Obama's 100 days of economic change

By U.S. News & World Report

It's a bit like getting your first report card after just a week of school, but President Barack Obama's first 100 days in office obviously haven't been the usual honeymoon period.

When Obama became president in January, the economy had been in recession for 13 months, with no end in sight. Huge banks like Citigroup (C, news, msgs) were still foundering despite the emergency resuscitation rendered during President George W. Bush's final months. Big companies were announcing four- and five-digit layoffs. The "D" word -- depression -- was being whispered.

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It's impossible to turn around the world's biggest economy in 100 days, but Obama has clearly tried. Since January, his administration has put in place a vast economic-recovery program. The question now is whether it will work.

Here's an early assessment of how Obama has tackled the biggest problems facing the economy:

The housing bust. With so many problems these days, it's easy to forget that the recession began with a massive plunge in housing values -- which continues. And most economists say the economy won't rebound until housing prices bottom out and stabilize. So far, prices nationwide have fallen nearly 30% from their 2006 peaks, with further declines likely through most of 2009.

Obama's action plan: The $75 billion "Making Home Affordable" program to help qualified homeowners avoid foreclosure.

Effectiveness: Questionable. The Obama administration says the program could help 3 million to 5 million homeowners avoid foreclosure, which in turn would help stop the plunge in real-estate prices. But banks have to go along with the voluntary program, and so far it's not clear that enough will. Meanwhile, foreclosure rates continue to rise.

How to tell when it's getting better: When foreclosure rates stop rising and real-estate values stop falling.

Other indicators, such as occasional monthly increases in home sales, can be misleading, because those can reflect foreclosure fire sales rather than normal buying activity. Many potential buyers are waiting for prices to stop falling before committing to a purchase, and they're the ones who will help the housing market become healthy again.

The bank rescue. The much-derided Troubled Asset Relief Program introduced by Bush and then-Treasury Secretary Henry Paulson has accomplished one important thing: It prevented an even worse financial panic than the one after Lehman Bros. (LEHMQ, news, msgs) and AIG (AIG, news, msgs) collapsed last September. Obama's challenge has been to continue propping up some of the most troubled banks, like Citigroup and Bank of America (BAC, news, msgs), wind down AIG and start nursing the financial sector bank to health.

Obama's plan: While continuing TARP, Obama's Treasury secretary, Timothy Geithner, has also introduced the Public-Private Investment Program to start buying up to $1 trillion in "toxic" assets from the banks. Unwinding those money-losing securities is essential for the banks to write off their losses, return to profitability and start lending normally again.

Effectiveness: It's too early to tell. TARP has helped stabilize some banks, and a few may even start paying back the money they've gotten from the government. As for PPIP -- designed to help the most troubled banks -- it won't get fully under way until early summer, and there's no guarantee it will work, despite generous government subsidies.

How to tell when it's getting better: When banks start paying back their bailout money, and the Treasury Department says no more banks will need a bailout. But it could get worse before that happens. And it's still possible the government may have to completely take over a few big banks, which would be a clear sign that the PPIP didn't work.

The credit crunch. When Wall Street cratered last fall, banks essentially stopped lending to businesses and consumers alike. They've eased up a bit since then, as the financial sector has slowly started to stabilize. But lending is still down sharply, partly because consumers are reluctant to spend and they've stopped asking for loans.

Obama's mission is to make the banks more comfortable taking reasonable risks, to help boost consumer spending and keep capital flowing to businesses.

Obama's plan: The $200 billion Capital Purchase Program -- an offshoot of TARP -- injects money directly into banks, so they'll have more reserves against which they can lend. The Federal Reserve's Term Asset-Backed Securities Lending Facility -- lovingly referred to as TALF -- is a $200 billion effort to restart the secondary market for many kinds of loans, ultimately making more funding available to consumers.

Effectiveness: Moderate. These programs are less visible than the AIG or auto-company bailouts, but they seem to be helping. Borrowers with good credit, for example, now have an easier time getting loans.

How to tell when it's getting better: A key sign of success will be the availability of loans, at reasonable rates, to people with fair or even subprime credit ratings. Many such borrowers still can't get mortgages or car loans at any interest rate, which impedes normal economic activity. Many small businesses are shut out, too, and desperate for capital in order to survive.

The stimulus plan. To counteract the cutback in consumer spending and jump-start the economy, Congress in February passed the $787 billion American Recovery and Reinvestment Act.

Obama's plan: The biggest chunk of the money, about $288 billion, goes to tax cuts. Another $280 billion will go to states and municipalities to spend on infrastructure projects, Medicaid programs and expanded unemployment benefits. Lesser amounts will go toward health care reform, green energy initiatives and other projects.

Effectiveness: Too early to tell. The tax cuts might sound big, but they amount to only an extra $67 per month for the biggest beneficiaries. That's a lot less than the average household income has fallen during the recession, and probably not enough to boost spending by much.

The rest of the spending will take months or even years to filter into the economy. A recent Government Accounting Office report found that most states are off to a slow start in terms of applying for funds, with only about $50 billion due to be delegated by Sept. 30. The bulk of the funds won't get spent until 2010, at the earliest.

How to tell if it's working: When the economy stops shrinking and starts growing.

The U.S. gross domestic product has fallen for three consecutive quarters, and the International Monetary Fund predicts that the U.S. economy will shrink by 2.8% in 2009 and stagnate in 2010. Anything better than that probably represents success for Obama's stimulus plan.

Continued: Most decisive act of governance

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