Hotel occupancy rates decline

SALT LAKE CITY -- Hotel occupancy rates -- a key indicator of the health of the state's tourism industry -- declined nearly 5 percent in Utah last month compared with last year. Figures from the Rocky Mountain Lodging Association show the statewide occupancy rate in October was 62.2 percent, down from 66.8 percent in 2007.

Salt Lake County saw a decline from 72.1 percent in 2007 to 66.8 percent last month.

Larry Hansen, executive director of the Utah Hotel & Lodging Association, says he's not happy about the decline, but says Utah is still fortunate to be doing better than it was following the Sept. 11 attacks.

Risk-taking to add $800 billion to economy

The federal government's new $800 billion initiative to revive the nation's credit markets and reverse the deepening economic crisis propels the government into risky territory -- the world of credit cards, student borrowing, auto loans and cash-strapped small businesses.

Most of the money in the plan announced Tuesday is aimed at making home loans less expensive and more readily available.

To that end, the Federal Reserve plans to buy up to $600 billion in debt and mortgage-backed securities held by government-sponsored lenders.

But on a separate front, the Fed will commit up to $200 billion to help loosen lending for consumer goods, including everything people can buy with their credit cards. The move is intended to make it easier for ordinary Americans to get credit, but it also carries greater risk that tax dollars might never be repaid.

In part, that's because as federal officials reach for ways to ease the credit freeze that's hogtying the overall economic crisis, they have little choice but to adopt strategies carrying greater risks.

"They have to reach further and further out on that risk scale in order to have any effect because what they've done so far ... hasn't solved all the problems," said Timothy Yeager, a finance professor at the University of Arkansas and a former Federal Reserve economist.

Also, since credit card debt and student loans are largely unsecured -- unlike home loans or auto purchases, which have tangible assets behind them -- they represent a higher risk that the money might not be repaid.

Despite the risk, the move was necessary, said Sen. Charles Schumer, D-New York, who has been pushing the Bush administration to take actions to loosen credit for student, car and small-business loans.

"The arteries of the financial system are still clogged, and, as a result, too much of the economic activity on Main Street is slowing to a crawl," he said.

Indeed, many working people can't get the credit they need, said Richard Pittman, a counselor with the nonprofit ByDesign Financial Solutions, which offers personal credit counseling in Los Angeles.

"We're crossing our fingers that this will work," Pittman said. "If we don't get the market moving again, the biggest industry is going to be soup lines."

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Credit card companies not only have increased interest rates on outstanding balances but have rolled back credit limits for many consumers, said Travis Plunkett, legislative director for the Consumer Federation of America.

"Credit card companies can suddenly and sharply double or triple your interest rate on the existing balance," Plunkett said. "What kind of effect does that have on a household that is barely making it?"

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Federal officials said they would reduce the risk to taxpayers by covering only securities with the highest ratings. Those securities would contain new or recently issued loans that reflect the higher lending standards of the current crisis.

Treasury Secretary Henry Paulson said the market for lending-backed securities declined sharply this summer and all but dried up in October.

"As a result, millions of Americans cannot find affordable financing for their basic credit needs. And credit card rates are climbing, making it more expensive for families to finance everyday purchases," Paulson said. "This lack of affordable consumer credit undermines consumer spending, (and), as a result, weakens our economy."

The consumer program, in the form of loan guarantees to holders of highly rated consumer asset-backed securities, will be run by the Federal Reserve. Paulson stressed that the program could grow over time.

The Treasury Department will cover up to $20 billion in losses with money from the federal government's $700 billion financial rescue fund.

"The problem is the market is so wary of asset-baked securitizations that people aren't willing to buy," said Jaret Seiberg, a financial services analyst with Stanford Group Co. David Resler, chief economist for Nomura Securities, said the government is taking steps to reduce risk and the program is big enough to help loosen credit in the $2.6 trillion consumer credit market.

"It essentially insures an investor market for these new loans," he said. "It will help."

Car dealers, struggling with the worst sales market since 1991, welcomed the federal aid and the prospect of lower rates for car loans.

"The credit market has maybe slowly started to thaw, but this package will help unfreeze it more quickly," said John Sackrison, executive director of the Orange County Automobile Dealers Association in Southern California. "It's great news for consumers and auto dealers alike."

The new initiatives came as President-elect Barack Obama continued his preparations to take office, promising to cut spending as the country gears up for a major economic stimulus package.

To loosen the mortgage-loan market, the Federal Reserve said it would purchase up to $600 billion in debt and mortgage-backed securities of Fannie Mae and Freddie Mac, the government-sponsored lenders taken over by federal officials this fall, as well as Ginnie Mae and the Federal Home Loan banks.

"Nothing is more important to getting through this housing correction than the availability of affordable mortgage finance," Paulson said.

The government is not looking to buy debt-laden mortgage-backed securities, the initial purpose of the $700 billion rescue fund that officials have since abandoned in favor of buying stakes in banks and other measures. But the new aid plan should help the housing industry by making it easier for Americans to get the loans they need to buy homes.

Government data released Tuesday highlighted the economic troubles. The Federal Deposit Insurance Corp. said the number of "problem banks" rose to 171 in the third quarter, from 117 in the second quarter. And the Commerce Department announced that the economy shrank more than expected in the third quarter, revising the annual growth rate down to 0.5 percent from 0.3 percent.

"The problems facing the financial services industry, combined with the general economy, have dried up lending in all areas," said Scott Talbott, senior vice president for government affairs at the Financial Services Roundtable, which represents large banks, investment houses and insurers. "The Fed actions are a double-barreled shotgun: One barrel is pointed squarely at mortgages, one barrel is pointed at all other loans."

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The small businesses that rely on loans to stay open need to see more liquidity in the credit markets, said Scott Hauge, president of Small Business California.

"There have been situations where a guy went to have his credit line increased but instead they cut it in half," he said. "I've also heard about people who don't even know their lines or credit cards have been cut until they try to use it. It's a mess."

As a result, small businesses have had to make cuts -- often slicing expenses, laying off employees and sometimes closing temporarily, Hauge said. They're hoping for a lifeline but are wary.

"As for predicting when things will change, nobody knows," he said. "It's not clear to a lot of these business owners how Paulson's announcement today will translate into them getting money into their hands."

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Puzzanghera reported from Washington, D.C., and Hsu from Los Angeles.