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European inflation slowed for a second month in September, easing to the lowest rate since April as oil prices extended declines from a record.

The inflation rate in the euro area fell to 3.6 percent from 3.8 percent in August, the European Union statistics office in Luxembourg said today. That matched the median estimate of 39 economists in a Bloomberg News survey.

Oil prices have dropped by more than one-third from their all-time high in the last three months, cutting the cost of gasoline and heating oil. At the same time, stagnating economic growth is reducing the capacity of companies to increase prices. The European Central Bank will probably keep its key interest rate at 4.25 percent on Oct. 2 as it remains “uneasy about inflation,'' according to governing council member Axel Weber.

“The fall in consumer-price inflation shows that price pressures in the region are finally receding,'' said Jennifer McKeown, an economist at Capital Economics in London. “But the ECB has been concerned that core inflation might pick up sharply if wage growth reacts to the still high level of inflation and the previous strength of the labor market.''

Crude oil extended declines today after falling the most in almost seven years yesterday as U.S. lawmakers rejected a $700 billion financial rescue plan. Crude was at $98.34 a barrel at 12:15 p.m. in London, compared with it July 11 record of $147.27.

Wheat, Cotton

In addition to oil, commodities including wheat, cotton and corn have fallen in recent months, dragging the Reuters/Jefferies CRB Index of 19 commodities around 28 percent from its record in July.

The euro fell for a second day against the dollar today, dropping 0.6 percent to $1.4345 as France and Belgium led a state-backed rescue of Dexia SA, the world's biggest lender to local governments.

Companies and consumers have scaled back their predictions for price growth in the euro area as oil prices have declined. A gauge of company selling-price expectations fell to 12 in September from 17 in August, reaching the lowest in 10 months, according to a monthly European Commission survey cash advance. Consumers' outlook for prices dropped to 17 from 22.

A decline in headline inflation next year “is likely to be partly offset by rising core inflation, but this should no longer be an issue from 2010,'' said Nick Kounis, an economist at Fortis Bank in Amsterdam. “Indeed, downside risks to the growth outlook and the implications of weaker growth for the medium-term inflation outlook is likely to increasingly be the focus of the ECB's attention in the coming months.''

`Magic Away'

The ECB aims to keep inflation close to but below 2 percent. In Germany, Europe's largest economy, inflation slowed less than economists forecast this month, according to national data published Sept. 26. Prices rose 3 percent from a year earlier, compared with economists' forecasts for 2.9 percent.

While the ECB is “aware'' that the economy is in a “phase of weakening,'' the economic slowdown “won't magic away the inflation problem,'' Weber said on Sept. 23.

Still, as consumer-price growth eases and growth cools, economists at banks including Societe Generale and BNP have revised their predictions for ECB interest rates.

James Nixon, an economist at Societe Generale in London, on Sept. 26 forecast three quarter-percentage-point cuts in 2009, revising a previous forecast for rates to remain unchanged throughout next year.

Wattret at BNP also forecast three rate cuts next year in a note this month, having earlier predicted no change. Both see the benchmark rate being lowered to 3.5 percent in 2009.

The figures published today are an estimate. The statistics office will publish a detailed breakdown of the data and the core rate on Oct. 15.

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Capitol Hill negotiators spent Friday working on details of a $700 billion financial rescue plan while President Bush and leading lawmakers offered assurances that Congress and the administration would get a deal done.

"I believe great progress is being made. We won’t leave until we have legislation signed by the president," said House Speaker Nancy Pelosi, D-Calif., told reporters late Friday afternoon.

President Bush, a few minutes after the U.S. stock markets opened on Friday, said he was certain a bill would get finished. "The legislative process isn’t pretty, but we are going to get a rescue package passed," he said.

Bush summoned lawmakers and the presidential candidates to the White House on Thursday to rally consensus behind his plan. Instead, the meeting revealed a deep split between Democrats and House Republicans. Late-night talks between lawmakers and Treasury Secretary Henry Paulson failed to result in an agreement.

On Friday morning, Republican presidential nominee John McCain, R-Ariz., was in talks with House and Senate Republican leaders to see if an agreement could be reached. Some in the GOP were pushing a hybrid plan that contained elements from the administration’s proposal to buy toxic assets from banks and principles laid out by House Republicans.

House Republicans say they want Wall Street to pay for its mistakes in a "workout" - not a bailout by taxpayers.

Meanwhile, Senate Democratic leaders were angry that the debate had gotten entangled by presidential politics. They said they had come close to working out an agreement with House Democrats, Senate Republicans and one leading House Republican, Spencer Bachus, R-Ala.

"It’s fair to say we’re making progress," said Senate Majority Leader Harry Reid, D-Nev., on Friday morning. "The time is now for House Republicans to come to the negotiating table and for presidential politics to leave the negotiating table. Insertion of presidential politics has … been harmful."

Late Friday morning, House minority leader Rep. John Boehner, R-Ohio said he was sending a House Republican to the bipartisan discussions on the Hill.

House and Senate leaders say they want the bill to gain bipartisan support because it represents such a big policy effort for the U.S. government. They also lack the necessary votes to pass it without Republicans on board, Pelosi said. Some members still object to the fact that the bill lacks provisions that would allow the government to recover the rescue’s costs or allow bankruptcy judges to modify the primary residence mortgages of filers, she explained.

Late Friday afternoon, House Financial Services Chairman Barney Frank, D-Mass., told reporters that the staffs of both parties from the House and Senate were negotiating the legislation.

The core of the bill, he said, was the proposal put forth by Paulson that would allow the Treasury to buy up to $700 billion in troubled mortgage assets from financial institutions to free them up to start lending again.

House Republicans had rejected that core on Thursday, calling instead for the government to insure financial institution’s mortgage-backed securities and for those institutions to fund the insurance through premiums.

Frank said that adding an insurance provision "has been an option payday loan low fee. But there would be no point in participating [in Friday’s negotiations] if you didn’t accept the premise of the Paulson plan."

A call for comment from House Minority Whip Roy Blunt, R-Mo., who is representing House Republicans in the negotiations, was not immediately returned.

Many other elements of the legislation were agreed to in principle by negotiators on Friday, Frank said. They include the need for curbs on executive compensation, the need for significant oversight, the right to seek warrants for equity stakes in the companies that sell troubled assets to Uncle Sam, and restrictions on how the $700 billion would be made available to Treasury.

A Democrat close to the negotiations told CNN that while it seems likely the Senate might not vote on any bailout bill ’till Wednesday, a Sunday night vote is still possible. The timing of any House vote is unclear.

This same source says there’s no reason the final deal can’t include language that allows Treasury Secretary Henry Paulson to put some money into an insurance program - as House Republican have proposed.

The Democrat says Congress will not authorize the full $700 billion expenditure at once, instead it will authorized in phases. Other Democratic members say the amount of the initial allotment continues to change.

Staff level negotiations are ongoing and could continue through the night. The principal negotiators will meet again Saturday.

CNN’s Jessica Yellin contributed to this report. 

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Bail out the financial industry, but don’t send me the bill.

That’s what a majority of Americans are saying, according to a CNN poll released Monday. The poll showed that people are concerned about the economy, and a majority favor government action to help bail out the struggling financial institutions. But people are concerned that the proposed industry-wide bailout will burden taxpayers.

Of the more than 1,000 Americans surveyed in a national CNN/Opinion Research Corp. poll, 62% said they think in general the government should step in to try to address the problems facing struggling financial institutions. The margin of error was plus or minus 3 percentage points.

But the poll, conducted Sept. 19-21, showed that Americans think the cost of the $700 billion plan being debated in Congress is too high.

Though 55% said they favor the proposed bailout, 65% said it would probably treat taxpayers unfairly.

The drop off in support for the government’s actions could stem from the fact that taxpayers may have to foot the bill for all these bailouts. The majority of CNNMoney.com readers voiced similar concerns in a Talkback blog over the weekend.

Still, 88% of 518 respondents said they are concerned or even scared by the tumult in the financial markets.

And 55% supported the government’s actions taken so far - such as the $85 billion loan to insurer American International Group (AIG, Fortune 500) and hundreds of billions in backing for mortgage finance giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) and Wall Street brokerage Bear Stearns.

Economists say that the cost to the taxpayer is not yet known - and probably won’t be close to the headline number.

"For the average person, $700 billion sounds like a whole heck of a lot of money," said John Silvia, chief economist for Wachovia guaranteed payday loans. "It’s reasonable to look at that number and be scared about it, but in the end, the Treasury may actually make money from the deal."

That’s because the government is proposing to buy up troubled assets that banks don’t want, with the intention of selling them later when the market is better.

"There’s a chance they could sell them at a decent price," Silvia said.

Furthermore, the cost of doing nothing may be much more severe.

"Because of the hit that capital took, there wasn’t any lending going on, which created a lot of complications with people getting mortgages," said Silvia. "If these companies have to write down loans, they’re going to make even fewer loans in the future."

Since the markets are all circular and related, failing companies can negatively impact people’s ability to get a mortgage, finance a car or even save for retirement.

"A lot of people’s IRAs, 401(k)s and pension plans had Fannie and Freddie in it," Silvia added. "And anyone with an S&P 500 index fund has a huge weighting on the financial sector." 

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Gas prices fell another 2 cents, marking the fourth straight decline after rising more than 18 cents in 8 days following Hurricane Ike, according to a nationwide survey of credit card swipes at gasoline stations.

The average price of unleaded regular dropped 2 cents to $3.757 a gallon, from $3.777 a gallon, according to the survey released by motorist group AAA.

While prices have remained under $4 for some time, they are still much higher from a year ago, when gas was selling for less than $3 a gallon.

Current prices are about 34% higher from a year earlier at this time. Still, prices are 54 cents, or 13%, down from the record high price of $4.114 a gallon set on July 17

Gas prices had been moving higher following the devastation left behind by hurricanes Ike and Gustav.

More than 30 refineries, which convert crude oil into usable gasoline, had shut down or were operating with reduced capacity in the Gulf region after the storms hit. The number has since fallen by more than half, restoring gasoline supply to retailers and easing consumer prices cash advance loans.

Many crude pipelines in Texas and Louisiana had also shuttered ahead of the hurricanes. Those are slowly coming back on line.

Lower oil prices have also helped lower the cost of retail gas. Crude has been moving lower since mid-July amid weakening demand, losing more than a third of its value since it reached a record of near $150 just two months ago.

But oil prices rallied back above $104 a barrel Friday amid growing optimism that the government’s various rescue plans will help ease the credit crisis currently stifling the U.S. economy.

Meanwhile, only three states now continue to report gas prices above $4 a gallon: Alaska, Hawaii and Illinois. Alaska continues to be the state with the most expensive gas prices, at $4.339 a gallon. The cheapest gas can be found in New Jersey, where gas cost $3.468 a gallon, according to AAA’s Web site. 

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Japan's government said the world's second-largest economy is “weakening,'' language it introduced last month for the first time since the country was in a recession seven years ago.

“The economy has been weakening recently,'' the Cabinet Office said in a statement in Tokyo today. The government cut its assessment of capital spending and imports and said it's watching how global financial-market turmoil might affect Japan.

The economy's longest postwar expansion may be over as rising commodity costs discourage spending at home and the world slowdown reduces demand for exports. The Bank of Japan and central banks in North America and Europe yesterday agreed to pump $180 billion into the global financial system to revive confidence in markets battered by the U.S. banking crisis.

“This uncertainty in financial markets will naturally have an impact on the Japanese economy, which depends on foreign demand,'' Economic and Fiscal Policy Minister Kaoru Yosano told reporters in Tokyo. “The economy will remain weak for a while.''

The Bank of Japan agreed to swap currencies with the Federal Reserve, supplying dollars for the first time after the cost of borrowing in the currency soared to a seven-year high following Lehman Brothers Holdings Inc.'s bankruptcy and the U.S quick payday loans. government's takeover of American International Group Inc.

Central bank Governor Masaaki Shirakawa today said there's no end in sight to the market tumult, even as global shares rallied after the U.S. government said it's planning new laws to halt the credit-market meltdown. Shirakawa this week said risks for Japan's economy have intensified since the crisis deepened.

“Attention should be given to further downside risks that stem from growing financial uncertainty in the U.S. and movement of the stock and foreign-exchange markets,'' the government said in today's report.

The Cabinet Office removed the word “recovery'' from its evaluation of the global economy for the first time since June 2002 and downgraded its view of Europe.

Last month was the first time since May 2001 that the government described Japan's economy as weakening.

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The lights in Feld Chevrolet Co.’s Bridgeton showroom were on Thursday morning. Flags with the Chevrolet symbol waved outside in the air, and music blasted through outside stereos across the parking lot.

But the dealership’s lot and showroom floor were empty.

Feld Chevrolet, a longtime name in the St. Louis area, has closed its doors and faces legal action from GMAC LLC, the financing company allied with General Motors Corp. It’s uncertain why the dealership closed, and its president, Andrew S. Wolfson, could not be reached.

However, according to two lawsuits filed this week by GMAC in St. Louis County Circuit Court, problems surfaced after Wolfson shuttered the operations about a week ago. Feld was at 11200 St. Charles Rock Road.

Under security agreements between Feld Chevrolet and GMAC, the dealership can’t sell, transfer or dispose of vehicles and parts "other than in the ordinary course" of business. In a petition filed Monday, GMAC said Feld Chevrolet has closed its business and is selling the vehicles in ways that violate the agreements. GMAC said it has the right to the vehicles, which it valued at $8 million.

The filing listed 188 new vehicles — including many 2008 Chevy Equinox crossovers and 2008 Chevy Silverado pickups — as belonging to GMAC. It also said its owns 111 used vehicles that were on the dealership’s lot as of last Friday.

On Tuesday, GMAC received permission from the court to take possession of those vehicles. The lending arm’s attorney, Nelson Mitten of Clayton-based Riezman Berger P.C., would not say how many vehicles GMAC took back.

Mitten wouldn’t comment on the petition filed Monday, nor on a second lawsuit the GMAC filed Wednesday.

The second lawsuit against Feld Chevrolet also names as co-defendants Feld Investment Group L.C., Robert Tieman and Tieman’s South County Auto Center, 5745 Westwood Drive in Weldon Spring.

According to the petition, Feld Chevrolet sold 53 vehicles to Tieman or his dealership and did not give GMAC the money from the deals.

The filing also alleged that GMAC asked Tieman to surrender the vehicles, worth about $532,000, but that Tieman and his dealership "refused to comply with the demands."

Tieman did not return calls seeking comment.

GMAC spokesman Mike Stoller said the lending arm does not comment on dealer operations.

The Better Business Bureau of eastern Missouri and southern Illinois said on its website that the dealership’s membership was suspended last Friday because "the company appears to be out of business."

The Feld brand is well-known in the St freecreditreport. Louis business community.

Bridgeton Mayor Conrad Bowers said Feld Chevrolet has been "a great commercial citizen of Bridgeton" and has been up-to-date with its business-license fees and sales taxes. He could not say how much the dealership pays in sales taxes but said Feld Chevrolet’s business license fee is $50,000 per year — the maximum a business in the city can pay.

"We hate to see a business leave but, again, I would just assume the oversupply of cars" caused the closure, Bowers said. He said that, to his knowledge, Feld Chevrolet had not notified the city about the closure.

Last month the dealership laid off 20 mechanics, a representative of the union for those employees — the International Association of Machinists District 9 — told the Post-Dispatch on Aug. 15.

A month later, the dealership’s lot sits empty and padlocked. Calls made this week to the sales, parts and service phone numbers listed on Feld Chevrolet’s website were not answered.

Chuck Robinson went to Feld Chevrolet on Thursday to collect gum ball machines he owns and operates at the dealership, only to find the machines were locked inside the building. Robinson said his candy machines fund Heart 2 Heart Inc., a St. Louis nonprofit he runs.

When he collected money from the machines last week, "nobody said anything" about an imminent closing, he said.

atablac@post-dispatch.com | 314-340-8140

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Central banks in Japan and Australia pumped some $113 billion into money markets this week, holding down borrowing costs to revive confidence among banks.

The Bank of Japan pumped 2 trillion yen ($19 billion) today, for a total of 10 trillion yen this week, the biggest since at least the start of 2007. The Reserve Bank of Australia added A$1 billion ($824 million) and has injected more than A$12 billion this week, the most in almost 13 months.

“Funding pressures globally have intensified following the turmoil and fear that we could be in for another bout of asset price depreciations,'' said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., part of the world's largest inter-bank broker. “Financial institutions are hoarding cash and shoring up their balance sheets.''

Central banks injected more than $220 billion globally this week as credit markets seized up after the failure of Lehman Brothers Holdings Inc. and the U.S. government takeover of American International Group. The cost to protect against defaults on Asia-Pacific bonds fell by the most in more than five months and Japanese and Australian funding costs were unchanged.

U.S. Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben S. Bernanke said they are working on a plan requiring legislation aimed at alleviating market turmoil.

The two regulators are seeking support for a plan to help financial institutions remove from their balance sheets illiquid mortgage-related assets at the root of the credit crisis.

Borrowing Costs Drop

Hong Kong's interbank loan rates declined from the highest in 11 months after the Hong Kong Monetary Authority injected HK$1.556 billion ($200 million) yesterday. The one-month Hong Kong interbank offered rate fell to 3.69 percent from 4.83 percent yesterday when it more than doubled.

The Fed yesterday agreed swap facilities with five other central banks that will increase the amount of U.S. currency available overseas by $180 billion to $247 billion. It doubled the limit of dollars it will provide the European Central Bank and Swiss National Bank to $137 billion, and authorized $110 billion of swap facilities with Japan, the U.K. and Canada.

The cost of borrowing in dollars overnight tumbled after the coordinated action was announced. The London interbank offered rate, or Libor, for overnight loans fell 1.19 percentage points to 3.84 percent yesterday.

Swap Dollars

The Bank of Japan said it will use its $60 billion swap arrangement to supply dollars to local and foreign financial institutions as required by market conditions. It will choose participants tomorrow.

“They will keep liquidity in the system because their goal is to revive the short-term liquidity in the dollar, which is the oil in the global financial system,'' said Sebastien Barbe, a Hong Kong-based strategist at Calyon, the investment banking unit of France's Credit Agricole SA free credit report instantly.

Japan's overnight loan rate fell to 0.4 percent after the BOJ's second injection today at 12:50 p.m. in Tokyo added another 1 trillion yen. The rate was as high as 0.585 percent before today's first injection of 2 trillion yen. The central bank's target overnight lending rate is 0.5 percent.

BOJ Governor Masaaki Shirakawa yesterday said the agreement with the Fed is aimed at providing dollars to foreign banks and brokerages. The Bank of Japan “doesn't have any particular concern'' about Japanese financial institutions' borrowing of dollars, Shirakawa said.

Foreign banks are paying more than Japanese banks to borrow cash because counterparties are less willing to lend to them. Japanese banks borrowed overnight funds at interest rates between 0.4 percent and 0.5 percent today, while foreign banks had to pay between 0.6 percent and 0.7 percent, according to Tokyo Tanshi, a Japanese money market brokerage.

Australia Banks

Australian banks' borrowing costs were stable today, according to a gauge that measures the availability of funds in the market. The difference between the rate banks charge each other for one-month loans and the overnight indexed swap rate was unchanged at 50.5 basis points at 2:12 p.m. in Sydney, after widening 13.5 points yesterday in the biggest jump since July 24, Bloomberg data show. The average spread for the past year was 23 basis points.

New Zealand's central bank will accept bank bills in its daily market operations to ease pressure on liquidity in the financial system.

The difference between the rate New Zealand banks charge each other for one-month loans and the overnight indexed swap rate widened to 59 basis points at 4:21 p.m. in Wellington, from 53.5 points yesterday, Bloomberg data show.

Default protection costs for bonds from Australia and Asia outside Japan declined, according to traders of credit-default swaps.

The Markit iTraxx Australia index fell 34 basis points to 171 as of 1:11 p.m. in Sydney, Citigroup Inc. prices show. The benchmark, tied to the debt of 25 companies including Qantas Airways Ltd. and BHP Billiton Ltd., declines as perceptions of credit quality improve. Japan's benchmark of credit risk stood at 150, down from 175, according to Credit Suisse Group data.

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Lehman Brothers staff in Asia remain in the dark about the fate of their business, with the clock ticking on any deal with a potential buyer.

The more time that goes by, the more likely Lehman is to lose bankers and advisory mandates to rivals.

But rival investment bankers in Hong Kong on Thursday said they expected British bank Barclays to buy all or part of Lehman’s Asia business, after it agreed on Wednesday to pay $1.75 billion to rescue Lehman’s core U.S. business.

Lehman is hoping to sell its Asian operations as one entity to maximize value and secure as many jobs as possible, but it may have to divide the business up into different geographic groups, said a source with direct knowledge of the sale, who asked not to be identified because the information is not public.

The source said Lehman was interviewing four candidates to advise it on the sale, including Goldman Sachs, Rothschild and Lazard Ltd.

“Interest for Lehman is very high,” said the source.

In terms of mergers and acquisition advisory and equity capital markets, Barclays is not a major player in Asia, while Lehman has aggressively built its investment banking presence in the region.

“I would be surprised if Barclays did not buy the Asia business,” said an investment banker at a competing bank who did not want to be identified pay day loans. “It’s not going to cost them much.” 

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The subprime mortgage meltdown and resulting rippling repercussions have a brief, but dramatic, history.

Feb. 7, 2007 - HSBC announces it will see larger than anticipated losses from rising defaults of subprime mortgages in the United States, the first major bank to make an announcement about rising losses in the sector. While the announcement gets little attention at the time, subprime mortgages soon become a watch word along Wall Street and in financial news.

April 2, 2007 - New Century Financial, one of the nation’s largest subprime mortgage lenders files for bankruptcy court protections, cutting 3,200 jobs, or 54% of its remaining work force that had already been scaled back in previous weeks as it stopped accepting new loans.

June 2007 - Two hedge funds run by Bear Stearns that had large holdings of subprime mortgages run into large losses and are forced to dump assets, with the trouble spreading with major Wall Street firms such as Merrill Lynch (MER, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500) and Goldman Sachs (GS, Fortune 500) which had loaned the firm money.

Sept. 18, 2007 - The Federal Reserve starts cutting interest rates, citing the credit crunch on Wall Street and in the broad economy. The nation’s central bank will make cuts at seven straight meetings, including one emergency meeting, before it pauses. It also agrees to start loaning money directly to Wall Street firms, rather than only to commercial banks, and to accept troubled mortgage-backed securities as collateral.

July 11, 2008 - The FDIC takes over IndyMac, a California bank that had been one of the leading lenders who made home loans to people who did not provide proof of their income no fax payday advances. The failure may turn out to be the most expensive in U.S. history, but FDIC warns that more bank failures lay ahead.

March 16, 2008 - JPMorgan Chase & Co. acquires troubled Wall Street firm Bear Stearns, in a deal engineered by the Federal Reserve, which agrees to provide up to $29 billion in financing to cover potential Bear Stearns losses that JPMorgan agrees to assume.

Sept. 6, 2008 - Treasury Secretary Henry Paulson announces a takeover of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500), putting the government in charge of the twin mortgage giants that own or back more than $5 trillion in mortgages. The Treasury Department agrees to provide up to $200 billion in loans to the cash-starved firms that are crucial sources of mortgage funding for banks and other home lenders.

Sept. 15, 2008 - Bank of America (BAC, Fortune 500) agrees to acquire Merrill Lynch, in a deal joining one of the nation’s largest banks with one of the its largest brokerage firms, for up to $50 billion. Deal comes after talks to have Bank of America buy Lehman Brothers, another money-losing Wall Street firm, fall through. Unable to find a buyer, Lehman Brothers files for bankruptcy court protection. 

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In late 1997, facing the risk of an economic meltdown in South Korea, a young Treasury official named Timothy Geithner pushed a novel idea: cajole banks into keeping credit flowing to the country as part of an overall rescue package. The banks cooperated and the plan worked.

Geithner, now president of the New York Federal Reserve Bank, tried the same strategy — with some of the same banks — this weekend, arguing it was in their interest to band together to contain the impact of the collapse of Lehman Brothers Holdings Inc. The results this time aren't clear. While the banks refused to collaborate on a Lehman bailout, they did put together a $70 billion fund to help each other out in the crisis.

As head of an organization that acts as the Fed's eyes and ears on Wall Street and regularly trades securities with dealers there, the 47-year-old Geithner is at the center of efforts to combat the financial turmoil that began in August 2007. He is in close contact with Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson, often talking to the latter numerous times a day.

“He's been very much in the middle of handling the crisis,'' said Peter Kretzmer, senior economist at Banc of America Securities and a former New York Fed official. “And with his experience, he's been well-suited to the job.''

It isn't only experience that Geithner's admirers tout. They also talk of his ability to handle pressure — a close associate who talked to him yesterday described him as calm and thoughtful — and praise his knack for tackling complex problems.

Different Perspectives

“He doesn't have a closed mind about anything,'' said Edwin Truman, who worked with Geithner on the South Korean rescue and is now at the Peterson Institute for International Economics in Washington. “That allows him to examine issues from a variety of different perspectives.''

Dino Kos, who was at the New York Fed with Geithner from 2003 to 2007, said that the policy maker's background at Treasury helps him in advising Paulson.

“Tim knows better than most people the pressures Paulson will be confronting in Washington and tailors his advice accordingly,'' said Kos, now managing director of Portales Partners in New York. “Tim won't waste his time with an idea — no matter how good — if it's not going to fly politically.''

Such skills have some supporters of presidential candidate Barack Obama talking about political independent Geithner as a potential Treasury secretary should the Democrat win the November election.

Fears About AIG

That may hinge on how the financial crisis pans out. Geithner's efforts over the weekend didn't prevent stocks from plunging yesterday, partly on fears about the future of American International Group Inc. The Standard & Poor's 500 Index suffered its steepest drop since the September 2001 terrorist attacks, falling 59 points, or 4.7 percent bad credit payday advance.

As president of the New York Fed, Geithner enjoys a special status at the central bank. He is vice chairman of the Federal Open Market Committee that convenes regularly to decide on interest rates and holds such a meeting today. He votes at every FOMC meeting, unlike the presidents of the Fed's other 11 member banks, who take turns voting.

The institution he leads makes almost daily transactions with Wall Street securities dealers to keep interest rates in line with the Fed's target and is the conduit for the Treasury's rare interventions in foreign-exchange markets.

When Geithner was first tapped to take over the New York Fed almost five years ago, it was bit of a surprise. The boyish- looking technocrat lacked the stature of some of his predecessors including E. Gerald Corrigan, now with Goldman Sachs Group Inc. and Paul Volcker, who went on to become Fed chairman.

Gravitas

“He was very young and he speaks very softly,'' said Blackstone Group LP co-founder Peter G. Peterson, who headed the search team that chose Geithner. “The question was, `Does he have the gravitas, the strength and the personality to make the tough decisions?'' The answer, he added, has turned out to be yes.

Geithner is neither an economist nor a banker. And his only private sector experience is three years at Kissinger Associates from 1985 to 1988 before joining Treasury.

But he has what his former boss and ex-Treasury Secretary Lawrence Summers called “a doctorate in financial policy'' gained from his 13 years at Treasury and two years subsequently at the International Monetary Fund putting out economic fires.

Government Role

Critics charge that it was Geithner's predilection for government action that led him to put $29 billion of the Fed's balance sheet on the line to back the takeover of Bear Stearns Group by JPMorgan Chase & Co. in March.

The Fed's loans to Bear Stearns were “a rogue operation,'' said Anna Schwartz, who co-wrote “A Monetary History of the United States'' with the late Nobel laureate Milton Friedman. “The Fed had no business intervening there.''

The central bank and Treasury took a different tack when it came to Lehman Brothers, refusing to kick in any government money to help with a rescue.

While Kenneth Rogoff, who worked with Geithner at the IMF and is now a professor at Harvard University, praised the move, he warned that further tough choices lie ahead for the New York Fed chief and his fellow policy makers as other financial firms run into trouble. “This crisis is far from over,'' he said.

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