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Obama warns of risk of economic 'catastrophe'

WASHINGTON — President Barack Obama, in the first nationally televised evening news conference of his young presidency, demanded that lawmakers pass an $800-billion-plus economic recovery plan, or risk turning "a crisis into a catastrophe."

The administration and Congress were both moving on parallel tracks Tuesday toward a new round of heavy intervention to pull the U.S. economy out of its recessionary spiral.

The Treasury Department planned to announce Tuesday a revamped bank rescue plan, one calling for a stepped-up role by private investors. And an $838 billion stimulus bill was headed for expected Senate approval after clearing a critical procedural hurdle Monday.

On a day of high economic activity, Obama was headed Tuesday to Fort Myers, Florida, a metropolitan area among the hardest-hit by mortgage foreclosures, for another town-hall meeting like the one he held Monday in Elkhart, Indiana.

As part of his campaign to build public support for quick passage of his economic stimulus plan, the president took his message to a nationwide audience watching his news conference live during television's prime evening viewing hours. In opening remarks Monday night, he said the federal government "is the only entity left with the resources to jolt our economy back to life."

"The plan is not perfect," the president said. "No plan is. I can't tell you for sure that everything in this plan will work exactly as we hope, but I can tell you with complete confidence that a failure to act will only deepen this crisis as well as the pain felt by millions of Americans."

The Treasury Department was ready to announce how it will spend the remaining $350 billion of the $700 billion financial rescue program started by the Bush administration last fall. The plan envisions big investors buying more than $1 trillion in troubled assets from the banks, according to congressional staffers briefed on the plan Monday night by Treasury officials.

Obama depicted his administration's rewrite of the bank bailout effort as a template for "restoring market confidence."

"The credit crisis is real, and it's not over," Obama said.

Obama also said Monday that his administration is looking for opportunities to engage longtime adversary Iran and that there is "no doubt" that terrorists are operating in safe havens in Pakistan, near the Afghan border.

But it was the U.S. economic crisis, the nation's worst in 80 years, that dominated the news conference, much as it has dominated the early days of Obama's presidency.

Just three weeks after his inauguration was celebrated jubilantly around the world, Obama has run into the jarring difficulties of governing. He failed to win over the Republicans he courted for his economic plan. Some of his supporters have wondered if he has yielded too much ground in the pursuit of bipartisanship.

Yet Obama's approval ratings remain high — 67 percent according to a Gallup Organization poll released Monday. He is trying to tap into that popularity to win public and congressional support for his economic recovery plan.

At his East Room news conference, Obama issued a dire warning of the consequences if Congress fails to agree on a stimulus package.

"This is not your ordinary, run-of-the-mill recession," he said. He cited Japan's failure to take bold actions in time to reverse a recession that turned the 1990s into a "lost decade" with no economic growth.

He said failure to act quickly "could turn a crisis into a catastrophe."

Obama said the U.S. could well be in better shape by next year, as measured by increased hiring, lending, home values and other factors. "If we get things right, then, starting next year, we can start seeing significant improvement," Obama said.

Obama declared that bringing politicians of both parties behind the task of saving the economy was "the test facing the United States of America in this winter of our hardship."

But he also said bipartisanship has its limits. "What I won't do is return to the failed theories of the last eight years that got us into this fix in the first place," he said.

The new bank rescue plan, to be announced by Treasury Secretary Timothy Geithner, will propose a government partnership with the private sector to buy troubled debt now clogging the balance sheets of banks.

The administration is counting on private investors to help rescue banks by buying up some of these bad loans and other toxic debt. Hedge fund managers and other big investors are counting on the government to sweeten the deal before they open their checkbooks.

The plan also includes fresh cash injections into banks, new programs to help struggling homeowners and an expansion of a Federal Reserve program to spur consumer lending.

Obama criticized the way the first $350 billion was spent by the Bush administration: "We didn't get as big of a bang for the buck as we should have."

But he brushed aside a question on whether his administration would seek more funds for the Troubled Asset Relief Program. "We don't know yet if we'll need additional money, or how much additional money we'll need," Obama said.

As for the economic stimulus bill in Congress, Democratic Senate leaders were able to rally the votes needed to clear a procedural barrier Monday to open the way toward expected final passage Tuesday. The 61-36 vote, just one more than the 60 required, was heavily partisan, with only three Republicans joining all Democrats in voting for the package, a blend of federal spending and tax cuts.

In the House, not a single Republican had voted for that chamber's version of the legislation.

Still ahead was a difficult round of further negotiations aimed at producing a final House-Senate compromise. Congressional leaders hope to get the bill to Obama's desk before the Presidents Day recess next week.

The House and Senate versions are relatively close in size and are similar in many respects, but there are some key differences.

Both include Obama's call for a tax cut for lower-income wage earners, and billions of dollars for unemployment benefits, food stamps, health care and other programs to help victims of the worst recession in decades. In a bow to the administration, the bills also include billions for development of new information technology for the health industry, and billions more to lay the groundwork for a new, environmentally friendly energy industry that would help reduce the nation's dependence on foreign oil.

At the same time, the Senate measure calls for more tax cuts and less spending than the House bill.

Both bills provide for tax breaks for home buyers, but the Senate's provision is far more generous. The Senate bill also gives a tax break to purchasers of new cars.

On Iran, Obama said his national security team is looking at areas where the United States can "directly engage" with Iran.

"My expectation is in the coming months we will be looking for openings that can be created where we can be sitting across the table face to face," Obama said.

He also said, however, that it will not happen overnight, and "a lot of distrust" stands in the way of improved ties.

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