Lower gas prices won't lower food prices just yet

A sinking global economy is helping drive down gasoline and diesel prices, providing welcome relief at the pump for many businesses and consumers.

But consumers will have to wait a while longer to see lower prices on everything from flour at the grocery store to pizza at the local fast-food shop. Many business owners who raised prices on products while fuel costs raged higher over the past year say they aren't planning to lower prices just yet.

That's because the overall cost of doing business remains higher for a lot of companies than it was a year ago, and while commodity prices are declining, the cost of many other raw materials remains stubbornly high. Stores are also seeing weaker sales volumes.

"We are still behind the eight ball," said Scott Hunt, the executive manager of family-owned Hunt Brothers Pizza in Nashville, which makes and delivers pizza to convenience stores.

Diesel prices — now about $3.40 a gallon in the Nashville area —are about 10 percent higher than a year ago, according to AAA South, although the price continues to drop rapidly. The average price in Nashville fell by another nickel a gallon for diesel on Friday alone, a survey of area gas stations found.

The price of unleaded gasoline has also fallen more than $1.40 a gallon here in the past month, reaching about $2.46 a gallon on Friday morning, according to AAA South.

Natural gas, electric up

Those sorts of numbers have shaved about $52 a day off the cost of gasoline consumption for Aaron Bray, whose Chesley the Cleaner business picks up dirty laundry at area homes and takes it to his Nashville dry-cleaning plant.

But that's little comfort for Bray and other small-business owners, who say they still face dampened consumer demand and higher prices for electricity and natural gas. One bright spot came this week when TVA officials said fuel adjustment charges should drop in January, although they're not sure by how much.

Still, in March, Bray shut down his plant one day a week so he could trim his natural gas and electricity bill after those costs shot up. Now, he has reduced his natural gas and electricity usage by roughly one-third, but his bill has stayed roughly the same at $10,000 a month.

"I had a few profound words when I saw the bill,'' Bray said.

He raised prices for the first time in two years this spring by about 10 percent. He has no plans to reduce them at this point.

Elsewhere, while the cost of cheese, an important ingredient for Hunt Brothers Pizza, has fallen from a record high in late May of $2.29 per pound on the Chicago Mercantile Exchange — to about $1.64 last week — it's still up to 40 cents a pound more expensive than the average from previous years, said Alan Levitt, publisher of Daily Dairy Report, an industry newsletter.

"We're not getting across-the-board price drops," Hunt said.

So, Hunt Brothers Pizza has no plans to lower its $9.49 suggested retail price for a 12-inch pizza, a product that went up in price by 50 cents this summer.

Grain costs remain high

Crude oil prices on the world market have fallen nearly 60 percent in the past three months after reaching a high of nearly $150 a barrel on July 11.

FedEx Corp., which reported dwindling profits and rising fuel prices in its most recent quarter, told its customers it was raising overall prices for FedEx Express by an average of 6.9 percent in the U.S., effective Jan. 5, even while reducing its fuel surcharge by 2 percentage points.

The Pasta Shoppe also raised prices earlier this year when the cost of wheat flour, a key ingredient, rose dramatically. Prices went up 50 cents per pound on the Nashville business's themed pasta packages, which include such treats as University of Tennessee orange pasta in the shape of little T's and turkey-shaped pasta for Thanksgiving.

John Aron, who owns the business, said that although the price of wheat flour has fallen 38 percent from a high in December of last year, he still is paying $40 per 100 pounds, more than double what he paid in spring 2007.

Global demand for grain, including ethanol subsidies that encouraged farmers to plant corn instead of wheat, helped push prices sky high. And wheat flour is growing in importance in Aron's budget.

Wheat flour has grown to consuming 24 percent of Aron's revenue, up from
15 percent a year ago. That's far above the average 12 percent of revenue that shipping costs now take.

Aron expects a global slowdown in the economy to push prices for commodities lower, but slower demand isn't good for his business, either. He is particularly worried that consumer confidence fell in October to its lowest level in 41 years, according to The Conference Board, a national business group.

"We will be very cautious with how we close the end of this year,'' Aron said. "We know that the consumer is overburdened."

Oil isn't the only factor

Bill Ingram, a Lipscomb University economics and finance professor, said there is generally a lag time when businesses can start reducing prices for their products because of declining oil prices and a softening economy.

"Oil is an important price but it's not the only price," Ingram said.

Inflation, which reached 4.9 percent in September over a year ago, is likely to moderate in the months ahead, he said.

But longer-term, in the next year or so, rising inflation will become a bigger threat, Ingram predicted. That's because interest rates are so low, money is so cheap to borrow and the federal government is pumping money into the financial system in an attempt to head off a deeper financial crisis, he said.

"At some point, something has to give,'' Ingram said. "If the economy doesn't expand rapidly, at some point, inflation has to occur."

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Retailers' holiday deals begin early

This holiday season, retailers are racing to coax skittish consumers into spending more for Christmas by marketing themselves as budget stores, analysts said.

J.C. Penney last month began selling all of its holiday decorations and artificial Christmas trees at 50 percent off, even before customers threw away their jack-o'-lanterns from Halloween.

And discount stores may be getting a boost of sorts from the economic downturn. Many shops say they're selling more toys this year that appeal to cost-conscious consumers seeking bargains for their children.

"You're looking at probably the biggest deal mindset in the history of America," said Britt Beemer, chairman of Charleston, S.C.-based America's Research Group. "Whoever has the biggest deal is going to win."

That bargain-basement atmosphere comes as consumer confidence plunged to a 41-year low in October, according to New York-based The Conference Board, a pro-business trade group.

Add up all of America's jitters about rising unemployment, the uncertain stock market and weaker home sales, and it's no wonder that shoppers' confidence has taken a big jolt. Meanwhile, the U.S. Commerce Department said last week that consumer spending fell by 0.3 percent in September after two previous months in which spending was essentially flat.

The national financial outlook is dimming just as the critical holiday shopping season looms, and stores from New York City to Lower Broadway in Nashville are bracing for what could be one of the most difficult yuletide seasons on record.

David Wyss, chief economist at Standard & Poor's in New York, said he believes the national recession could turn out to be the longest-running one in the post-World War II era.

"Things are still looking soft and the light at the end of the tunnel is a long way off," he said.

So, the question becomes: Will local consumers stash their credit cards and keep a tight grip on their wallets? Or can any retail strategy entice them to buy?

Shoppers cut back

Winners this Christmas shopping season could be those stores that sell more practical gifts — or merchandise that's perceived as such a big bargain that shoppers can't say "no."

Bargains abound, but not every consumer is buying just yet.

Even half-price glass ornaments and Disney snow globes at J.C. Penney in CoolSprings Galleria couldn't entice podiatrist Preston Boles, 45, to buy last week. Instead, Boles said his family planned to revamp its old decorations and put up a 4-year-old artificial Christmas tree.

"We have to reuse the old," Boles said, adding that heavy discounts in stores are a "reflection of the economy. It's sad."

Boles said he's seen his 401(k) drop $30,000 over the past three months because of stock market volatility, forcing him to cut his spending on gifts this year by half to $1,000 and to seek out smaller presents.

He'll still browse the big department stores — like Belk and Dillard's — but this year, Boles said he's more inclined to buy presents at Wal-Mart and Target to save a few bucks at stores known for value.

In fact, 68 percent of shoppers surveyed said they plan to do more shopping at Wal-Mart and Target this year compared with 2007, according to an October survey by New York-based GfK Roper Consulting.

"The No. 1 reason was that (consumers believed) things are cheaper there," said Executive Editor Diane Crispell of GfK Roper Consulting. "People feel they can get the same goods at the lower price."

Discounters are taking note. Goodlettsville-based Dollar General Corp. said it increased its preschool toy assortment to meet the needs of younger families this year, as well as added more board games such as Yahtzee. Many of the toys are under $10.

"Our shoppers are on a budget. They have a certain amount of money to spend," said Bryan Wheeler, Dollar General's vice president and division merchandise manager. "We think our toy assortment will help them stretch their budgets farther."

Discounters can take risk

Discount grocer Aldi, a German company known for selling inexpensive food and produce under its own brand names, will begin selling the hand-held video gaming system Nintendo DS and the Hannah Montana Electric Guitar starting in early November.

"Certainly this is a great time for more people to find out about us," said Aldi spokeswoman Martha Swaney.

Crispell of GfK Roper Consulting said that, in a challenging environment, "a little bit of risk is a smart approach" for discounters such as Aldi that are adding new products. Discounters know more consumers will enter their stores looking for deals, she added.

"If anybody can take a risk right now, it's the discounters," Crispell said.

Stores such as Dillard's, Sears or J.C. Penney in the middle of the retail sales spectrum will probably market themselves as "value" retailers this Christmas, Crispell said.

"The real key word is 'value.' I don't think you have to lower your prices to the floor to compete with Wal-Mart," Crispell said. "You just need to convince people the money they are spending with you is worth it."

Consumers will tend to stay away from buying expensive items like flat-screen TVs or laptop computers and go for less-expensive gifts such as sweaters or warm-up suits, stock analyst Richard Jaffe of Stifel Nicolaus predicts.

"The economy is under a great deal of pressure," Jaffe said. "From a psychological level, there is a lot of uncertainty and doubt about the economy … and that just heightens the consumer's reluctance to spend."

Sara Lindsey, 28, a nurse, said that last Christmas she bought her husband hunting clothes, formal attire and a new watch. This year, she's not getting him anything.

"We're cutting back on how much we spend on everybody this year," the Mt. Pleasant resident said.

Retailers are at a disadvantage this holiday shopping season because there are five fewer days to shop between Thanksgiving and Christmas, analysts said. That will push retailers to get shoppers in stores earlier.

Evidence of that trend has already cropped up locally. This year, Opry Mills will kick off its marketing campaign called "Shop Smarter" the day after Thanksgiving, and for the first time in the mall's eight-year history, it will open at midnight Thursday instead of dawn on Black Friday.

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Aloft will add two hotels

A Nashville hotel developer and a national chain are planning two new hotels in Nashville, despite a looming recession and a slumping lodging industry.

Platinum Hospitality, a Hermitage firm, has reached an agreement with Starwood Hotels & Resorts Worldwide Inc. to open two Aloft hotels in Davidson County — one downtown and one near Nashville International Airport — by the end of 2010.

The hotels will join a growing list of upscale, limited-service lodging offerings in Nashville. Sometimes known as "boutique" hotels, these include the Hutton Hotel, now under construction on West End Avenue; the Hotel Preston near the airport; and Hotel Indigo, which has opened one inn on West End and plans a second property downtown.

The hotels follow on the heels of Middle Tennessee's first Aloft hotel, which opened in Cool Springs last month. Aloft is geared at "youthful-minded travelers" who want the quality of a W hotel, another Starwood brand, but don't need the full services that pricey hotel offers.

"This is really a way to be able to expand W in another way to city centers and suburban markets that may not be able to support a W or two Ws," said Brad Minor, a Starwood spokesman.

The hotels will have 136 rooms each. Room rates will vary with seasonal demand and the market. Rates in the Aloft Nashville Cool Springs this weekend run from $160 to $220 a night, Minor said.

Goal is long term

Both hotels are part of a Starwood plan to open 500 Aloft hotels within the next five years.

The Nashville locations will be operated as franchises by Platinum, which also runs hotels for Marriot, Hilton and Intercontinental in Texas and Tennessee. They will be at 201 Seventh Ave. S. and 511 Royal Parkway. Plans are to open both late in 2010.

Mitch Patel, Platinum's president and chief executive, did not return calls seeking comment.

The hotels come even though Nashville's once-hot hotel market is showing signs of cooling. Through September, the average daily rate for a room had risen 6.7 percent to $95.51, but occupancy had fallen 5.8 percentage points to 63.1 percent, according to Smith Travel Research, a Hendersonville-based lodging industry research firm.

"We're really primed for long-term growth," Minor said. "It's a cycle, and by the time this hotel opens, we may be in a different place."

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Economy shifts into reverse

WASHINGTON — Scared and out of money, Americans stopped buying everything from cars to corn flakes in the July-September quarter, ratcheting back spending by the largest amount in 28 years and jolting the national economy into what could be the most painful recession in decades.

With retailers bracing for a grim holiday buying season, the economy isn't just slowing; it's actually shrinking, the government confirmed Thursday. It reported that the nation's gross domestic product declined at an annual rate of 0.3 percent in the year's third quarter and consumers' disposable income took its biggest drop on record.

In simpler words, "The train went off the tracks," said Brian Bethune, economist at IHS global Insight.

Wall Street took comfort in the fact that it wasn't worse.

The Dow Jones industrials rose 190 points.

Economists say tougher times are ahead. Believing consumers are cutting back even more right now, they predict a much larger economic decline — anywhere from a 1 to 2 percent rate — during the current October-December period. That would meet a classic definition of a recession — two straight quarters of shrinking GDP.

Not that there's any real doubt now.

Clobbered by pink slips, shrinking nest eggs and falling home values — consumers are holding ever tighter to their wallets. The new report said Americans' disposable income fell at an annual rate of 8.7 percent in the quarter, the largest in records dating back to 1947.

Sides point fingers

The dismal news came just days before the nation picks the next president. Whether Democrat Barack Obama or Republican John McCain wins the White House, he will inherit a deeply troubled economy and a record-high budget deficit that could cramp his spending plans.

Each side said the new figures supported its political case.

"The decline in GDP didn't happen by accident — it is a direct result of the Bush administration's trickle down, Wall Street first, Main Street last policies that John McCain has embraced for the last eight years," Obama said. He pledged to provide tax relief to middle class families and help people facing foreclosure.

Pointing to the economy's sad state, Doug Holtz-Eakin, senior policy adviser for the McCain campaign, shot back that "Barack Obama would accelerate this dangerous course."

McCain said his tax cuts, free-trade policies and help to struggling homeowners would help turn things around.

Consumers hold bag

More than in recent recessions, consumers — the lifeblood of the economy — are bearing the brunt of the country's housing, banking and other ailments. The third-quarter decline in their spending was the first in 17 years, and the 3.1 percent annualized cutback was staggering — the most since the spring of 1980, when the country was in the grip of what some call the worst downturn since the Great Depression.

Walloped by such a huge pullback, the economy toppled into negative territory.

The latest reading on GDP, which measures the value of all goods produced within the United States, showed a rapid turn from the 2.8 percent growth rate logged in the second quarter.

The new figure was the worst since the 1.4 percent rate of decline in the third quarter of 2001, when the nation was suffering through its most recent recession.

Democrats on Capitol Hill are pushing for another economic stimulus package and are weighing whether to hold a lame duck session before the new president takes office.

Under attack from Democrats and Republicans alike, the White House defended giving billions of bailout dollars to banks that now are rewarding shareholders and executives — or even buying other banks — rather than making loans to consumers and businesses.

Ed Lazear, chairman of the Council of Economic Advisers, said the government is keeping close tabs on banks' use of the money, but he also said normal activities such as paying performance-related salaries or distributing dividends are allowed under the law Congress passed.

White House press secretary Dana Perino said that "not only rich people get dividend payments," which can form a significant portion of income
for retirees and mutual funds.

A collapse of the housing market and locked-up lending have produced the worst financial crisis to hit the country in more than 70 years.

To cushion the fallout, the Fed slashed interest rates on Wednesday by half a percentage point to 1 percent, a level seen only once before in the last half-century.

Worse news expected

Fed Chairman Ben Bernanke has warned that the country's economic weakness could last for some time — even if the government's unprecedented $700 billion financial bailout package and other steps do succeed in getting financial and credit markets to operate more normally.

"As of now, most forecasts indicate that we will experience a serious recession, perhaps comparable to the recession of the early 1980s, but nothing like the Great Depression," said Simon Johnson, former chief economist to the International Monetary Fund and senior fellow at the Peterson Institute for International Economics.

During the 1980-1982 recession, unemployment topped 10 percent.

Other analysts, including Mark Zandi, chief economist at Moody's Economy.com, predicts the downturn will be much more severe than the 2001 and 1990-1991 recessions but not as bad — in terms of unemployment or lost growth — as the 1980s one.

The unemployment rate, now at 6.1 percent, could hit 8 percent or higher next year.

The Labor Department said Thursday that new claims for unemployment benefits last week held steady at 479,000, an elevated figure that continued to point to troubles in the jobs market.

In the third quarter, consumers cut back on purchases of cars, furniture, household appliances, clothes and almost everything else.

Businesses cut back, too, trimming spending on equipment and software at a 5.5 percent pace, the most since the first quarter of 2002.

Homebuilders slashed spending at a 19.1 percent pace, marking the 11th straight quarterly cutback.

Slower growth for U.S. exports — reflecting less demand from overseas buyers who are coping with their own economic problems — also factored into the weak GDP report.

Exports grew at a 5.9 percent pace in the third quarter, less than half the second quarter's 12.3 percent rate.

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Pathfinder Therapeutics gets financing

Pathfinder Therapeutics Inc. said Thursday it had closed on $5.2 million worth of financing led by venture capitalists Hatteras Venture Partners of Research Triangle Park, N.C.

The other investors included Vanderbilt University, Clayton & Associates, Nashville Capital Network and Lumira, a venture capital firm with offices in the U.S. and Canada.

Also, Richard Molloy of Florida Gulfshore Capital and Hatteras Venture Partners' Clay Thorp and Bob Morff have joined the company's board. Morff is interim CEO.

The money will be used to launch Pathfinder's liver surgery medical devices, both of which have received U.S. Food and Drug Administration approval.

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GM dealers say lender's new terms may force closings

General Motors dealers — already hurt by plummeting vehicle sales — say the former GM finance arm, GMAC, has tightened credit terms on unsold vehicles on their lots so much that some dealers may be forced out of business.

In what GM dealers call a two-pronged attack, GMAC Financial Services — now majority-owned by Cerberus Capital Management — has stopped lending to retail auto customers with all but the highest credit ratings, and now it's requiring dealers to begin making hefty payments on new 2008 model-year vehicles still in stock.

The payments can run into the tens of thousands of dollars a month at a time when many dealers are already financially strapped.

It's "just a staggering blow to dealers," said Chuck Hanes, general manager of Team Chevrolet in Smyrna. "Many dealers don't have the cash to make these payments, and a lot of them won't be able to keep it going."

GMAC is the primary lender to customers and dealers of General Motors Corp., the biggest U.S. automaker, which holds a 49 percent stake in parent company GMAC LLC. Cerberus Capital Management, the New York private-equity firm, owns 51 percent.

GMAC needs new sources of capital to escape a cash squeeze after $5.4 billion of losses in the past year, a factor that has led to the company's tightening its lending standards.

Hundreds of retailers here and nationwide received letters outlining the stricter GMAC terms starting last week, Denny Fitzpatrick, chairman of the California New Car Dealers Association, said in an interview.

"Dealers just don't have that cash lying around," said Fitzpatrick, who owns a GM dealership in Concord, Calif. U.S. auto sales were at a 15-year low last month.

The latest requirement applies to dealerships whose wholesale inventories have been financed by GMAC, which includes most of GM's 6,500 U.S. dealers.

National Automobile Dealers Association executives are meeting in Washington today to discuss the crisis and try to come up with a plan to help the affected dealers, said Annette Sykora, NADA chairman and owner of Smith South Plains Ford Mercury in Slaton, Texas.

The situation is so dire that NADA has predicted that at least 700 new-car dealers will go out of business this year out of about 25,000 in the nation.

"It's a huge issue, and I've been hearing about this from our dealers several times a day," Sykora said. "It's agonizing to know that these dealers are having to scramble, and don't have many, if any, avenues to turn to. We're continuing to hope that the federal bank rescue package can free up some credit."

Chrysler deal at stake

The squabble with dealers comes as GM and Cerberus are discussing a GM takeover of Chrysler, another member of the U.S. Big Three car manufacturers.

GM has been lobbying the Bush administration and some members of Congress for at least
$10 billion in aid to help the company maintain its operations and possibly facilitate a deal with Chrysler.

Cerberus may want GM's stake in GMAC in exchange for Chrysler and an equity stake in GM. GM sold the 51 percent stake in GMAC to Cerberus in 2006.

Sykora said that while dealers "do have access to credit for consumers, they are seeing their own financing options extremely limited. We're exploring every possible avenue that we can legally explore as an association."

GMAC says that its own financial problems forced it to take action to raise more cash from the dealers it serves.

"Turbulence in the markets reduced our access to funds and increased the cost of funds where available," GMAC Chief Executive Officer Al de Molina said in a letter sent Oct. 21 to a group of California dealers. "In response, we adjusted our credit policy to reflect the reduced level of funding availability."

Middle Tennessee dealers received a letter dated Oct. 22 that said they would have to begin in November paying 5 percent monthly on the principal balance owed on their financed inventory of 2008 vehicles that have been in stock at least 180 days, and 10 percent a month on all leftover 2007 or older vehicles, "regardless of how long they have been in inventory."

One GM dealer calculated that the policy would cost it about $71,000 in November alone on about 35 vehicles that the new policy would apply to.

Higher scores required

Dealers say another problem is a GMAC policy announced earlier this month under which the lender will finance deals only for consumers with a credit score of 700 or above, which some dealers say eliminates up to 85 percent of their customers.

Those people must go to independent banks, credit unions or other finance companies in search of car loans. Hanes and other GM dealers say the rule presents a challenge because those buyers typically have to make bigger down payments to buy a vehicle.

GM officials in Detroit, though, insist there are "plenty of other sources" for vehicle financing, and GM spokesman John McDonald said the automaker had begun a national advertising campaign to let consumers know just that.

Some dealers contend that Cerberus, which bought 80 percent of Chrysler from Daimler-Benz last year, is using GMAC as a bargaining chip in its talks with GM about a merger of the automakers.

One solution for the strapped GM dealers is to sell more cars, NADA's Sykora said.

"One reason dealers are having to make these curtailments is because these vehicles are sitting unsold on dealer lots," she said. "It's a great time for consumers to buy vehicles, because the dealers need to make deals. They would rather do that than have to make these payments to GMAC."

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White House tells banks to stop hoarding, start lending

WASHINGTON — An impatient White House prodded banks and other financial companies Tuesday to quit hoarding billions of dollars flowing into their vaults from Washington and start making more loans. Wall Street soared nearly 900 points on bargain-hunting and hopes of a hefty interest rate cut by the Federal Reserve.

The stock market's amazing climb, with its second-largest point gain ever, was a welcome burst of good news for a nation suffering big job losses and seemingly tumbling into a painful recession.

Consumer pessimism reached record levels in October amid rising unemployment, plunging home prices and shrinking retirement and investment accounts. The Conference Board, a private research group, said consumer confidence fell to its lowest point since it began tracking consumer sentiment in 1967.

Hoping to thaw the credit freeze that has chilled the economy, the Bush administration sent banks an unmistakable message to put aside fears and open up loan windows for cash-starved businesses and consumers who have pulled back on spending.

"What we're trying to do is get banks to do what they are supposed to do, which is support the system that we have in America. And banks exist to lend money," White House press secretary Dana Perino said. While there are limits to Washington's power to affect banks' behavior, the White House decided that it was time to use its bully pulpit.

"They (regulators) will be watching very closely, and they're working with the banks," Perino said.

Efforts haven't worked

Washington has pumped money and confidence-building measures into the system over recent weeks to get lending, the lifeblood of the credit-dependent American economy, flowing freely again and to combat the worst financial crisis since the 1930s. So far, though, it has not worked. While the crucial and much-watched short-term lending rate called the London Interbank Offered Rate, or Libor, has come down, it remains at elevated levels.

Today, the Federal Reserve is expected to announce a cut in its fed funds rate — and Wall Street is looking for a drop in the key interest rate by half a point to 1 percent.

At the center of the administration's efforts to thaw credit is the $700 billion financial bailout plan approved by Congress and signed by President Bush this month. Under that law's authority, the administration is doling out $250 billion to banks in return for partial ownership.

The Treasury Department, which is overseeing the massive capital injection program along with the rest of the bailout, will pour $125 billion into nine of the country's largest banks, which account for 50 percent of all U.S. deposits. Anthony Ryan, Treasury's acting undersecretary for domestic finance, said the first payments went out Tuesday. An additional $125 billion will start flowing to other banks within days, he said.

"As these banks and institutions are reinforced and supported with taxpayer funds, they must meet their responsibility to lend, and support the American people and the U.S. economy," Ryan told the annual meeting of the Securities Industry and Financial Markets Association. "It is in a strengthened institution's best financial interest to increase lending once it has received government funding."

Rep. Henry Waxman, D-Calif., chairman of the House Oversight Committee, asked the banks getting the $125 billion to detail what they are paying their executives and employees, including bonuses.

"I question the appropriateness of depleting the capital that taxpayers just injected into the bank through the payment of billions of dollars in bonuses, especially after one of the financial industry's worst years on record," he said.

Banks may buy other banks

The infusion of federal money is to rebuild banks' battered capital reserves so the institutions would feel comfortable resuming more normal lending practices. But that confidence was undercut somewhat when reports surfaced that bankers might use the money to buy other banks. Indeed, the government approved PNC Financial Services Group Inc. to receive $7.7 billion in return for company stock on Friday and, at the same time, PNC said it was acquiring National City Corp. for $5.58 billion.

There is little federal officials can do about it. There is no language in the bailout bill that obligates banks receiving money to increase their loans. Officials had argued that attaching strings to the capital-infusion program would discourage financial institutions from participating.

"The way that banks make money is by lending money," Perino said. "And so they have every incentive to move forward and start using this money."

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