-led effort there winning this war will be very possible.

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