The Irish Independent reports that under-fire Finance Minister Brian Lenihan last night laid the blame for the over-70s medical card debacle on his cabinet colleague Mary Harney.

As he hinted at a climbdown on the controversy, it emerged that those who lose their full cards face a potential cost of almost €2,000 a year. With the Government facing mounting public anger and the prospect of a revolt from its own backbenchers, Mr Lenihan said Ms Harney personally took the decision to vary the "arrangements in relation to the medical cards".

Speaking in Brussels, Mr Lenihan said he had "no doubt" Ms Harney would correct any "anomalies" in the scheme. Significantly, he said the Government had another 10 weeks before the change was due to come into effect, in January.

"The position is that an estimate has been provided for the Minister for Health and Children this year, out of which she has decided to vary the arrangements in relation to the medical cards, with the support of the Government," he said.

"It is not an issue in the Finance Bill, it is not for legislation in the Finance Bill, it is not a tax measure on foot of the budget; it is an expenditure decision arrived at by the Government."

Mr Lenihan pointed out that the details of the new medical card arrangements for the over-70s had yet to be finalised. But he stressed the changes were going to save €100m.

"Clearly, we have until January 1 to work out decisions and I have no doubt that if there are any anomalies that can be corrected, the minister will address them."

In a new twist, it was claimed last night that stricter eligibility criteria are also being imposed on the 140,000 non-means-tested medical-card holders, who are now in danger of losing the benefit.

Labour Party spokeswoman on health Jan O'Sullivan said the threshold for a couple applying for a means-tested medical card in this group is €298.

This is only half the amount a couple who are over 70 are allowed to earn under normal medical-card eligibility criteria, she claimed.

The normal cut-off point is €596.50 for a husband and wife where one of them is applying for a full medical card.

Assessed

Medical card applicants are assessed on different income levels, depending on whether they are single or married. The threshold for a married couple is higher than for a single person.

"These people are subjected to more stringent criteria than ever before," she added.

Ms Harney last night denied that a more stringent means test had been introduced.

The full scale of the implications of the over-70s fiasco was becoming clearer last night.

Loss of a full card leaves the older person liable for GP fees, medicine bills, A&E charges and overnight public-hospital bed charges.

Although much will depend on the older person's state of health, their yearly medical bill could soar if they lose these benefits.

Five GP visits a year would cost around €300; and if they have high medicine bills, they will have to fork out €100 a month, amounting to €1,200 a year.

An A&E visit would set them back €100. And if they have to be admitted for tests or an operation to a public hospital, they would have to pay a further €75 a night, up to an annual maximum ceiling of €750 -- the equivalent of a 10-night stay in hospital.

The Irish Independent also reports that the majority of business leaders feel that Budget 2009 will have a negative effect on Ireland's competitiveness, according to the results of a new survey.

According to Ernst & Young, 95pc of business leaders attending its post-Budget briefing yesterday felt the effects would be negative, 96pc said the Budget was not pro-employment, 80pc said it would have a negative effect on their businesses while 89pc said it would not improve the outlook for Irish banks.

Of the 200 business leaders that attended the conference, 60pc said that Finance Minister Brian Lenihan should have used the Budget as an opportunity to reform stamp duties.

Concerns

Kevin McLoughlin, head of taxes at Ernst & Young, said: "While the Government's decisions to re-assert its commitment to the 12.5pc rate of corporation tax and to further enhance the research and development credit regime are to be welcomed, I am concerned at the lack of strategic thinking and focus in terms of keeping Ireland competitive.

"The level of competition for overseas investment is increasing dramatically and governments throughout the world will be introducing measures to secure jobs and ensure that international companies invest in their countries."

He said given Ireland's current economic situation, it is essential Ireland remains an attractive place for investment.

"Back in the 1980s, when Ireland also faced a very difficult economic environment, innovative and brave moves were made by government to incentivise international business to invest here. This type of thinking is missing from the Budget."

The Irish Times reports that the State stands to earn €1 billion over the life of the two-year banking guarantee

So the draft terms and conditions of the State bank guarantee have been set out, more than two weeks after it was announced.

The State will earn €500 million a year - or €1 billion over the life of the two-year guarantee - for insuring deposits and the banks' own debts, worth €485 billion, at 11 Irish institutions (six Irish-owned and five foreign-owned).

The Government is setting the charge on the basis that it expects to pay between 0.15 per cent and 0.3 per cent more to borrow for the exchequer because, by guaranteeing the banks, the State is taking on greater risk and investors buying Government bonds will price that risk accordingly.

Under the guarantee, the Government will recover the difference from the banks so that the taxpayer is not left out of pocket.

While the scheme's terms and conditions do not specify the exact charge, the Department of Finance is expected to set it at €500 million a year. This is in line with the banks' expectations.

Minister for Finance Brian Lenihan said on Wednesday night that the charge of the guarantee would amount to at least 10 per cent of the banks' annual profits.

The draft scheme, released yesterday evening, does not reveal how much each institution will pay for the guarantee, if indeed each bank uses the guarantee and a payment is made.

The Department of Finance has only said the charge to each bank using the scheme will be based on "long-term credit ratings which reflect the risk profile of individual covered institutions".

In plain English, this means the higher-risk banks will pay a higher charge for the privilege of using the guarantee. By not revealing each bank's charge, the Government will not single out the higher-risk banks, ensuring that the guarantee provides the comfort of blanket support across the sector.

"Commercial sensitivity" is the reason cited by the department.

A higher loan exposure to construction, development and commercial property, which are suffering the most and showing the highest arrears in the downturn, means those banks will pay more.

Anglo Irish Bank and Irish Nationwide are likely to face a higher charge as these sectors account for 80 per cent of their loan books, compared with 35 per cent at AIB, 26 per cent at Bank of Ireland and 11 per cent at EBS.

Irish Life Permanent does not lend to developers or builders but relies more heavily on the turbulent wholesale markets for its funding than the other lenders.

The banks' debt ratings and credit default swaps (a type of insurance product used by the market to gauge risk) will also help dictate charges to each bank.

The State will not just be earning money in return for its guarantee.

The Minister for Finance has wide-ranging powers to monitor the banks during the two-year guarantee, curtail any excessive lending or deposit growth, and have a say on how much senior executives will be paid.

Under the scheme, at least one but not more than two board members from a panel approved by the Minister must be appointedto the board of each bank using the guarantee during the two-year period.

The Minister can also install individuals to "observe" meetings of the remuneration, audit, credit and risk committees at each bank.

They can attend all meetings and access any committee papers.

These measures will ensure the banks do not take on any additional risks at the taxpayers' expense.

The Minister will also appoint an independent three-person committee to oversee salaries, bonuses (including share options) and pensions payments for senior executives at the guaranteed banks.

While senior bankers earned bonuses on profit and share performance in the past, bonuses will - under the guarantee - be "measurably linked" to reductions in guarantee charges and "excessive risk-taking" and will be based on encouraging "long-term sustainability" of each guaranteed bank.

The Minister can, in consultation with the Financial Regulator, also limit banks lending to certain sectors or customers if it is "in the public interest" and in the "interests of financial stability".

The draft scheme also gives the Minister the authority to stop dividend payouts to shareholders and share buy-backs which could reduce the amount of capital that the banks hold. This will enable the Minister to build up greater capital reserves at the banks to protect them against future losses.

All told, the scheme gives the Minister stringent controls over any banks using the guarantee.

Bank guarantee scheme

COST:

• The taxpayer will receive €500 million a year for guaranteeing banks availing of the scheme over the two years.

• The charge to each bank depends on its long-term debt rating, which reflects if the bank is seen as high or low risk.

• The Government expects to pay 0.15 per cent to 0.3 per cent more for State debt as a result of the guarantee, which it intends to pass on to the banks.

TERMS AND CONDITIONS:

• Banks will be prohibited from passing on the cost to customers "in an unwarranted manner".

• Banks outside the scheme can buy or merge with a guaranteed bank at the Minister for Finance's discretion.

• An independent committee will oversee salaries, bonuses, pension payments and other benefits for senior executives at the guaranteed banks.

• At least one but no more than two board members must be appointed by a bank from a Minister-approved panel.

• The Minister can appoint individuals to attend meetings at the covered banks.

• The Minister can limit new lending and deposit growth, and reliance on wholesale funding.

• The Minister can cap the maximum loan-to-value on mortgages and other loans.

• Loan exposures to particular sectors can be limited.

• The Minister can set rules on dividends and share buybacks.

• A bank's ability to grow loans, deposits or capital can be limited.

The Irish Times also reports that the US tax authorities are investigating transfer pricing arrangements between Forest Laboratories and its Irish subsidiaries which had a turnover of $2.06 billion (€1.51 billion) last year.

The Irish turnover equals almost two-thirds of the group's global turnover of $3.7 billion.

The US Internal Revenue Service (IRS) has recently served a bill for $206.7 million on the pharmaceutical group for additional corporation tax for the 2002 and 2003 fiscal years. The bill, which is being challenged by Forest Laboratories, was issued after the IRS conducted a review of the group's transfer pricing practices.

The Irish subsidiaries of the group paid just $22.28 million in Irish tax on profits of $809.4 million in the financial year to March 31st, 2008. This is a tax rate of only 2.75 per cent. Corporation tax in Ireland is 12.5 per cent.

The Irish operation paid so little tax because so much of its profit was categorised as accruing from licensing activities that are not subject to tax here. This saved it $76 million in Irish tax. Other factors further reduced the tax bill.

In its recent annual report filed to the Securities and Exchange Commission (SEC) in the US, Forest Laboratories said that if the IRS prevails with its 2002 and 2003 tax bills, it is likely to issue fresh bills for the period since the 2003 fiscal year. Such a development would be "material", according to the report.

The main Irish subsidiary of the group, Forest Laboratories Holdings Ltd, is based in Clonshaugh Business and Technology Park, Coolock, Dubiln. Its most recent accounts, for the period to March 31st, 2008, were submitted recently to the Companies Registration Office in Carlow from an address in Bermuda.

The company and its Irish subsidiaries had an average of 225 employees during the financial year, with the bulk of them working in manufacturing. The accounts state that Forest Laboratories Holdings "is the licence holder to manufacture and distribute certain pharmaceutical products in the US. It in turn sublicences these rights to other subsidiary companies."

The turnover of the Irish operation has been increasing steadily in recent years as has the value of the licences held.

The bulk of the sales involved are of Lexapro, which is used in the treatment of depression, and Namenda, which is used to treat Alzheimers.

Many US multinationals use comparatively low tax jurisdictions such as Ireland to reduce what they call their effective tax rate below the US corporation tax rate, which is 35 per cent.

Forest Laboratories managed to reduce its effective tax rate to 20 per cent in its most recent fiscal year, compared to 21 per cent the previous year. "The effective tax rate for fiscal 2008 was lower compared to fiscal 2007 due primarily to a higher proportion of earnings generated in lower taxed foreign jurisdictions as compared with the United States," the SEC filings state. "Effective tax rates can be affected by ongoing tax audits."

The accounts also state: "The company's effective tax rate . . . is lower than the statutory rate principally as a result of the proportion of earnings generated in lower-taxed foreign jurisdictions . . . These earnings include development and manufacturing income from our operations in Ireland, which operate under tax incentives that currently expire in 2010."

Forest Laboratories Holdings Ltd paid no dividend to its US parent in the 2008 fiscal year.

In 2004 it repatriated €1.05 billion to its US parent so as to avail of a temporary measure introduced by President Bush under which such repatriations were taxed at a rate of only 5.35 per cent.

The Irish Examiner reports that consumers could be slapped with increased bank charges after the Government last night left the door open for financial institutions to pass on to customers the cost of the controversial bailout scheme.

No banking chiefs will be made to resign for the debacle which led to the bailout, and no cap will be placed on senior executives’ pay.

The banks will be charged €1 billion over two years to avail of the scheme, but Government sources admitted that customers could end up paying some of this.

Effectively, this means a double whammy on the public, as it is taxpayers’ money that will be used to bail out the banks should anything go wrong.

The bad news came just 24 hours after the Government imposed a string of new taxes and charges on citizens in the Budget.

Details of how the bank guarantee scheme will operate were finally published last night, more than two weeks after the Government announced the €400bn-plus plan.

A key clause in the Credit Institutions [Financial Support] Scheme 2008 states: “A covered institution shall not pass on the costs of the guarantee to its customers in an unwarranted manner.”

Department of Finance sources last night admitted the wording of the clause might not prevent banks from passing on some of the cost of the scheme.

“Like any tax, if you apply a tax on business, it would find its way on to the consumer,” senior sources in the department said. “We can’t say definitively that none of what the banks are charging [customers] will be used to pay this.”

But the department stressed that it would endeavour to ensure banks paid the charge from their profits, rather than passing on the cost to customers.

Under the scheme, the Government will guarantee the banks until September 29, 2010. Banks will be charged each quarter for availing of this guarantee.

They will be ordered to “take all reasonable steps” to appoint to their boards up to two directors who will represent the public interest.

The Government will also be able to appoint persons to observe all meetings of the remuneration, audit, credit and risk committees of each bank.

Each institutions will be required to prepare a plan to structure the remuneration packages of management that takes account of the goals of the guarantee scheme.

Finance Minister Brian Lenihan will have the power to amend the remuneration plan if he thinks it does not comply with the scheme, but no automatic caps on salary are being imposed.

Banks will also be requested to draw up codes of practice for effective risk management, and conduct their affairs in a manner that “progressively reduces the risk to the Exchequer” under the guarantee scheme.

“The Government is not just insisting on the payment of money, the Government is also going very deep into the management and direction of these banks,” Mr Lenihan said.

But Labour finance spokesperson Joan Burton criticised the Government for not removing senior executives or capping their pay.

Fine Gael finance spokesperson Richard Bruton welcomed the publication of the scheme, but said the charges to the banks were “surprisingly low”.

The scheme will be debated in the Dáil tomorrow.

Yesterday’s business in the Dáil was dominated by the furore over the Budget, in particular the Government’s decision to introduce means-testing for the over-70s medical card.

Taoiseach Brian Cowen said he “regretted” that the Government had to make such a decision, but insisted it was “necessary”, and said he was not embarrassed by any of the measures contained in the Budget. But a number of Fianna Fáil TDs will call for the medical card decision to be reversed at a parliamentary party meeting today, including Cork TD Noel O’Flynn, who urged the Government to “go back to the drawing board” on the plan.

The Financial Times reports that UK house prices are poised to fall almost a third from their peak last year to reach values last seen in September 2003, says one of the country’s leading estate agents.

Knight Frank said on Wednesday that the market was halfway through a price correction, with about 15 per cent already wiped off the price of an average home in the UK. But the expected peak-to-trough decline of about 30 per cent would mean that prices would continue to fall until late 2009.

House prices will take an average of seven years to return to the 2007 peak, says Knight Frank’s research. But prices in central London will rise faster, passing their previous peak by 2012.

Sales volumes are expected to hit their lowest point later this year, when Knight Frank expects transactions will fall to about 30 per cent of their long-term average. The agent said the market would pick up next year with hopes that sales volumes would recover to about 60 per cent of their long-term average by the second half of 2009.

“Our forecast suggests that we will be closing in on the bottom of the market during late 2009-early 2010,” said Liam Bailey, head of residential research at Knight Frank.

Knight Frank’s prediction is slightly more bearish than most estimates, with Halifax and Nationwide forecasting peak to trough declines of between 20 and 25 per cent.

Knight Frank said the sharpest price falls were in the regional new-build sector, where some properties have had up to 50 per cent knocked off sales prices.

The FT also reports that investors pulled at least $43bn from US hedge funds in September as market turmoil led to unprecedented withdrawals, an analysis by a leading research house shows.

The data from TrimTabs Investment Research – which was to be sent to clients late on Wednesday – come as hedge funds are working to prevent far bigger redemptions by the end of the year, when many funds give investors a chance to take out money.

Withdrawals can lead to a vicious circle in the markets, as funds sell holdings to return money to clients, depressing prices and prompting further redemptions.

To prevent such an outcome, some hedge funds had offered to suspend fees if investors kept their money in until March, said Marc Freed, of Lyster Watson, which invests in hedge funds on behalf of institutional and private clients.

“Every investor fears other investors will pull their money and so they worry they will be at the back of the line if they don’t also pull,” Mr Freed said.

“Nobody will invest in anything illiquid because they think they may not survive long enough to see them rise in value.”

A fundraiser for a major hedge fund said the period “between now and December 1 is a sort of death march” for the industry.

The chief executive of a leading alternative investment manager said he expected the hedge fund industry to shrink by 50 per cent in coming months – with half the decline coming from withdrawals and half coming from investment losses.

Conrad Gunn, chief operating officer of TrimTabs, said the $43bn in September withdrawals would mark “the beginning of what we expect to be a series of outflows for the remainder of the year. We expect October outflows to be larger”.

Mr Gunn said the September outflows were based on an analysis of preliminary data and that the final tally would probably be higher because funds with heavy redemptions tended to report data later.

The industry, which manages close to $2,000bn, has experienced outflows during only a handful of months previously, including a small outflow in April of this year.

JPMorgan Chase has estimated that hedge fund outflows could total up to $150bn over the coming year. As investors take their money out of hedge funds, the funds have to sell assets.

But because they use so much borrowed money, the amount of potential asset sales is far larger. For example, JPMorgan expects that an outflow of $150bn will lead to sales of about $400bn.

The New York Times reports that stock markets plunged anew on Wednesday, nearly wiping out the record gains of Monday and sending another wave of wealth destruction washing over American households.

The government’s rescue of the banks has been widely embraced, but the frenzied selling, which pushed the Dow Jones industrial average down 733 points, underscored how the economy’s troubles are too broad to be fixed by the bailout of the financial system.

In early trading in Asia on Thursday, the markets followed Wall Street’s lead. The Nikkei was down 10.03 percent, or 957.90 points, the Hang Seng dropped 1,204.27 points, more than 7.5 percent, the South Korean Kospi fell 6 percent, the Standard and Poor’s/Australian Stock Exchange 200 index shed 5.5 percent and Taiwan opened down 3.8 percent.

Investors are recognizing that the financial crisis is not the fundamental problem. It has merely amplified economic ailments that are now intensifying: vanishing paychecks, falling home prices and diminished spending. And there is no relief in sight.

Wednesday’s rout began in the morning with the latest evidence of the nation’s economic deterioration — reports showing that retail spending slipped in September and broader signs of a pullback among suddenly thrifty American consumers.

Selling picked up momentum in the afternoon as the Federal Reserve’s chairman, Ben S. Bernanke, cautioned Americans that the bailout would not swiftly lift the economy and that continued weakness was certain.

“Stabilization of the financial markets is a critical first step, but even if they stabilize as we hope they will, broader economic recovery will not happen right away,” Mr. Bernanke said in a speech to the Economic Club of New York. “Economic activity will fall short of potential for a time.”

By day’s end, the Dow had surrendered most of Monday’s 936-point gain, dropping 7.87 percent. The broader Standard & Poor’s 500-stock index was down 9 percent, and the technology-heavy Nasdaq was down 8.47 percent. Expectations that a worldwide slowdown will reduce demand for oil pushed prices below $75 a barrel. Signs of improvement continued in the credit markets, making it somewhat easier for companies and states to secure financing, but interest rates remained elevated.

Mr. Bernanke’s remarks — offered in the sober tones of a man cognizant that a stray syllable may prompt the loss of more billions on Wall Street — underscored the reality that the economy’s troubles go well beyond the financial crisis. The United States and many other major economies are almost certainly headed into a slog through economic purgatory, one that could last many months.

“People have focused so much on the immediate financial crisis that they haven’t realized how much the real economy is going down, largely independently,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. “I don’t think there’s a way we can get out of this without a full-fledged recession and a lot of people losing their jobs. All we can really talk about is ameliorating it, making sure the people who are hit have support.”

On Monday, as the Dow posted its fifth-largest one-day percentage gain in history, some investors found quantifiable proof that the crisis was solved. Yet an unpalatable historical detail complicated that idea: The four previous largest percentage gains occurred from October 1929 to March 1933, in the early days of the Depression.

Then, it must be noted, the markets swung far more widely than they do in this era, and an epic collapse would still be required to bring the United States anywhere near a comparable depression.

Mr. Bernanke, a leading academic expert on the Depression, offered pointed assurances that no repeat of that disaster would unfold on his watch. The Fed stands ready to use all its tools to battle the financial crisis, he said. He exuded confidence that the American economy “will emerge from this period with renewed vigor.”

But when? Mr. Bernanke could not say. That uncertainty added to the gnawing worry gripping the economy.

“Ultimately, the trajectory of economic activity beyond the next few quarters will depend greatly on the extent to which financial and credit markets return to more normal functioning,” he said.

Strikingly, Mr. Bernanke expressed concern about how huge amounts of capital are increasingly concentrated in a handful of enormous financial institutions.

“The real concern that we have is that we have got and developed, in this country, a very serious ‘too big to fail’ problem,” Mr. Bernanke said. “And that problem, we’ve just recognized now in the current situation, how severe it is.”

It seemed a curious concern for a man whose central bank has worked with the Treasury to engineer a series of shotgun corporate weddings, such as Bank of America’s purchase of Merrill Lynch and JPMorgan Chase’s acquisition of Bear Stearns — deals that have further concentrated money in fewer hands.

Mr. Bernanke’s prognosis and the latest carnage on Wall Street lent urgency to the debate over what the government should do now to soften the blow to the economy.

In Washington, and on the campaign trail, conversation centers on putting together a second round of so-called government stimulus spending, following the $152 billion unleashed this year via tax rebates to households and tax cuts for businesses.

Democrats in the House are drafting a roughly $150 billion package of spending measures aimed at spurring the economy, according to senior aides, including aid for states, large-scale construction projects to generate jobs and the expansion of unemployment benefits. Senator Barack Obama of Illinois, the Democratic presidential nominee, is urging $175 billion worth of relief measures.

The Republican nominee, Senator John McCain of Arizona, has declined to outline his own proposal, though his senior economic adviser, Douglas Holtz-Eakin, said he is “open to any measure that genuinely stimulates the economy.”

Republicans on Capitol Hill have emphasized tax cuts for businesses in any stimulus package, a stance that puts them at odds with Democrats, though recent signs suggest greater potential for a compromise.

“We need fiscal stimulus,” said Douglas W. Elmendorf, a former Treasury and Federal Reserve Board economist, and now a fellow at the Brookings Institution in Washington. “The outlook is much darker than it was even a few months ago.”

The checks the government sent to households last summer appear to have kept the economy growing, but economists are skeptical such a course could work again.

“The spend rate will be really low because people are scared to death,” Mr. Baker said.

When economists met with House leaders on Monday to suggest a course, the favored means appeared to be aiding state and local governments, whose property tax revenues are diminishing as home values fall. Local governments are a crucial source of employment and social services relied upon by the poor.

“The states are taking steps right now that are deepening the recession, through no fault of their own,” said Jared Bernstein, senior economist at the Economic Policy Institute in Washington. “They’re forced to either raise taxes or cut services. Neither of those are where we need to be right now.”

The crisis on Wall Street has sown fears that banks would hold tight to their dollars and starve the economy of capital, preventing businesses from securing finances to hire people and expand. If the bailout succeeds in restoring confidence, that should eventually get money flowing and lift economic activity.

But regardless of Wall Street’s travails, a broader set of difficulties has been taking money out of the economy, putting the squeeze on American households and businesses.

The economy has lost 760,000 jobs since the beginning of the year, and millions of workers have seen their hours cut, shrinking paychecks just as plunging real estate prices prevent households from borrowing against the value of their homes.

In short, American spending power is declining, and this has become a downward spiral: As wages shrink, workers spend less, and that limits demand for workers at the businesses that once captured their dollars.

Many economists now assume that unemployment, currently at 6.1 percent, will climb to 9 percent by the end of next year. Some now envision it could reach 10 percent — a level not seen in 25 years.

“At this point, the thing has probably just got to play out,” said Martin N. Baily, a chairman of the Council of Economic Advisers under President Bill Clinton and now a fellow at the Brookings Institution. “I don’t know that there’s anything that we can do to avoid a mild recession. The question is what can we do to avoid a very severe recession.”

The NYT also reports that the American housing market, where the global economic crisis began, is far from hitting bottom.

Home prices across much of the country are likely to fall through late 2009, economists say, and in some markets the trend could last even longer depending on the severity of the anticipated recession.

In hard-hit areas like California, Florida and Arizona, the grim calculus is the same: More and more homes are going up for sale, but fewer and fewer people are willing or able to buy them.

Adding to the worries nationwide are rising unemployment, falling wages and escalating mortgage rates — all of which will reduce the already diminished pool of would-be buyers.

“The No. 1 thing that drives housing values is incomes,” said Todd Sinai, an associate professor of real estate at the Wharton School at the University of Pennsylvania. “When incomes fall, demand for housing falls.”

Despite the government’s move to bolster the banking industry, home loan rates rose again on Tuesday, reflecting concern that the Treasury will borrow heavily to finance the rescue.

On Wednesday, the average rate for 30-year fixed rate mortgages was 6.75 percent, up from 6.06 percent last week. While banks are moving aggressively to sell foreclosed properties, the number of empty homes is hovering near its highest level in more than half a century.

As of June, 2.8 percent of homes previously occupied by an owner were vacant. Nearly 1 in 10 rentals was without a tenant. Both numbers are near their highest levels since 1956, the earliest year for which the Census Bureau has such data.

At the same time, the number of people who are losing jobs or seeing their incomes decline is rising. The unemployment rate has climbed to 6.1 percent, from 4.4 percent at the end of 2007, and wages for those who still have a job have barely kept up with inflation.

In New York and other cities that rely heavily on the financial sector, economists expect that job losses will increase and that pay heavily tied to year-end bonuses will decline significantly.

One reliable proxy of housing values — the ratio of home prices to rents — indicates that in many cities prices are still too high relative to historical norms.

In Miami, for instance, home prices are about 22 times annual rents, according to analysis by Moody’s Economy.com. The average figure for the last 20 years is just 15 times annual rents. The difference between those two numbers suggests that a home valued at $500,000 today might be worth only $341,000 based on the long-term relationship between prices and rents.

The price-to-rent ratio, which provides one measure of how much of a premium home buyers place on owning rather than renting, spiked across the country earlier this decade.

It increased the most on the coasts and somewhat less in the middle of the country. Economy.com’s calculations show that while it remains elevated in many places, the ratio has fallen sharply to more normal levels in places like Sacramento, Dallas and Riverside, Calif.

The current housing downturn is much more national in scope and severe than any other in the postwar period, partly because of the proliferation of risky lending practices. Today, foreclosures are running ahead of the downturn in the economy, a reversal of previous housing slumps.

“We are in uncharted waters,” said Brian A. Bethune, an economist at Global Insight, a research firm.

Colleen Pestana, a real estate agent in Orange County in California, said many people losing their homes in Southern California used to work at mortgage and real estate companies. Many of them bet heavily on real estate by upgrading to bigger houses every few years. Now, many are losing their homes.

At the same time, Ms. Pestana said, her clients who are looking to buy are having a harder time lining up financing. One of her clients recently had to give up on a home after the lender that had offered a pre-approved loan changed its mind — a frequent occurrence, according to real estate agents and mortgage brokers.

“I am working harder than I have ever had to work to get a deal together and keep it together,” said Ms. Pestana, who has been a real estate agent for seven years.

To cushion themselves from potential losses if homes lose value, Fannie Mae and Freddie Mac, the mortgage finance companies that the government took over in September, have increased fees on loans made to borrowers who have good but not excellent credit records, even those who are making down payments as big as 30 percent.

Those higher fees are generally invisible to borrowers because banks factor them into mortgage interest rates. While the national average rate for a 30-year fixed-rate mortgage is now 6.75 percent, according to HSH Associates, mortgage brokers say the rates for many borrowers in the Southwest or Florida can be as high as 8 percent, especially for so-called jumbo loans that are too big to be sold to Fannie Mae and Freddie Mac. (Those loan limits vary by area from $417,000 to roughly $650,000.)

Higher interest rates result in bigger monthly payments, pricing some potential buyers out of the market. For example, monthly payments are $2,700 on a 6 percent 30-year, fixed-rate loan of $450,000. If the interest rate rises to 7 percent, those monthly payments jump to $3,000. All things being equal, when rates rise prices generally fall.

This month, Fannie and Freddie canceled a fee increase that would have applied to markets where home prices are falling, but the companies still have many other fees in place. In an effort to help drive down rates, the Treasury Department has announced plans to buy mortgage-backed securities issued by Fannie and Freddie. The government also recently increased the amount of loans the companies can buy and hold.

Still, those efforts will take time to have an impact and it is not clear whether they will be sufficient to get banks to lend more freely, especially in areas where jumbo loans make up a bigger percentage of lending, like New York and parts of California and Florida. Economists say that prices in those places will probably fall further.

In some of those places, price declines are being driven by a sharp increase in sales of foreclosed homes.

Hudson & Marshall, a Dallas-based auctioneer that holds sales for lenders, reports that banks are accepting prices that they refused to consider just 12 months earlier. In a recent auction of 110 foreclosed homes in the Las Vegas area, for instance, the auctioneer’s clients accepted 90 percent of the bids submitted by buyers, up from 60 percent a year earlier, said David T. Webb, a co-owner of the company.

Single-family home prices in Las Vegas have already fallen 34 percent from their peak in the summer of 2006, according to the Standard & Poor’s Case-Shiller home price index. Prices in San Diego have fallen 31 percent since late 2005.

While those declines have been painful to homeowners in those cities, economists said the quick decline might help the markets reach bottom faster than in previous housing cycles, said Edward E. Leamer, an economist at the University of California, Los Angeles. In a previous boom, home prices peaked in the Los Angeles area in 1990 but did not hit bottom until 1996. Prices remained near that low for more than a year before starting to climb again.

“In some areas of California, we are really at appropriate levels,” Mr. Leamer said of current home prices. But he added: “The risk is that we are going to get some overshooting, meaning that prices will be lower than they ought to be.”

In Florida, Jack McCabe, a real estate consultant, said that while some cities, like Fort Myers, are showing tentative signs of a rebound, others like Miami and Fort Lauderdale are still under pressure. Two homes on his street in Fort Lauderdale that sold for about $730,000 apiece in 2005 recently sold for $400,000 — a 44 percent decline.

“The rocket has run out of fuel, and now it’s plunged back down to earth,” he said.