10 months later, looks like the toxic acids are still hanging around. we talked with elizabeth warren, the woman appointed by congress to keep an eye on the $787 billion plan. >> very impressed. very impressed. i -- you know, i'd almost trade in my bmw for this thing here. >> susie: that's what general motor's ceo fritz henderson was hoping for as g.m. gathered with consumers for a test drive of the new cars in stock.

>> paul: stocks stumble. dick bovay says they're trading on fumes, not reality. >> susie: it may be 100 degrees in the shade in some parts of the country but the nation's retailers are thinking sweaters and coats for christmas. they're busy thinking of new ways to ring up sales this holiday season. >> paul: i'm paul kangas. >> susie: i'm susie gharib. this is nightly business report for use it, august 11th. this program was made possible by contributions to your pbs station from viewers like you. thank you. 7//&

captioning sponsored by wpbt >> susie: hazardous to the economy's health. that was the warning today from the congressional watchdog monitoring the government's bailout of the nation's banks. according to a report from the congressional oversight panel, banks still have plenty of problem loans on the books and that could threaten the economic recovery. how bad is this situation? stephanie dew talked today with the panel's chairwoman, elizabeth warren. >> how vulnerable is the financial system to the toxic assets? >> what's vulnerable -- it's vulnerable in two ways, first, most of the toxic acids -- assets that were there in october are still there with all the implications in terms of as they don't pay off, they run the risk of bringing the banks down. the second is so long as these assets remain on the bank's books, every time they get

capital in, they use it as sort of a hedge against those assets rather than turning around and lending that capital. so it gets in the way of small business lending and other things we need to get the economy restarted. >> how long will the treasury's private investment program go towards cleaning up this mess? >> bottom line is we really don't know. it's got two problems with it again. the first is whether or not sort of the incentives the treasury is offering to get to get people to buy the assets will be enough to bridge the gap between the amount the banks are carrying these assets on their books and what most buyers think is the true value. the second big problem with the treasury's program is it looks only to securitytized mortgages. those are mostly the way mortgages are held in large financial institutions but in the mid-sized and smaller financial institutions, they're held as whole loans, that is the

institution, the bank, holds the whole mortgage and the treasury's program doesn't do anything for those. so treasury once again is focused on the very big guy but not on the rest of the banking system. >> the reports suggest the banks will need a lot more mono. >> we're really trying to see. we have to take a look throughout the banking system, not just at the two dozen big, big banks. and the reason for that is we have to look at the smaller banks, not only do they hold mortgage that has won't be touched by the treasury's program, in addition, they carry a disproportionate share of commercial mortgage that has will start maturing next year or the year after or the year after that and are predicted to have terrible default rates. also keep in mind, the small banks have not had the stress test that the bigger banks had and smaller financial

institutions from more trouble raising capital so all of these mean that the just down from big medium-sized and smaller financial institutions, there are a lot of risks there and we're really suggesting treasury needs to take a very close look. remember, these are the financial institutions that do most of the small business lending in america. >> most of the folks on the oversight panel you chair agreed but congressman jeb said that perhaps the toxic asset problem is taking care of itself and that further government intervention might be counterproductive. does the government need to be pumping more money into the banking system? >> i want to start by saying i think that maybe he should reread this report carefully. the report doesn't call for spending more money in this ar area. what the report says is that the way treasury plans to spend its money may not accomplish the ins we identified as needed.

what we're really trying to get a focus on in the report is to point out the danger areas and to say once again, we started this problem with toxic assets. we spent $700 billion and we stabilized the banks but we didn't yet deal with the toxic assets problem and we've got to do that to save our banks and to get our economy back on track. >> there's a lot of concern about the tarp program. it's become a $700 billion slush fund for the treasury. when the banks repay the money, it's not getting drawn down. is that the way this program should be handled? >> i think this is a serious problem and the best i can say is that congress gets what congress wrote in this statute. the statute speaks of a ceiling of $700 billion of which treasury cannot go. treasury takes the position that means when money comes back to pay down that that gives

treasury as they describe it more head room to be able to use that money in other places where it's needed. quite frankly, if that's not what congress wants, then congress has to be more specific in the legislation. >> my guest today, elizabeth warren. thank you so much. >> thank you. >> susie: citigroup is one of the biggest beneficiaries of the government tarp funds. the bank said today the program helped to increase lending during the second quarter $6 billion worth. most of the loans went to state and local governments as well as mortgage lenders making more money available to new home buyers and homeowners looking to refinance their mortgages. >> paul: wall street >> paul: wall street headed broadly lower at the outset with the bank stocks leading the selloff after analyst dick bove' made cautious comments about the sector profit taking also helped to send the dow off 101 points an hour into trading with the nasdaq down 24 points. the losses persisted as buyers were scarce ahead of tomorrow's

fed decision and statement, but a well-bid three-year t-note auction helped stocks show a slight late improvement. the dow closed down 96.50 at 9241.45. the nasdaq dropped 22.51 to 1969.73. the s&p 500 lost 12.75 to 994.35. in the bond market, the 10 year note rose 26/32 to 95 18/32, putting the yield at 3.67%. $600 trillion market was a key contributor to the financial crisis. now, the white house is proposing that all derivatives

and the companies that trade them will be subject to federal regulation and clearing houses will be created to provide transparency. derivatives regulation would be shared by the securities and exchange commission and the commodity futures trading commission. >> paul: it looks like customer excitement over the cash for clunkers program is starting to sputter. edmunds.com says interest in the program peaked july 29th but has fallen 15% since then. the auto research firm says if current trends continue, sales will fall back to precash for clunker levels in the next 10 days. over $1 billion has been spent on rebates for almost 2 50,000 new vehicles. that helped push july vehicle sales to their highest levels in almost a year. >> susie: general moat or he has says -- general motor he has says the chevy will give more drivers more drive for their money. the volt only uses gas 10% of

the time. the other 90% is powered by batteries. the car hit dealers' lots late next year. one of 25 new vehicles g.m. is rolling out over the next two years to get the vehicles right, the company is figuring out what consumers like and don't like about its products. diane joined 100 consumer that has could help g.m. design its product of the future. >> reporter: they came from boston, seattle, and parts in between.... >> this is sweet. everyone should have one of these. >> reporter: ... to get behind the wheel of general motors hottest products. >> how are you today, sir? >> reporter: this week, at g-m's expense, 100 consumers from around the u.s. came to the company's test track near detroit to burn a little rubber, check out vehicle interiors i like that. >> reporter: and give ceo fritz henderson an earful about what they want and don't want in a car or truck. >> if i want a camero i don't want a four door. >> we'll sell you a camero.

there's one right there. >> it doesn't have 4 doors. >> reporter: henderson says this first-of-its kind event for the auto maker reflects how the new g-m is doing business. he thinks the company can sell more vehicles by listening more carefully to american consumers and asking them tough questions. >> how do we appeal to the buyers between 16 and 30? historically, this was an area that pontiac was focused on and we certainly believe that what we have coming into the chevrolet showroom, that we have a lot of exciting products for those consumers. but it reminded me that we have a job to do. >> reporter: this confab comes just one month after g-m emerged from bankruptcy. many of the consumers here emailed henderson with questions about gm products or have an interest in design or marketing. boston architect ray eshide tapped into his knowledge of design when he got behind the wheel of the redesigned buick lacrosse. >> it very nicely combines some slick elements of design without being too over the top. >> reporter: mark darren walker was invited because he's never

been a g.m. fan. i'm a bmw guy. so, when i get out here i'm looking at performance the handling aspect of it. >> reporter: after test driving the cadillac cts-4, walker conceded he could become a gm convert. >> the engine was very responsive. there was a little drag on it but i guess that was because of the super charger kicking in. i would have preferred a little more active stepping on the gas, but other than that it's a very impressive automobile. >> reporter: g-m will survey these consumers about the products they drove and keep in touch with them in the future. the company isn't sure if it will hold more events like this, but henderson promises the auto maker will do all it can to win the hearts of american consumers. has a new day dawned at gm? >> yes. for sure, for sure. >> reporter: diane eastabrook nightly business report, milford, michigan.

>> paul: bernard madoff's right hand man is cooperating with prosecutors and frank says madoff wasn't alone in committing his crime. the former cfo at madoff's firm pleaded guilty to 10 criminal counts today including conspiracy, securities fraud and falsifying records. he was denied bail and ordered to jail. he says that others helped madoff carry out the $65 billion ponzi scheme. he didn't say who the others are. he faces up to 125 years in prison. madoff is serving 150-year sentence for mastermining one of the largest investment swindles ever. >> susie: c.i.t. group waved a

red flag today, saying there's doubt about whether it can stay in business. the problems: credit-market stress, operating losses, and credit-rating downgrades. the century-old commercial lender delayed filing its quarterly report with the s.e.c. today, saying it needs more time to work out a restructuring plan with bondholders. if that plan falls through and it can't get other financing, c.i.t. could be forced into bankruptcy. paul. >> paul: susie, cit shares were among the big board's big movers. we'll see them in just a moment as we take a look at our stocks in the news tonight.

>> reporter: walk into any clothing store, and it's clear the crucial holiday season is fast approaching. despite sweltering temperatures outside, you'll find plenty of winter items inside. but shoppers may notice some subtle changes in the merchandise mix. off-price retailer daffy's, for example, is offering more

practical clothing and less high fashion. the company's president, marcia wilson, says that's what customers want. >> i think that there's a definite change in the mindset of the consumer. and i think that trendy items that are going to last one season are not going to be quite as palatable to them as something classic that they can wear season after season. >> reporter: macy's, on the other hand, is tailoring merchandise to specific stores. cashiers keep track of top sellers and customer requests to stock the sales floor accordingly. many merchants, even luxury chains like saks and coach, are offering more lower-priced goods to entice customers. these aren't the only changes merchants are making as they try to cope with the weak economy. many stores are reducing inventory. they'd rather run out of hot items than risk heavy markdowns at the end of the season. retailers have every reason to be nervous. last year, many chains reported a dramatic decline in sales, leading to a slew of bankruptcies. retail expert howard davidowitz

sees more carnage ahead. >> it will be even worse than last year. more bankruptcies, more store closings. we are going to close hundreds of thousands of stores. we are going to close thousands of shopping centers. it's going to be even worse than last year, which was the worst. >> reporter: it's no wonder many stores are playing it safe with merchandise picks. however, retail analyst brian tunick warns, in some cases, the strategy could backfire. >> you have to find newness. something she doesn't have in the closet. if you are trying to compete on basic sweaters or basic denim or basic knit tops, it's just a bad thing for your top line. >> reporter: the emphasis on value is expected to last beyond this year. analysts predict it cod be another decade before consumer spending returns to its 2007 high. erika miller, "nightly business report," new york. >> paul: tomorrow, the fed policymakers wrap up a two-day meeting.

we'll dissect their statement on the economy with a panel of experts. >> susie: micro blogging web site twitter was down again today. the outage was brief and twitter's 44 million users could tweet again. now, the question is what happened? last week, twitter was attacked by hackers leaving the site off-line for several hours. rivals like facebook were affected in that attack but not effected today. >> paul: a sign today that there's still weakness in the economy. atticus capital, one of the most respected hedge funds, is closing two of its 3 funds. its founder, timothy barakett, is stepping down. he says the decision was purely personal. shareholders will get back their $3 billion by october. atticus will continue to run its billion dollar european fund. euub

>> susie: the federal reserve wraps up its two-day policy meeting. also tomorrow, international trade numbers for jane june and quarterly rutdss results from retail giant macy's. >> susie: when it comes to banker's pay, tonight's

commentator says the financial crisis has dramatically changed expectations. he's francesco guerrera, u.s. finance and business editor at "the financial times." >> how much a bank is worth? the question is set to exercise politicians, regulators and wall street executives for months to come. before the devastating financial crisis we've just witnessed, few americans begrudge the fabulous paid packages commanded by finance. some experts pointed to the millions of dollars earned by dealmakers and traders as an example of the aspects of the american dream. those who work hard and have superior skills will receive superior rewards. that argument is no longer heard very often, not after the u.s. government had to use billions of dollars of taxpayers' money to rescue banks from a crisis largely of their own making. not in the middle of the worst recession since the great depression where nearly one in 10 americans are unemployed. a lot poorer and angrier than before the crisis. nevertheless, u.s. banks will have to pay their top people something if they want to prevent the brain drain to

foreign competitors' hedge funds. especially many wall street firms report robust profits this year. how much of that should go to the people that produced it? not as much as before and not as much as the banks expect. the financial industry wants to win back public support or at least public tolerance. they'll have to display two qualities, contrition and restraint. even if the banks may reap a profit, even if the economy improves, the banks and their leaders will have to show a skeptical public they will not take advantage of taxpayers' generosity. greed is no longer good in america. >> paul: recapping today's market action, stocks fall on caution ahead of the fed's policy announcement. the dow dropped 96.5 points and the nasdaq fell 22.5 points.

to learn more about the stories in tonight's broadcast, to watch our streaming video and to take part in our daily blog, go to "nightly business report" on pbs.org. you can also email us at nbr@pbs.org. >> susie: a luxury resort in san diego is doing its best to appeal to cash-strapped consumers. the rancht rancho bernardo inn is offering much lower prices in exchange for fewer amenities. for just $19 a night, guests can buy the survivor package and they'll get what they pay for, a room with no bed, no air-conditioning and no lights. for that price, you're provided with a tent but you have to bring your own sheets and towe towels. so, paul, about two dozen customers took advantage of this promotion when it was first offered in june. believe it or not. >> paul: who's taking advantage of whom here is the question? for $19, i think the resort ought to pay the customers for that. >> susie: gives whole new meaning to survivor. >> susie: that's "nightly business report" for tuesday, august 11. i'm susie gharib. good night, everyone, and good night to you, paul. >> paul: good night, susie. i'm paul kangas, wishing all of you the best of good buys.

this program was made possible by contributions to your pbs station from viewers like you. thank you. captioning sponsored by wpbt captioned by media access group at wgbh access.wgbh.org