With partisan rancour threatening to blow his economic and financial agenda off course, President Barack Obama will today try to appeal over the heads of members of Congress and shore up public support for his $800bn stimulus plan and a second massive bailout for Wall Street.
The administration has been forced to delay the announcement of new measures to stabilise the fragile financial system, so it can instead make a final sales pitch for a stimulus bill whose passage through the Senate will not now be complete until at least Tuesday.
With his commitment to bipartisan co-operation already being severely tested by the stimulus bill, Mr Obama could face an even tougher test over plans to hand billions of dollars more to the banks, who have become the focus of public fury over the credit crisis. Adding in guarantees that the administration is considering giving, which would put US taxpayers on the hook for future losses on banks' toxic mortgage investments, the total price tag for the new plan could surpass $1trln.
The exact make-up of the rescue package, and Mr Obama's success in selling it to Congress and the American people, could define the infant administration, making this the most important week of his presidency so far.
A frustrated president - whose exasperation with Republican opposition has increasingly shown in public speeches - will hold a prime-time televised press conference this evening, after holding a town hall-style meeting in Elkhart, Indiana, one of the Midwestern cities hit hard by the recession. He will travel to Florida tomorrow for a similar meet-the-people exercise, to telegraph back to Congress the urgency of acting to alleviate the economic pain.
Economists say that the US will only pull itself out of recession when banks are willing and able to start lending again and the housing market stabilises. Congress voted $700bn last October for a Wall Street bailout fund, of which half has been spent so far. The Treasury was this weekend continuing to work on the details, but it is expected that the second half of the money will be used to inject more cash directly into banks and to offer at least $50bn of support to homeowners to stave off foreclosures.
The thorniest problem is how to rid bank balance sheets of the toxic mortgage investments that have wrecked havoc on the financial system. There is no agreement, even among bankers and economists, about how best to do this, but fragile financial markets could react badly if the Obama plan is deemed to be too timid. At the same time, both Republicans and Democrats on Capitol Hill have warned that they will oppose any solution seen as too generous to the banks.
Mr Obama had been hoping to be laying the groundwork for the announcement of a rescue deal this weekend, but instead his aides were still trying to shore up support for the economic stimulus bill.
Larry Summers, head of the White House national economic council, appearing on the Sunday talk shows, said he hoped “closure” would come quickly. “There are huge problems facing state and local governments, and that could lead to a vicious cycle of layoffs, falling home values, lower property values, more layoffs, and we've got to prevent that.”
The House of Representatives passed an $825bn package two weeks ago without a single Republican vote, and Democrats only reached a compromise deal with moderate Republicans in the Senate late on Friday by eliminating more than $100bn of measures, including financial aid for education programs in cash-strapped states. Procedural votes are expected to continue today, with a full vote tomorrow, after which politicians must marry the bills from both houses. The president set 16 February as a deadline for a bill to appear on his desk.
For the administration, the worst outcome would be for the stimulus bill to get dragged into a whole extra row over the Wall Street bailout, something that looks increasingly possible as partisan rancour rises on Capitol Hill.
Republicans have opposed spending measures they describe as “pork” in a way that has apparently taken the president by surprise. He has appeared at times to have imagined that Republicans would drop their fight for small government and tax cuts because of his own victory in November. “I won,” he reminded them at a meeting with the Republican leadership last month. Last week, in remarks that showed his frustration and riled Republicans, he said: “You (hear) the argument, 'well, this is not a stimulus bill, this is a spending bill.' What do you think a stimulus is? That's the whole point."
Democrat Barney Frank, chairman of the House financial services committee, said yesterday: "We had an election last year which had pretty decisive results in the White House, the Senate and the House. And it did say that public spending for improved infrastructure, to keep bridges from crumbling, to keep cops and firefighters working is a good thing