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JOHN YDSTIE, host:

I'm John Ydstie, and this is Tell Me More from NPR News. Michel Martin is away. Coming up, a record number of layoffs has left many workers struggling to figure out their next steps. But what happens when it's your friend who has gotten the pink slip? Our culture coach gives us some tips in a few minutes.

But first, President Barack Obama signs his economic stimulus plan into law today. Even the most ardent backers of the $787 billion package are warning Americans not to expect instant relief from the economic crisis.

So, what can we expect from the stimulus package as individuals, and what will it mean for the economy overall? Joining us to talk about that is regular Tell Me More personal finance contributor Alvin Hall. Also with us is Marcus Mabry, the international business editor for The New York Times and Sylvia Maxfield, associate professor at the Simmons College School of Management in Boston. Welcome to all of you.

Mr. MARCUS MABRY (International Business Editor, The New York Times): Hello.

Dr. SYLVIA MAXFIELD (Associate Professor, Simmons College School of Management, Boston): Thank you.

ALVIN HALL: Glad to be here.

YDSTIE: Alvin, before we talk about the stimulus package, let's talk about the auto industry, briefly.

HALL: Yes.

YDSTIE: Both Chrysler and General Motors face a deadline today to present a plan to repay multi-billion dollar loans from the federal government. Do those companies have viable plans to get out of trouble?

HALL: No one believes that they do. They think that they're still struggling, and they're going to come to the government today to ask for more money without any definite plans in place because the industry has continued to contract, people are still not buying cars, and I think they are just flailing around like Shelley Winters in "The Poseidon Adventure," trying to stay afloat.

YDSTIE: Now they're trying - they're just presenting plans today. This isn't the drop-dead date for them, right?

HALL: No, it's not the drop-dead date. They were supposed to present a reasonable plan today or something with details. No one believes that they are going to be able to do that.

YDSTIE: Marcus, some observers say that bankruptcy is the only viable option for the domestic car industry right now. How do the markets view that industry's future?

Mr. MABRY: Well, the market views the industry future incredibly bleakly, and it'd be hard for them to view it more bleakly actually. The market has already discounted the future of these guys greatly. I think the interesting thing is, and Alvin really hit on it, is how could expectations have ever been different, given the fact that no one is buying vehicles? Given the fact that we know unemployment is going to increase this year before it stabilizes and starts to improve. And so, why would anyone start to go out and buy vehicles?

So, that's some things that even go beyond the years and decades of poor management and poor innovation in Detroit. So, the problems at this point are so much larger than they are, I couldn't imagine anyone expecting really more for them at this point.

YDSTIE: Well, Marcus, can you expect that the government would basically turn its back on these companies and this industry completely?

Mr. MABRY: That's a great question, John. The fact is that whatever the economic and business realities of the situation, there are political realities as well, and the Obama administration certainly cannot afford to turn its back on, you know, Michigan, Illinois - these are the industrial states of the northern Midwest who are very important to its coalition going forward.

So, I think we can expect greater relief for them and purely, again, on political grounds rather than economic or business grounds, that is going to turn them around. It's going to be interesting to see, however, what the Republicans do, and if they have the power, at some point, to put the brakes on this thing.

YDSTIE: Sylvia, let's talk a little bit more about the stimulus package. The jobs associated with the auto industry spread far beyond just Ford and GM and Chrysler into suppliers and beyond that. Are there provisions within the stimulus plan that would offer these workers assistance or help them transition into another industry?

Dr. MAXFIELD: Well, there is job retraining money in the stimulus package. The stimulus package also, you know, will allow unemployed workers to keep health care benefits if they don't have COBRA coverage. So, the package includes some assistance. It's not going to help the economic situation in the states. There's nothing in this package that is going to mean we have lots of new jobs in the next 12 to 18 months for these people to take. So, it'll take time.

YDSTIE: Yeah, I guess what the plan may do is keep layoffs from happening in a number of areas in these states, but in terms of creating new jobs, not likely.

Dr. MAXFIELD: That's correct. I - you know, predominantly I think that the - education is the biggest sector where layoffs would be prevented from happening. You know, a lot of this stimulus package goes directly to fill holes in state budgets. So, we won't see the extent of layoffs among state workers or among teachers.

YDSTIE: Alvin, what is the first area of the economy that's likely to see an impact from this plan? Is it the state budgets?

HALL: Absolutely. The states are bleeding red ink at the moment. Most states are running out of money. If the government does not give them that money, then they will not be able to meet their obligations which are only increasing over time.

YDSTIE: And in terms of unemployment compensation, basically what we're seeing is an increase in the level of that, as I understand it, and then an extension. Is that correct?

HALL: Yes. An extension, I think it's up to what - to 33 or 26 weeks. But the thing that I found interesting in that package was the COBRA coverage - that the government would subsidize COBRA to up to 65 percent. I spent last night online, going from Web site to Web site, looking for how this would be implemented.

Are they going to ask the unemployed workers to put up the full COBRA coverage and then deduct or get a tax credit for 65 percent? Or do the workers put up the 35 percent, which is a much lower number? If you are an unemployed worker, struggling to make ends meet, you only want to pay that lower number.

YDSTIE: Right and you may not have the means to pay 65 and wait for that tax credit.

HALL: Exactly. But going to so many Web sites last night, I found no clear indication of how that's going to work, not even at the White House Web site.

YDSTIE: If you're just joining us, you're listening to Tell Me More from NPR News. I'm John Ydstie, and we're talking about the new economic stimulus package with financial experts Alvin Hall, Marcus Mabry and Sylvia Maxfield. Marcus Mabry, how has Wall Street reacted to the provisions of this stimulus package?

Mr. MABRY: Well, you know, it's interesting because on Wall Street, you know, we - there's an old saying that the market moves on the rumor then doesn't do anything on the actual news of an event. And so, when it looked like there was going to be a massive stimulus, you know, near to a trillion dollars, Wall Street was very happy about it.

When it looked like there was going to be a huge, massive bank bailout to shore up our financial institutions and sector, which had been greatly weakened, Wall Street was very happy about it. When we actually saw details (laughing) of either one of those things, however, Wall Street was not happy. When the news actually came, as opposed to the expectation, Wall Street greeted it with a somber kind of despondency.

And so, what we've seen as the market moved, you know, sharply lower since Tim Geithner came out and gave the details, for instance, of the bank bailout plan, and so we're - you know, we're talking about multi-trillion dollars here between the stimulus package on one hand, meant to get the economy going, meant to improve infrastructure, create some jobs, protect other jobs.

And then on the other hand, this bank bailout deal, which is meant to shore up our financial sector because you can't stop - this economy is rolling down the hill like a gigantic snowball that's getting bigger and bigger as it goes, accelerating, going faster down the hill. And you can't stop that snowball from going down the hill until you have a financial sector which is strong enough and confident enough to lend money to keep the wheels of commerce turning so companies and individuals can invest in our lives and grow.

Until you do that, then the economy is going to continue to contract and go down the hill. And so, until you put a floor on this somewhere, whether it's housing prices, whether it's job losses, whether it's Wall Street and the financial sector regaining their confidence to actually lend their money. Right now, they're hoarding the hundreds of billions they've been giving. They're hoarding it. They're keeping it to keep themselves safe in case there's a run on their banks, in case they have more bad assets that no one will take, that the government won't take or private investors won't take.

And so, right now everyone is in a defensive posture. You cannot grow an economy, you cannot end a recession and come out of it until you actually get out of that defensive crouch. And so, right now, you know, Wall Street could not be more despondent. And I think since we've seen horrible numbers on economy growth, extraordinarily bad numbers coming out of Japan over the weekend, we've seen similar numbers coming out of other parts of Asia, Europe is worse off than we expected as far its own contraction, I think the market will continue to move sharply lower.

YDSTIE: Speaking of driving the economy and trying to get growth restarted, again, Alvin, America has been a consumer-driven economy for decades.

HALL: Yes.

YDSTIE: And consumer confidence is really hurting right now. Even if this package does revive the economy by some measures, at what point do Americans feel secure enough to start spending, again?

HALL: They won't feel secure enough to start spending again until they feel their jobs are safe. As long as they see layoffs in industries related to theirs, they all think, well, if this is happening over here, there could be an echo effect, and I'll be affected by it.

So, the government and Congress needs to focus on job stability, making sure, as Marcus put it, that there's a bottom to this somewhere, that people feel that the jobs we have will not be cut. They can put $8 a week into anyone's paycheck. And if you don't feel secure, you're not going to spend even that $8 a week on a night out at Denny's. You won't do it.

YDSTIE: So, the key is really to get these jobs numbers settled down, so we don't see a half a million job losses a month.

HALL: Yes, but we all know that the chances of the government being able to stop that at this point is pretty slim. Chances are very strong that by the summer the job losses will exceed 600,000 in the next quarter. You can see that train coming down the track. Somehow, the government needs to convince businesses to at least slow down those layoff numbers so that the individuals will feel safer and then, maybe, they will start to spend.

But John, I think that this economic crisis has really refocused people on saving. People who used to live on credit, whether it was second mortgages or credit cards, now feel, I need to have cash in the bank. I can no longer depend upon credit. Why? Because the banks may suddenly take it away from me, and I will have no safety net.

YDSTIE: The irony is that if people had been saving a bit more in the last few years, we'd have had less of a boom. And now we need them to spend, and everybody wants to save. So, what's good for the individual is not good for the whole economy.

HALL: Exactly, but the lower boom wouldn't have been so bad. I mean...

YDSTIE: Exactly.

HALL: We had an extraordinary time of growth and prosperity in America. It was delusional. I was talking to a friend yesterday, and she described the day she was walking down in SoHo, and she saw a $2,200 pair of Chanel boots in the window, and she had just gotten a check for selling a piece of art, and she went and bought those boots (laughing). A pair of $2,200 Chanel boots...

YDSTIE: Wow.

HALL: Is delusional spending at any level, but she felt really comfortable to do that. Now that her husband is about to be laid off, and her income has shrunk tremendously, she looks at those boots, she said. and all she thinks is one word - eBay.

(Soundbite of laughter)

YDSTIE: We've got lots of problems that we face, and we're going to pause for a moment. We're talking about the impact of the economic stimulus plan with our guests Marcus Mabry, Alvin Hall, and Sylvia Maxfield.

After the break, we'll speak more about reforming the financial services industries and the housing market. Please stay with us on Tell Me More from NPR News. I'm John Ydstie.

(Soundbite of music)

YDSTIE: I'm John Ydstie, and this is Tell Me More from NPR News. Michel Martin is away. Coming up, our culture coach helps us with tips for talking to friends and colleagues who have just suffered a layoff.

But first, we continue our conversation about the economy and the stimulus package. We are joined by our regular personal finance contributor Alvin Hall, Marcus Mabry, the international business editor for The New York Times, and Sylvia Maxfield, associate professor at the Simmons College School of Management in Boston.

Sylvia Maxfield, Republicans in Congress largely refused to support this package. In part, they argued that there ought to be more emphasis on tax cuts and less on spending because it would be more effective in stimulating the economy. What can you tell us about the level of tax cuts in the final package, and who can expect to benefit, and whether they'll be helpful for the economy?

Dr. MAXFIELD: There's 282 billion in tax cuts for individual and businesses. Actually, the percentage of tax cuts, relative to spending, is not too far off what the Obama team had said that they wanted. You know, the stimulus package, to a large extent, I think is politics. So, the Obama administration needs to give something to Main Street before they give more to Wall Street.

And I think a piece of this story that's been missed is that consumers were buying cars, buying education, some people think as much as 75 percent of consumer spending was essentially being financed by securitization. So, it wasn't even that you went to the bank and took out a loan. You were borrowing, and that debt was being securitized and sold on by investment banks. So, ...

YDSTIE: So, you were borrowing from investors around the world really, not just from your local bank.

Dr. MAXFIELD: Correct. And so, we're not going to solve this problem with an $800 billion stimulus package. That's going to perhaps help to begin to put a floor under consumer confidence and job loss, combined with the housing package that we're going to hear about in a couple of days. But ultimately, we're not going to start to be comfortable spending, really, until we have the banking problem solved.

YDSTIE: Alvin Hall...

HALL: Yes.

YDSTIE: Last week, Treasury Secretary Timothy Geithner unveiled the administration's blueprint for the second half of the TARP plan for rescuing the financial industry.

HALL: Yes.

YDSTIE: To make a bit of an understatement, it was not well received. In fact, the markets tanked in response to the lack of detail in Geithner's rescue plan. So, Alvin, one week later, does it look any better?

HALL: Not really (laughing), if you ask my honest opinion. I think they're really struggling to undo the expectations that Paulson's policies put into place among Wall Street bankers. I think Paulson, given the way he handled that original money by shifting it and giving it to the banks without actually buying up the assets, he created the expectation on Wall Street that those good money days would continue a bit longer, maybe not as obvious, but somewhat quiet they'd still be able to get their bonuses. Now, they want to use the money to actually buy up the assets, and Wall Street is saying, what about us?

YDSTIE: Mm-hmm(ph).

HALL: And I think, one does not feel that the public or the market really believe that they're going to be able to actually use this money to buy up those assets, that they will encounter some resistance.

YDSTIE: Sylvia Maxfield, you're a former investment banker, what do you think? Does this plan look any better or does this idea, this broad idea, a public partnership that Geithner has talked about - look any better a week later?

Dr. MAXFIELD: The good news is Geithner, I guess, was well received at the G7 meetings this weekend. So, the news reports coming out of that were very interesting, suggesting that perhaps there weren't as many details because the administration didn't want to scare the markets. This is very politic. It's all about what price do you put on those assets, and, you know, the minute you let details out then people can start their calculators going and figure out actually which banks are closer to being insolvent than others.

The other piece of good news, though, is that the number that they were talking about, two trillion, is about the right number. Estimates are somewhere between 1.5 and two trillion of bad assets and mark-to-market loan losses. So, that two trillion number ought to be a little bit reassuring.

But the devil here is in the details, and I got to tell you that this is a chicken and egg problem. The stress testing was really scary for the markets that they were talking about. They didn't give any details, and you know, it's supposed to be transparent, and very quickly - if it is transparent - that's going to reveal which banks are closer to being insolvent and needing to effectively be nationalized.

YDSTIE: So you think that's the part of it that really scared the market?

Dr. MAXFIELD: Well, what scares the market is the fact that Paulson played bank by bank, and it was favoritism. So, you know, Lehman went under. Why did Lehman go under? We don't really, you know, know that Lehman was any less solvent than Merrill Lynch was so, ...

YDSTIE: We should say that you're a former Lehman employee.

Dr. MAXFIELD: Yes, that's correct.

YDSTIE: I presume you lost your job in that mess?

Dr. MAXFIELD: No, I left Wall Street a while ago. I did lose all the stock that I held on like a good, loyal Lehman employee. I had - on September 15th, I had that stock in my portfolio. But in any case, what we need is to know that there's going to be a set of rules that guide who fails and who gets how much money. You know, the perception is that Citi was treated very, very favorably, and that their shareholders were basically given a gift, and that other shareholders were essentially forced to take a huge knock.

All bank shareholders have to take a huge knock here, but the markets are looking for some kind of transparency about the extent of the haircut that they're all going to take. And there was nothing in the Geithner plan that indicated that they had a way of transparently saying this is how we're going to value your assets so we'll know very quickly through this process that this is the capital adequacy of your bank.

YDSTIE: Marcus Mabry, lawmakers have been angry because they say that the banks are not lending to consumers and businesses as a result of the massive financial bailout money they received. How much of that is fact and how much is perception?

Mr. MABRY: Well, you know, it's a little of both. I mean, when the bank chiefs were lined up before Congress last week they actually tossed out numbers proving quote, unquote, you know, that they were lending. And the fact is, yes, they are lending. The question is who are they lending to and under what circumstances, and what are the credit profiles of those people, the risk profiles of those people they're lending to and those businesses they're lending to.

You know, pretty perfect right now, we know that the credit markets are not as loose as they were. We know they were too loose. Part of the problem here is that we had a long party, and everyone had a good time. And it's not, you know, it's not all irresponsible sub-prime borrowers or sub-prime lenders, it's all of us. You know, a lot of us were leveraged highly. There was actually, you know, the argument was that it was smart to leverage a lot, it was, you know, money was cheap, so why wouldn't one leverage a lot. The economy is going gangbusters, job creation was happening. So, why wouldn't you be overleveraged?

Somewhat leveraged became overleveraged when the economy start to tank. There were reversals on all those, you know, happy, sunny indicators that we saw in our economy. So, all of a sudden many people were overexposed who had not been overexposed before. And people used to be looked at as conservatives with their money, or conservative investors certainly looked like, oh, they were the safe bets. They were actually not just conservative, but they were rational or reasonable investors.

So, suddenly, all the rules changed. The only way to get from where we were to where we need to be was, as Sylvia said, a large amount of deleveraging has to happen. That's the only way to get, you know, past the party that we had is to have the hangover. And it's going to be painful, and it's going to last a long time, and it's going to last probably for the better part of this year.

And there's nothing to do about that other than to withstand that pain and to deleverage, to get rid of the debt and overleverage that you have, and to go back to a point in which you operate on a more conservative basis and don't spend more than you have. And that's true for businesses as it is for individuals. It's going to be painful, it's going to hurt the economy in the short term, but in the long run, it's the only way to get healthy, again.

YDSTIE: Well, on that cheerful note we'll end. Marcus Mabry is the international business editor for the New York Times. Alvin Hall is Tell Me More's regular financial contributor. They both joined us from our New York bureau. Sylvia Maxfield is an associate professor at the Simmons School of Management, and she joined us from WGBH in Boston. Thanks to all of you.

Mr. MABRY: Thank you.

HALL: You're welcome.

Dr. MAXFIELD: Thank you.

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