Obama Sticks a Fork in Reaganomics

Let the debating begin. President Obama unveiled his inaugural budget on Thursday, a plan that calls for raising taxes for the wealthy and lowering them for the middle class. It includes spending cuts in agriculture, a new energy tax, oh, and another $250 billion provision for ailing banks. It comes at a cost. The Financial Times calculates Obama's 10-year budget outline showed this year’s deficit quadrupling to $1.75 trillion.

The New York Times hailed the Obama budget as a radical bid to sweep away Reagan-era dogma. The budget, the newspaper said, "would sharply raise taxes on the rich, beyond where Bill Clinton had raised them. It would reduce taxes for everyone else, to a lower point than they were under either Mr. Clinton or George W. Bush. And it would lay the groundwork for sweeping changes in health care and education, among other areas." The Wall Street Journal is less effusive. It points out that even some Democrats are questioning the scope of the Obama budget. Their grievances include cuts to agriculture and favored projects and yet more aid for banks. Still, this budget may just breeze through. "Democrats may have an easier time passing the budget than other legislation because, under Senate rules, the key steps in the budget process can't be filibustered, and Democrats have significant majorities in both chambers of Congress," the WSJ writes.

It may be a good thing Obama tucked extra money for the banks in the budget. The NYT and WSJ report this morning that Citigroup reached a deal late Thursday night with Treasury Department on a third bailout. According to the NYT, Uncle Sam will take a stake of 30 percent to 40 percent in Citigroup as "the Treasury Department has agreed to convert up to $25 billion of its preferred stock investment in Citigroup into common stock." The WSJ writes that Citigroup CEO Vikram Pandit is expected to keep his job, but there will be a shakeup of the board. The British government has shown a willingness to go even further to rescue its ailing commercial banks. Yesterday, the U.K. government agreed to inject as much as $36.64 billion into the Royal Bank of Scotland and insure $428 billion worth of toxic RBS assets, the WSJ writes. Lloyds Banking Group could be nearing a similar toxic-assets insurance deal, Reuters writes this morning.

And now to Thursday's big losers. General Motors capped off its "dismal year" with "a $9.6 billion loss in the fourth quarter, bringing its loss for the year to $30.9 billion" and calling into question its ability to operate as a "going concern," the WSJ writes. Putting those awful numbers into perspective, CBNC calculates the carmaker lost $84.7 million a day. Believe it or not, the carmaker has had worse years. The 2007 full-year results were the worst in its 100-year history, the WSJ writes. GM's Rick Wagoner, meanwhile, spent six hours behind closed doors yesterday in Washington pressing Obama officials for a $16.6 billion lifeline, Bloomberg reports. Analysts say that without that government handout, GM's future is bleak. Speaking of bleak, Fannie Mae actually trumped GM yesterday, reporting a fourth-quarter loss of $25.2 billion and a full-year loss of $58.7 billion, the WSJ writes, adding this fun fact: "The loss for 2008 exceeds net income for the preceding 17 years." Freddie Mac, meanwhile, is expected to report a similarly large loss in early March, the newspaper adds. And now to tech, where Dell reported Thursday its fourth-quarter profit was cut in half by falling global demand for PCs. But investors saw something promising in the numbers, sending the shares higher in after-hours trading, Business Week reports.

There was a new development yesterday in the investigation into the alleged $8 billion fraud perpetrated by Texas businessman R. Allen Stanford. According to the WSJ, federal prosecutors arrested Stanford Financial Group's top investment officer, Laura Pendergest-Holt, on charges she misled SEC investigators with her testimony earlier in the month. Pendergest-Holt is the first to be arrested in the case; Stanford and his CFO James M. Davis have yet to be charged as federal authorities continue to investigate whether the Stanford International Bank was operated as a giant Ponzi scheme. MarketWatch.com cites the criminal complaint against Pendergest-Holt, saying she "made several affirmative misrepresentations to the SEC in order to obstruct its investigation."

And, finally, it's been a rough week for the nation's newspapers. Today, the Rocky Mountain News will publish its final edition. Staff were informed only yesterday. The newspaper's owner, E.W. Scripps, announced it would be pulling the plug on the 150-year-old newspaper after a three-month search for a buyer, "leaving Denver, like most American cities, a one-newspaper town," the Washington Post writes.