White House delivers massive borrowing plan

One day after Barack Obama was elected, the outgoing Bush administration detailed its plans to borrow a record $550 billion through the end of the year to back the financial bailout.

The Federal Reserve, meanwhile, said it will boost interest payments to banks as authorities battle the worst financial crisis in decades.

The Treasury Department said Wednesday it will sell $55 billion in bonds next week, part of a massive borrowing effort to cover the $700 billion bailout and a budget deficit that's expected to hit a record of nearly $1 trillion next year.

The government's surging financing needs are a stark reminder of the challenges awaiting Obama even as the current administration moves to implement its rescue program and the Fed fine-tunes its approach to the crisis.

The financial turmoil flared anew Wednesday with the Dow Jones industrial average plunging 486.01 points, or more than 5 percent, as investors absorbed more bad economic news.

The central bank said it will slightly boost the interest rates it pays banks on their required reserves and the excess reserves they choose to deposit with the Fed. The rescue bill authorized the central bank to start paying interest rates to commercial banks on the reserves. Policymakers hope the move will further bolster the banks' reserves.

Treasury also gave Congress its first report on the operation of the bailout fund, detailing the $125 billion the government spent last week to buy stakes in nine of the country's biggest banks. The bailout legislation requires Treasury to issue reports each time its spending passes a $50 billion marker.

Treasury Secretary Henry Paulson has pledged to work with Obama to ensure a smooth transition.

Paulson has set up desks and phone lines at the department where Obama's incoming Treasury team can work between now and the inauguration on Jan. 20.

In light of the crisis, Obama is expected to quickly name members of his economic team.

Former Treasury Secretary Lawrence Summers, who served in the Clinton administration, and Timothy Geithner, president of the New York Federal Reserve Bank, are among the names being mentioned for Treasury secretary.

In another gloomy sign for the economy, the Institute for Supply Management, a trade group of purchasing executives, said its service sector index suffered a sharper-than-expected drop to 44.4 in October from 50.2 in September as hotels, construction firms and retailers saw business shrink. A reading below 50 signals contraction.

On Friday, the government will report the unemployment rate for October, and economists surveyed by Thomson/IFR on average expect a drop of 200,000 jobs.