Information Security & US & Life & Love & Fashion & Hacking & Passion

Wall Street rose modestly in light post-holiday trading Friday, but was still cautious about embarking on a year-end rally following dreary preliminary readings on holiday spending.

Not surprisingly, Americans spent much less on gifts this season than they did last year, according to SpendingPulse, a division of MasterCard Advisors. Retail sales dropped between 5.5 percent and 8 percent compared with last year, the data showed, or between 2 percent and 4 percent after stripping out auto and gas sales.

Personal consumption is a huge part of U.S. economic activity - comprising more than two-thirds of gross domestic product - so Wall Street is nervous that a more frugal consumer could keep the economy weak in 2009.

Investors did get a some good news on Christmas Eve, when the Federal Reserve allowed GMAC Financial Services - the finance arm of struggling Detroit automaker General Motors Corp. - to become a bank holding company and thus qualify for the government's $700 billion rescue fund. Analysts had said that without financial help, GMAC might have had to file for bankruptcy protection or shut down

But so far, with just four trading days left in the year, no news has been upbeat enough to spark a year-end rally on Wall Street. December is usually a strong month for the stock market, with a flurry of trading known as a "Santa Claus rally" often seen in the month's final week.

In early trading, the Dow Jones industrial average rose 40.54, or 0.48 percent, to 8,509.02.

Broader stock indicators also advanced. The Standard & Poor's 500 index rose 4.18, or 0.48 percent, to 872.33, and the Nasdaq composite index rose 3.98, or 0.26 percent, to 1,528.88.

Trading volumes are expected to be extremely low on Friday as they were earlier this week. When trading is light, stock movements are often not indicative of broader market sentiment. Friday is also likely to be a quiet day of trading because there are no major economic or corporate reports scheduled.

Stocks have ended a choppy day mixed as investors remain uncertain that a $17.4 billion lifeline for automakers will make a lasting difference for the beleaguered industry.

The Dow rose by as much as 182 points in the early going, turned lower at midday, recovered in the afternoon but then lost ground again in the last hour of trading.

Investors are relieved that the White House's efforts have staved off a bankruptcy that could have sent a blow to the economy, but they're worried that the conditions of the financing might be difficult for GM and Chrysler to meet.

At the close, the Dow is down about 25 points to the 8,579 level. The broader Standard & Poor's 500 index and Nasdaq composite index are up less than 1 percent.

Copyright 2008 Associated Press. All rights reserved. This material may not be published broadcast, rewritten, or redistributed

The White House and congressional Democrats yesterday reached an "agreement in concept" on a measure that would throw a government lifeline to the faltering Detroit auto industry but require the auto giants, their workers and creditors to quickly negotiate a plan to achieve profitability or face the prospect of bankruptcy.

The agreement calls for the government to speed $15 billion in emergency loans to the car companies as soon as next week, and for President Bush to immediately name a car czar to oversee the bailout. Under the agreement, the car czar would be required to revoke the loans unless the companies proved by March 31 that they were implementing a plan to achieve "a positive net present value," according to a senior administration official who spoke on condition of anonymity because final language was still under discussion.

Under the measure, if the firms fail to make progress, the car czar would be required to submit to Congress a new plan to restore them to financial viability, the official said, including the option of Chapter 11 bankruptcy protection. If no plan for the long-term survival of the companies were to emerge, the firms would be ineligible for any additional federal assistance.

The official said the agreement would create "three very serious sticks to ensure that this is truly what it was intended to be: bridge financing for firms that have a plan and a path to become competitive," rather than becoming "the first in a number of interminable loans that these guys can get to avoid making the hard choices."

The agreement cedes to the Bush administration its central demand that the auto giants move immediately to make changes in their operations or lose government funding. It would also ensure that the car companies would be held to a tough standard after President-elect Barack Obama takes office.

Last night, the agreement was still being drafted into legislation, which would be subject to review by both sides. But the official said "there's an agreement on the concept and the way forward" between the Bush administration and Democratic lawmakers.

House leaders said they would hold the first vote as soon as today. Still unclear was whether the plan would be accepted by congressional Republicans, whose support is crucial to pushing it through the closely divided Senate. Yesterday, a growing list of Republicans voiced opposition to the compromise.

Some Republicans said they were annoyed that they had been excluded from the negotiations. Others raised more fundamental objections, saying the plan didn't go far enough to compel the auto giants to make painful changes in their operations and to ensure that taxpayers are repaid. As the White House began working to shore up GOP support, Sen. John Ensign (R-Nev.) said he plans to use Senate rules to block the measure, which could delay a vote in the Senate until early next week.

"Unless major changes are made that I can be convinced of, it would take a lot for me to move off where I am," said Ensign, who expressed skepticism toward the idea of investing vast powers in an auto czar.

Senate Majority Leader Harry M. Reid (D-Nev.) acknowledged the brewing battle in remarks on the Senate floor, but vowed to press ahead, even if it means keeping senators in Washington through the weekend. "We're going to have a vote on this sometime. We can either have it sooner or we can have it later," Reid said. "We cannot let a few people stop us from doing the people's business."

Until new members take office in January, Democrats have at best a 50-to-49 edge in the Senate, because of President-elect Barack Obama's resignation. It was unclear yesterday whether Obama's vice president, Sen. Joseph R. Biden Jr. (D-Del.), would cast a vote on the auto bill, meaning Democrats may need as many as 11 GOP votes to prevail over filibuster threats. A spokesman for Obama's pick for secretary of state, Sen. Hillary Rodham Clinton (D-N.Y.), said she would be available for the vote.

The legislative maneuvering came as Democratic negotiators and White House officials were signing off on the final details of an agreement to speed $15 billion in emergency loans to the car companies as soon as next week -- less than half the $38 billion General Motors, Chrysler and Ford had been seeking. The money is intended to keep GM and Chrysler afloat through the end of March. Ford has said it does not expect to need the money immediately.

Under the proposal, the government would get warrants for equity equal to at least 20 percent of the loan it provides to each firm. Bush would immediately name a car czar or trustee to manage the bailout and set broad goals for the industry in January. By March 31, the companies would be required to submit detailed proposals for cutting costs, restructuring debt and producing fuel-efficient vehicles that can succeed in the marketplace. Otherwise, the car czar could demand immediate repayment of the loans, a move that would effectively force the firms into bankruptcy.

In talks yesterday, Democrats bowed to the White House on a series of key demands, including that the car czar be allowed less discretion over whether to extend long-term government assistance to the car companies. A senior Democratic aide said the measure was being redrafted to make clear that the car czar would be required to recall any federal loans or to deny additional government support to the companies if they fail to meet certain benchmarks on the road to financial solvency.

Democrats also agreed to increase the size of the investments, asset sales or other transactions that must be reported to the car czar from $25 million to $100 million. The provision is intended to prevent the firms from using taxpayer dollars to make investments abroad, but the Bush administration argued that the lower figure would amount to "micromanaging," according to Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, whose staff was leading the talks for House Democrats.

Democrats kept a provision, opposed by the White House, that bars car companies that accept federal cash from pursuing lawsuits against California and other states trying to implement tailpipe emissions standards that are tougher than the federal guidelines.

Republicans say the move would undercut the automakers' profits, but Sens. Dianne Feinstein (D-Calif.) and Bill Nelson (D-Fla.) said yesterday in a letter to Reid that GM and Ford have laid out business plans indicating that they already intend to exceed the California fuel economy standards within the next few years.

The administration official warned that if the provision stays in the measure, "it will not succeed."

Democrats also were pressing to include a provision stating that if the loans fail to save Chrysler from bankruptcy, the government could recover its money from Cerberus Capital Management, the private-equity firm that owns 80 percent of Chrysler's stock.

The White House was balking at that idea, congressional aides said. But even some Republicans are troubled by the possibility that public dollars could wind up in Cerberus's well-capitalized hands.

Yesterday, Sen. Charles E. Grassley (R-Iowa) said taxpayers should not pour cash into Chrysler if Cerberus was unwilling to do so. Grassley also objected to an unrelated provision in the developing measure that would enable transit agencies, such as the Washington area Metro, to continue benefiting from a financial arrangement that amounts to a tax shelter for foreign institutions.

"Taken together, these issues are a one-two punch. They insult the taxpayer by propping up tax evasion, and they insult every American feeling the brunt of the economic crisis by putting tax dollars on the line where private equity investors refuse to put any of their own money at risk," Grassley said in a statement.

In a statement, Cerberus said that it had "worked tirelessly to assist Chrysler" and would "continue to provide Congress with full transparency as to its financials."

Detroit automakers hoping for a government lifeline got it Friday night when Speaker of the House Nancy Pelosi said she would support a $15 billion loan from a fund already approved by Congress aimed at retooling factories to make fuel-efficient vehicles over the next several years.

Pelosi had been against the measure, bolstered by environmental advocacy groups. Opponents were concerned that automakers would use the money for normal operations and not deliver on requirements to develop vehicles that are at least 25% more fuel-efficient than the ones they market today.

But with job losses mounting in the U.S., many members of Congress are feeling pressure not to let the automakers go bankrupt even though most of their constituents do not favor a bailout for Detroit.

CASCADING BANKRUPTCIES POSSIBLE
Estimates are that if one automaker went into insolvency, it would cause a cascade of bankruptcies in the auto sector that could cost up to 3 million jobs. The U.S. lost more than 500,000 jobs in November alone.

The funds that would be tapped for the car companies were appropriated in the 2007 energy bill, and were meant to be disbursed by the Energy Dept. over time as each automaker qualified for the loans. "We will not permit any funds to be borrowed from the advanced technology program unless there is a guarantee that those funds will be replenished in a matter of weeks," said Pelosi (D-Calif.). How that would be accomplished is still under debate.

It was clear on Friday, after two days of hearings in front of the Senate Banking Committee and House Financial Committee, that Congress did not have the votes to appropriate new funding for a Detroit bailout, especially during a lame-duck session.

ENCOUNTERING "BAILOUT FATIGUE"
Over the last month, Congress, the public, and the media have been highly critical of the way the Treasury Dept. has overseen payouts to commercial and investment banks from the $700 billion Wall Street bailout package Congress passed in October. Representative Barney Frank (D-Mass.), chairman of the House Financial Services committee, said the public has "bailout fatigue."

Despite the intent of the package, which was to loosen lending to businesses and consumers, the credit markets remain tight. Banks have used the money for other functions, such as dividend payments, salaries, and even, in some cases, executive bonuses.

The automakers came to Washington asking for $34 billion, on top of the $25 billion loan package that was part of the energy bill. General Motors (GM) said it needed $4 billion by the end of the year to avert a financial meltdown, and Chrysler requested $7 billion, saying it would be at the minimum cash levels it needs to survive by the New Year. Chrysler on Friday retained a law-firm that specializes in Chapter 11 bankruptcy.

VOTE LIKELY THIS WEEK
Ford (F), in a better cash position, said it could likely weather the recession in 2009 without loans, though it asked for a $9 billion line of credit as an emergency fund. Executives with knowledge of the negotiations on Friday said Ford would probably not tap the loan money Congress is likely to approve next week.

Originally, Congress said it would meet Monday to vote on a bill if one came together. The vote will now take place later in the week, assuming the language of the bill is worked out to Pelosi's liking.

Chairman of the Senate Banking Committee Christopher Dodd (D-Conn.) has maintained that the Bush White House and Treasury have had the power to release funds from the $700 billion Wall Street fund. That assertion was backed up by the Federal Comptroller last week during hearings. But the White House has argued that the bill cant be interpreted to help automakers.

LONG-TERM RESTRUCTURING REQUIRED
Congressional Republicans have also signaled for a month that the only money they would vote to the automakers would be from the energy bill fund already appropriated.

The bill that Congress is expected to vote on next week is meant to give Congress time to work out a longer-term restructuring of the U.S. auto industry with the Obama Administration that will likely result in as much as $100 billion in loans being appropriated.

That money would come from either new legislation, or a combination of funding sources including the Wall Street bailout fund, $350 billion of which Obama's White House will administer. An auto industry "trustee" is likely to be appointed to regulate the payout of the money and how it is spent.

GREATER OVERSIGHT OF AUTOMAKERS
But all that help won't come without sacrifice. Company management will have to agree to tight oversight. They also will be forced to drop any opposition they have mounted in recent years to tighter fuel economy and emissions regulations. The United Auto Workers will likely have to make greater wage and benefit concessions for workers and retirees. And bond holders will likely be compelled to either write down as much as two-thirds of their investments or swap the debt for equity in the car companies.

Several Capitol Hill staffers on Friday said they also believed the government would probably try and facilitate a consolidation of GM and Chrysler, which had been talking about a merger two months ago before their financial conditions so drastically worsened.