Clinton, Obama Accuse Each Other of Misleading Voters (Update1)

Feb. 26 -- Democrats Hillary Clinton and Barack Obama traded accusations over their positions on trade, their competing health-care plans and their records on the Iraq war in a final debate before pivotal March 4 presidential primaries.

The two found some common ground, vowing to renegotiate the North American Free Trade Agreement with Canada and Mexico to include additional protections for U.S. workers if elected as president. Still, they had sharp exchanges over past statements about the accord.

``It is inaccurate for Senator Clinton to say that she's always opposed Nafta,'' Obama, a senator from Illinois, said. ``In her campaign for Senate, she said that Nafta, on balance, had been good for New York and good for America.''

Clinton, a senator from New York, said Obama's statements and his campaign mailings on her positions were ``erroneous.''

``I have been a critic of Nafta from the very beginning,'' she said. Nafta is ``heavily disadvantaging many of our industries, particularly manufacturing.''

The debate at Cleveland State University's Wolstein Center sets the stage for the campaigning leading up to primaries next week in Ohio, Texas, Vermont and Rhode Island. Clinton, 60, is counting on Ohio and Texas to blunt Obama's momentum after his 11 consecutive victories in primaries and caucuses since Feb. 5.

Issue in Ohio

Trade has been a central issue in Ohio. The state has lost about 254,000 manufacturing jobs since the start of 2000, a reduction of almost 25 percent, and union officials blame Nafta, completed in 1994, for those losses.

A 16-minute exchange on health care opened the debate during which Clinton accused Obama of putting out ``false, misleading and discredited information,'' on her health-care proposal, the centerpiece of her campaign.

She said Obama's plan will ``let the insurance companies do what's called cherry picking.''

``I think it's imperative that we stand as Democrats for universal health care,'' said Clinton. ``But Senator Obama has not.''

Obama rejected that accusation. ``Senator Clinton repeatedly claims that I don't stand for universal health care,'' Obama said. ``For Senator Clinton to say that, I think, is simply not accurate.''

Health Plans

The proposals by Clinton and Obama share the same basic principles: Allowing many Americans the option of paying to join a new government-run plan, requiring insurance companies to accept all applicants and not charge more for those who are ill, giving subsidies to help families afford coverage and raising taxes on upper-income Americans to pay for it all.

Clinton would require Americans to purchase policies or apply for government-subsidized plans.

Obama, wouldn't require that all Americans have insurance, and only insurers that wanted to sell plans through a new ``insurance exchange'' would have to agree to enroll everyone who applied at rates not based on their health condition. He would make coverage mandatory only for children.

The two clashed over the war in Iraq as well. Responding to Clinton's suggestions that he lacks experience in foreign policy, Obama pointed to his early opposition to the war.

``Senator Clinton, I think, equates experience with longevity in Washington,'' Obama said. ``I don't think the American people do, and I don't think that if you look at the judgments that we've made over the last several years, that that's the accurate measure.''

Facing McCain

Clinton said she was better prepared to go up against Arizona Senator John McCain, the presumptive Republican presidential nominee, in the general election.

``I will have a much better case to make on a range of the issues that really America must confront going forward and will be able to hold my own and make the case for a change in policy that will be better for our country,'' she said.

While she continues to hold a lead in polls of Democrats in Ohio, Obama has been gaining ground. The two are in a dead heat in Texas, according to most polls.

Obama, 46, has the edge so far among pledged delegates who will decide on the Democratic nominee, He has 1,129.5 to Clinton's 1,009.5, according to unofficial estimates by The Green Papers, a nonpartisan Web site. Texas, which selects some of its delegates in caucuses held after polls close, and Ohio have a total of 334 pledged delegates at stake.

The totals don't include the 795 so-called superdelegates, Democratic Party officials and officeholders who aren't bound by election results. A candidate needs 2,025 votes at the party convention to become the nominee.

Bernanke's `Brilliant' Fed Vision Evokes Investors' Frustration

Feb. 27 -- In the second week of August, the short-term fixed-income sales team at JPMorgan Securities Inc. sat stunned as the trillion-dollar market for asset-backed commercial paper began to collapse.

In normal markets, JPMorgan sells $25 billion of short-term IOUs for clients daily. ``Within the span of six or seven business days, every single investor stopped buying asset-backed commercial paper tied to structured investment vehicles,'' said John Kodweis, a managing director at the New York bank.

How the Federal Reserve has responded to that credit debacle -- the worst since the savings and loan crisis of the early 1990s -- defines Chairman Ben S. Bernanke's reshaping of the world's most important central bank.

With its focus on building consensus around long-term goals and attempts to separate liquidity from broader monetary policy, Bernanke's approach evokes appreciation among some economists. He's also caused frustration among traders trying to discern his intentions.

``The chairman walked into a job that I can best describe as trial by fire,'' said Allen Sinai, president of New York- based Decision Economics Inc. Separating interest-rate policy from liquidity tools was ``absolutely brilliant,'' he said.

To critics, his failure to quickly recognize the economic impact of the market tumult exacerbated the slowdown and meant that when the Fed began cutting rates, reductions needed to be deeper and faster.

`Awfully Smug'

``It's hard to be democratic in a crisis when leadership and image are so key,'' said Karl Haeling, head of strategic debt distribution in New York at Landesbank Baden-Wuerttemberg, Germany's fourth-largest bank. ``The Fed seemed awfully smug until August that this subprime issue was not a big issue. Then, they had to come out with both barrels blasting.''

The 54-year-old Fed chairman will give his semi-annual testimony to the House Financial Services Committee today. His remarks will likely deal with risks to growth, while underscoring that inflation remains a threat.

In August, Bernanke defied traders' predictions of an immediate cut in the federal funds rate, which affects borrowing costs for consumers and businesses. Instead, as credit dried up, he responded with a $35 billion cash injection into banks Aug. 10. Seven days later, he lowered the cost for banks to borrow directly from the Fed.

Inflation Still Emphasized

Officials waited a month before lowering the federal funds rate. Even then, they said ``inflation risks remain,'' leading some on Wall Street to complain Bernanke was out of touch.

``They stepped on their message in the first five months,'' said Vincent Reinhart, former director of the Fed's Division of Monetary Affairs. ``They weren't willing to emphasize why, or how they arrived at that inflation risk.''

Meanwhile, the economy continued to weaken.

As mortgage delinquencies rose to a 20-year high in the third quarter, Fed officials cut the federal funds rate just a quarter-point in October and said they thought inflation risks ``roughly balance'' risks to growth. Coming after a half-point cut the previous month, the October action was seen by economists including Stephen Stanley as a signal that policy makers thought they had eased credit enough to sustain the economic expansion.

``It really kind of scares me that the Fed had no idea things were going to get worse,'' said Stanley, chief economist at RBS Greenwich Capital Markets Inc., and a former member of the Richmond Fed staff. ``They were totally blindsided by the deterioration in liquidity conditions after the October meeting.''

December Disappointment

By December, investors were expecting some promise of year- end liquidity following the Federal Open Market Committee's meeting on Dec. 11. They didn't get one. Instead, policy makers again cut the benchmark rate a quarter point and maintained their view that ``some inflation risks remain.''

Investors showed their disappointment, driving the Dow Jones Industrial Average down 2.1 percent. Markets were setting up for a panic.

The Fed again surprised Wall Street the following morning, announcing that the central bank would loan as much as $40 billion for 28 days through a facility that would let banks borrow directly from the Fed.

The Fed also arranged swap lines with the European Central Bank and the Swiss National Bank, allowing them to channel dollars into their markets.

`Credit for Trying'

The Fed's response to the credit squeeze ``wasn't handled with the aplomb you would have liked,'' said E. Craig Coats Jr., co-head of fixed income at Keefe Bruyette & Woods Inc. in New York. Still, ``it was actually pretty creative, and I give them credit for trying.''

Only after Fed officials saw the potential for higher unemployment and indicators such as retail sales declining did they have confidence that inflation risks were subsiding. They then cut the benchmark rate 1.25 percentage points in nine days in January, the fastest reduction in two decades.

Bernanke's goal of keeping policy trained on a medium-term forecast while flooding the banking system with short-term cash shows how the chairman has adopted some of the discipline of inflation-targeting central banks in the United Kingdom and Sweden.

``Good central banking is not a matter of magic touch,'' said Doug Elmendorf, a senior fellow at the Brookings Institution in Washington, and a former Fed staff economist under both Bernanke and former chairman Alan Greenspan. ``It is a matter of doing something systematically right.''

The Bernanke system also includes changes in governance and communication. Bernanke persuaded fellow members of the Federal Open Market Committee to publish their projections four times a year instead of two, and stretch out to a third year. The exercise transformed the undefined preferences of Greenspan into numeric priorities of an institution.

Last to Vote

Bernanke votes last in policy meetings, unlike Greenspan who argued his policy choice first. Bernanke calls it ``depersonalization.''

``It is commendable that they are implementing these changes in the midst of the most challenging environment for central banks in decades,'' said Angel Ubide, director of global economics in Washington at Tudor Investment Corp., a hedge fund.

Bernanke's scholarly work on the Great Depression also came into play as he retooled the Fed's function as lender of last resort to grapple with what NYU economist Nouriel Roubini calls ``the first crisis of financial globalization and securitization.''

Instead of bank depositors fleeing banks, as in the Depression, it was commercial paper investors who wanted safety. These investors were running from off-balance-sheet structured investment vehicles, which have some features of banks with none of the backstops.

`Frightening at Times'

Kodweis recalled how the normal din of ringing phones fell quiet inside JPMorgan's mid-town Manhattan trading room as credit markets dried up in early August. ``It was frightening at times,'' he said. ``It took longer to sell commercial paper, it was later in the day when we were done, and maturities were increasingly shorter.''

The rush by money market funds to securities not tied to mortgages or consumers created new problems for the Fed.

On Aug. 20, the three-month Treasury bill yield declined 0.66 percentage point in one day to 3.09 percent, the biggest fall in two decades, in a stampede to safety.

On Aug. 21, Bernanke, who had been holding twice-daily conference calls with the New York Fed, reached for another tool. The New York bank halved the fee for dealers borrowing securities from the central bank's portfolio.

New Challenge

By November, Fed officials faced a new challenge. ``Banks wouldn't lend to each other,'' said Haeling. ``There was enough liquidity in the system. The trouble was it wasn't getting to the right places.''

The price of three-month interbank dollar loans in London rose to an average 60 basis points over the federal funds rate in November, from 10 basis points in January to July.

By mid-February, the Fed had auctioned $130 billion in term reserves. The Libor to federal funds rate spread fell back.

Now, Fed officials have said they are considering making the facility permanent.

``He did creative intelligent things about the banking problem. He recognized that a central bank has two concerns -- the financial problem and the macroeconomic problem,'' said Allan Meltzer, a Fed historian and Carnegie Mellon University economist. ``He acted appropriately.''

Obama Overtakes Clinton, Tied With McCain, Poll Says (Update3)

Feb. 27 -- Barack Obama moved ahead of Hillary Clinton in the battle for the Democratic presidential nomination, and is in a dead heat in a general-election fight against Republican John McCain, who enjoys an advantage on national- security issues

A Bloomberg/Los Angeles Times survey shows Obama is preferred by Democratic primary voters 48 percent to 42 percent, the first time he has overtaken Clinton in a Bloomberg/Times poll. In a general-election match-up among registered voters, McCain is 2 points ahead of Obama, within the margin of error; he beats Clinton by 6 points.

McCain runs ahead of Obama on every issue except health care. The Arizona senator has a 13-point advantage on Iraq and a 37- point lead on terrorism. He also does better on managing the economy. One area where Obama has a clear edge is on the question of who would bring the most change in Washington; the Illinois senator has an almost 3-to-1 lead.

``Obama has moved decisively ahead of Clinton, but as a general-election candidate he has a tougher road to travel in a campaign against John McCain,'' says Susan Pinkus, the Los Angeles Times polling director. McCain is seen as having the right experience and is ``the person people think could be the strongest leader.''

General Election

Clinton's 9-point lead over Obama in January has vanished. Obama, 46, is increasingly viewed as the Democrat best equipped to beat McCain, 71, in the general election, leading Clinton, a New York senator, by an 18-point margin on that question among Democratic primary voters. The poll was taken before yesterday's debate between Clinton and Obama in Ohio, which along with Texas, Rhode Island and Vermont holds a presidential primary on March 4.

Obama appears to have garnered some of the voters who supported former North Carolina Senator John Edwards, who dropped out of the Democratic race last month, Pinkus says.

By a more than 2-to-1 margin, registered voters say they favor Obama's plan to use tax credits and a fund for refinancing to address the subprime-mortgage crisis. Only 20 percent support Clinton's proposal to impose a moratorium on foreclosures, when informed of Obama's criticism that the plan would raise interest rates.

Clinton splits the vote with Obama among registered Democrats, while in January she had a 10-point advantage with this group. Independents support Obama 52 percent to Clinton's 31 percent.

Women Voters

Her base of support with women, less-educated and lower- income voters is also ebbing. Last month, she had a 12-point lead with women, compared with a 1-point advantage in the latest survey.

``I'm a woman and I'm a Democrat, but I don't automatically support women,'' says Cathy Dobbs, a 52-year-old real-estate agent from Covington, Georgia, who voted for Obama in her state's Feb. 5 primary. ``I'm tired of the establishment, and I don't look at him as the establishment.''

Clinton also had a 10-point lead last month with voters who don't have a college education. That has narrowed to a 1-point lead in this survey. Obama has solid support from male voters, at 52 percent, compared with 40 percent for Clinton.

Clinton, 60, would face a tougher road than Obama as her party's nominee, with almost a third of voters saying the nation isn't ready to elect a female president. That compares with just 20 percent who say the country isn't ready to elect an African- American.

Illegal Immigration

At the same time, Clinton leads McCain on the issues where the Republican has an advantage over Obama, including the economy and illegal immigration, and she beats McCain by a wider margin than Obama on health care.

When it comes to who has the right experience to lead the nation, McCain has a 12-point lead over Clinton, compared with a 31-point advantage over Obama. Clinton leads McCain 45 percent to 23 percent when it comes to the question of who will change Washington, while Obama leads McCain 55 percent to 20 percent on that issue.

Jim Gallo, a 61-year-old business owner from Santa Clarita, California, says he was initially ``entranced'' by Obama's oratory on the stump.

Now, says Gallo, an independent voter, ``I question strongly his credentials, his experience.''

``The direction McCain wants to take this country will be far outlasting,'' he adds.

The poll of 1,246 registered voters was conducted Feb. 21-25 and has a margin of sampling error of 3 percentage points. For the Democratic primary voters, the margin is 5 points and for Republicans it is 6 points.

Republican Satisfaction

In another sign of strength for McCain, more than half of Republican voters say they are happy with him as their nominee, including a majority of conservatives.

Still, just one in 10 says they are enthusiastic about the Arizona senator. Almost 3 in 10 conservatives and almost 40 percent who say they belong to the religious right say McCain isn't a true conservative.

Among Republican voters who say they aren't happy with McCain, half say they would either stay home or vote for another candidate. A plurality of Republicans, 42 percent, says Obama would be the more difficult Democratic candidate for McCain to beat in November, compared with 14 percent who choose Clinton.

Independents appear to be a significant problem for Clinton in a general election. While she has strong favorable ratings from Democrats, at 82 percent, just 48 percent of independents agree. Obama has a 63 percent favorable rating among independents, while McCain has a 65 percent positive rating.

Those preferences buttress Obama's more competitive position against McCain in a general election.

The poll also shows some potential signs of trouble for McCain, who has closely aligned himself with President George W. Bush on the Iraq war.

Just 35 percent of U.S. voters approve of the job Bush is doing as president, with only 16 percent strongly approving; 46 percent say they disapprove strongly. Three-fifths of voters say the situation in Iraq wasn't worth going to war over.

U.S. Stock-Index Futures Drop on Durable Goods, Fannie Mae Loss

Feb. 27 -- U.S. stock-index futures declined after orders for durable goods fell more than forecast in January and Fannie Mae posted a loss that was triple analysts' estimates.

United Technologies Corp. and Boeing Co. led industrial shares lower after the Commerce Department said bookings for products meant to last several years decreased 5.3 percent last month. Fannie Mae, the largest source of financing for U.S. home loans, tumbled after mortgage delinquencies dragged down the value of the company's assets. Intel Corp. slid after JPMorgan Chase & Co. said the world's largest chipmaker is facing weaker- than-expected orders.

Standard & Poor's 500 Index futures expiring in March fell 9 to 1,373.8 at 9:23 a.m. in New York. Dow Jones Industrial Average futures lost 62 to 12,637. Nasdaq-100 Index futures dropped 16.25 to 1,780.5. European stocks fell on concern profits will slump as inflation accelerates, while Asian shares rose.

The durable goods report ``is beating on that theme that the economy is weak and doesn't appear to be improving in the short run,'' said Peter Jankovskis, who helps oversee about $1.25 billion as co-chief investment officer at Oakbrook Investments LLC in Lisle, Illinois. ``That potentially could make the market nervous.''

Awaiting Bernanke

The drop in durable goods orders topped the 4 percent decrease forecast by economists in a Bloomberg survey, spurring concern that the economy has tipped into a recession. Investors awaited Federal Reserve Chairman Ben S. Bernanke's testimony to Congress at 10 a.m. today for further clues on the outlook for the economy and interest rates.

United Technologies, maker of Sikorsky helicopters and Otis elevators, lost 67 cents to $72.62. Boeing, the second biggest commercial jet maker, lost $1 to $84.47.

Fannie Mae tumbled $1.58 to $25.39. The net loss was $3.80 share, compared with profit of $604 million, or 49 cents, a year earlier, Fannie Mae said. Excluding some items, the per-share loss was $3.79, compared with the $1.20 average deficit estimated by analysts in a Bloomberg survey.

Intel retreated 45 cents to $20.24. JPMorgan cut its 2008 and 2009 profit estimates, saying slowing personal-computer demand and excess chip inventories will hurt earnings.

Amgen, Johnson & Johnson

Amgen Inc. lost 93 cents to $46.89. Johnson & Johnson, the world's biggest health-products maker, slipped 96 cents to $62.76. A study published in this week's Journal of the American Medical Association found that cancer patients who take anemia drugs sold by the companies have a 10 percent higher risk of dying than those who didn't take the treatments.

The risks of the anemia drugs are ``well-defined,'' and the newly published analysis ``looks exactly like what we've seen before,'' Roger Perlmutter, Amgen's head of research and development, said in an interview.

Microsoft Corp. fell 17 cents to $28.21 after European Union regulators fined the world's largest software maker a record 899 million euros ($1.35 billion) for failing to comply with a 2004 antitrust order. It's the largest EU fine ever imposed against a single company.

Autodesk Inc. dropped $4.85 to $34.25. The software maker reported fourth-quarter profit, excluding compensation and acquisition costs, of 52 cents a share. That missed the 54-cent average of analysts' estimates.

European stocks fell today after HBOS Plc, the UK's biggest mortgage lender, said corporate lending and profit margins are declining and earnings from Bouygues SA, the world's second- largest construction company, trailed analysts' estimates.

U.S. stocks climbed for a third day yesterday, boosted by International Business Machines Corp.'s $15 billion buyback, higher retail earnings and rising commodity prices.