The Irish Independent reports that the global economic recovery is "too timid" in the mostly rich countries of the OECD and unemployment in the euro area may not peak until 2011, the latest economic outlook from the Paris-based think-tank says.

Even after that, growth prospects in the 30-nation Organisation for Economic Co-Operation and Development have been permanently damaged -- especially in Ireland and Spain.

"OECD-wide potential growth is expected to slow from the 2pc-2.25pc per annum achieved over the seven years prior to the crisis to around 1.75pc in the medium-term," it says.

In Ireland, long-term growth is put at 2pc per annum in the years from 2012, as the increase in the working-age population slows to less than 1pc a year.

Economic activity in the OECD is being held back by households and businesses repairing their finances and reducing debt, the report says.

Contracting

The report sees OECD economies contracting by 3.5pc this year, and growing by 1.9pc and 2.5pc in the following two years. The USA will have growth of 5.3pc over 2010/11, the UK 3.5pc and the euro area 2.6pc.

The Irish economy is seen contracting by 0.9pc next year, followed by growth of 1.8pc in 2011. "The ongoing domestic adjustment will be prolonged, and the economic recovery weak," the report says. Budget corrections will be needed in Ireland "over an extended period, with increases in revenues and cuts in public spending". The OECD repeats its view that the evidence points to spending cuts having more effect on deficits than tax rises in OECD countries.

"In several countries, pension and health care reform -- already identified as being necessary well before the crisis -- will need to play a prominent role in securing the sustainability of government finances. Increasing public sector efficiency should be an important component of a consolidation strategy," the OECD says.

Deflation in the Irish economy will see a significant improvement relative to other countries, the report finds. The cost of production is seen falling by 5.6pc over the years 2008 to 2011, compared with an increase of 4.4pc in the euro area and 6.1pc in Britain.

The OECD calls on the Irish Government to press on with the National Asset Management Agency, along with "the necessary risk-sharing mechanisms to protect the taxpayer".

On the general banking crisis, it urges governments to ensure banks use any profits to build up capital, rather than slowing the process with dividends and share buy-backs.

It warns that a premature withdrawal of the global monetary and fiscal policy stimulus could disrupt the recovery and raise job losses. Recent improvement in financial conditions could be "reversed abruptly" if a large financial institution, or segments of the financial markets, were to get into difficulty.

The Irish Independent also reports there can be little doubt that we are now in the midst of a mortgage meltdown. Yesterday's figures from the Central Statistics Office show that 77,500 households are in arrears on their mortgages and rent payments.

Previous estimates from the Economic and Social Research Institute (ESRI) and housing charity Respond had put the numbers in arrears on their mortgages at 35,000. And the situation for cash-strapped households is likely to have become more difficult this year, as the CSO study was carried out last year. More people are signing on the dole this year.

Among the fears inflicted on individuals and families by the financial crisis, one of the most nightmarish is the fear of losing one's home.

It is clear that the fear is becoming real for people. Some figures starkly illustrate the risk to family homes:

• Around 1,000 people a month are applying for state support to pay the interest on their mortgages. However, between a half and a third of these people are turned down every month for mortgage interest supplement. Just 400 new households a month are succeeding in getting mortgage interest supplements.
• The courts are seeing an average of 100 repossession orders a month. But few of these cases end in repossession orders being granted.
• The state-supported Money, Advice and Budgeting Service (MABS) said a huge proportion of its clients were having difficulty paying their mortgages. Some 69pc of people who seek help from MABS are either in a job, have only recently lost their job, or are self-employed.
• Personal debt in Ireland is estimated at over €168bn -- more than double the level of the national debt of €75bn. Mortgage debt alone is around €145bn, which is 2.7 times the €54bn in bonds to be issued by the National Asset Management Agency (NAMA).
• Some 20pc of families are in arrears on all sorts of loans.

All this means that thousands of families are trapped in a vicious cycle of debt.

Up to the middle of last year, people with large mortgages, multiple credit card balances and overdrafts were relying on consolidating all this debt into a new mortgage to tide them over. But that safety valve is no longer available. It is often problems repaying short-term debts like credit cards, expensive store cards, credit union borrowings and moneylender loans that spark financial woes.

And it is not just the unemployed who find themselves in a financial mess. According to debt advisers, up to half of those with chronic debt problems have not actually lost their jobs or had a major drop in income.

Instead, the biggest issue facing many of these in threat of repossession is the cycle of debt created by themselves and the short-term credit providers.

And this is at a time of record low interest rates.

By the end of next year, European Central Bank rates could begin to rise. Before that happens, Irish banks are likely to start pushing up standard variable rate mortgages. Some 85pc of mortgage holders either have a standard rate or a tracker mortgage.

Also, stoking fears that the mortgage misery situation is likely to get worse, is the fact that people tend to use up their savings to meet mortgage repayments before turning to the bank or the State for help.

With more than 400,000 people out of work, the use of savings to pay mortgages means it will take a while before the worst of the mortgage default problem peaks.

This points to the need for a more concerted response from the banks and the State to stop people losing their homes.

Earlier this week, the Cabinet decided it would fast-track a scheme to rescue mortgage holders at risk of losing their houses. The issue is being pushed at Cabinet level by Energy Minister Eamon Ryan following agreement in the Programme for Government to put in place a mortgage scheme to avoid families being forced out of their homes.

The new scheme is expected to be agreed within weeks, with new measures in place by early next year.

Now, more than ever, the Cabinet needs to deliver.

The Irish Times reports that a senior manager with AIB is a shareholder in a property company that lost €7.24 million last year.

The company, which has an address at the manager’s home in Palmerston Park, Rathmines, Dublin, had bank loans in excess of €23 million at the end of that financial year.

The company, Marchbury Properties, is owned by senior AIB banker Tommy Hopkins and businessman Thomas Durcan, who each hold one of the company’s two issued shares.

The company banks with First Active, Forster Street, Galway, and Bank of Ireland, Walkinstown, Dublin, according to its accounts. It was incorporated in April 1995 but Mr Hopkins did not join the board until 2002.

Its records show three unsatisfied mortgages from First Active, taken out in 2003, 2004 and 2006.

The company built 222 houses in Balbriggan, Co Dublin, in the year to the end of April 2007, by which time it had commenced building houses in Terenure, Dublin, the accounts state.

They say the company also has sites at Maynooth, Co Kildare and Donabate, Co Dublin, “for further development”. The company’s loss in the 2008 year compared with a pre-tax profit of €3.55 million the previous year.

Accumulated profits at the end of 2008 were down to €1.5 million, from €8.78 million at the end of the previous year.

Mr Hopkins was a director of the company from January 2002 to November 2003, when he resigned and Maireád Hopkins, of the same address as the company, joined the board.

Mr Hopkins, who is based at the AIB Bankcentre in Ballsbridge, is a general manager with AIB Commercial Banking, and a director of AIB Commercial Services Ltd. There was no response to calls to his office. He is a director or former director of a number of other companies in the property sector, including one in which he worked alongside a senior AIB manager from Galway.

Both Mr Hopkins and John Hughes, head of business banking at AIB’s Eyre Square offices in Galway, are former directors of Quenchurch Ltd, a guaranteed company without shares and with an address at Mr Hopkins’ home.

The principal activity of the company is “providing management services on apartments”, according to its accounts for the year to March 2008, when it had a turnover of €47,000. It banked with Ulster Bank, High Street, Kilkenny. The company has financial dealings with Marchbury. Mr Durcan is also a director.

Mr Hughes is a director of Banagher Investments Ltd, a company incorporated in January 2000 and with an address at Mr Hopkins’ home. Mr Hopkins is a former director and Ms Hopkins is a current director, as is Mr Durcan. The company is owned by Mr Hughes, Mr Durcan and Mr Hopkins.

The company registered a mortgage with Anglo Irish Bank in 2000 against property in the Blackhall Place/Hendrick Street/ Oxmanstown Lane area of Stoneybatter, Dublin. The mortgage remains outstanding, according to the files in the Companies Registration Office.

However, the company’s accounts indicate shareholders’ funds of just €190 and no significant borrowings. It banks with Anglo Irish Bank, Forster Street, Galway.

Mr Hopkins was also a director of Strandfield Ltd, a company now in liquidation and which had its registered office on Palmerston Park in Rathmines, Dublin. The company went into voluntary liquidation in 2004 with an estimated surplus of €660,000.

Mr Durcan was also a director and the company was owned by the two men. Its last set of accounts showed it banked with Bank of Ireland, Montrose Branch, Dublin. Mr Durcan and Mary Durcan are the owners of Kingbrook Builders Ltd, Terenure Road East, Dublin, which banks with the AIB Bankcentre Branch, Ballsbridge, Dublin. The accounts for the year to the end of September 2008, show shareholders’ funds of €454,443.

AIB Code Of Conduct 

Extracts from AIB code of ethics that gives guidance to employees in their work with the bank:

the values of honesty, integrity and fairness are at the core of enduring business as well as personal relationships.

These values must be embedded within the AIB culture. The code is based upon these values.

[Staff must] take all reasonable steps to avoid situations in which a conflict of interest may arise, or appear to arise between the personal interests of our employees and those of our customers or the business of the group. Where any such conflict of interest arises and cannot be avoided we ensure that our customers are treated fairly.

Additionally, senior executives are required to abide by the leadership code, Leading by Example – Leadership behaviours for senior executives of AIB Group.

Behaving ethically is fundamental to AIB and breaches of our high standards will not be tolerated. A breach of this code may lead to disciplinary action.

The Irish Times also reports that state-owned Anglo Irish Bank has hired consultants from the international headquarters of accountancy firm KPMG in Holland to cost various options facing the bank, including the winding down of the lender over time.

Anglo’s chief executive, Australian banker Mike Aynsley, has recruited the firm to assess and cost the immediate wind-up of the bank, the winding down of the business over time and the viability of Anglo as a going concern.

The consultants are also costing and assessing variations on these options. Their conclusions will inform the restructuring plan that Anglo must submit to the EU Commission by the end of this month to win approval for the Government’s €4 billion recapitalisation.

Mr Aynsley has told Anglo employees the bank has a viable future, and has made references to “setting the platform in place for the New Anglo Bank” in an internal e-mail circulated to staff.

Frank Daly, the former Revenue Commissioners chairman and a Government-appointed director on the Anglo board, told a conference last week the bank was “actively considering” whether the bank has a future in lending to the small and medium-sized business sector.

KPMG is working closely with outside consultant Tom Hunersen, who was hired by the bank in recent months. Mr Hunersen, an adviser on strategy, worked with Mr Aynsley at National Australia Bank and has also worked with Bank of Ireland in the US.

Irishman Anthony Whelan, head of cabinet to EU competition commissioner Neelie Kroes, said last week “a very radical solution” may be necessary for Anglo, and that the Government should “consider all the options available”.

A number of senior management changes are expected over coming weeks as the bank fills several pivotal executive roles.

The Government invested €4 billion into the bank after losses of €4.1 billion in the six months to March 2009 wiped out the bank’s capital reserves. Anglo is expected to require another large capital injection to cover mounting losses on the bank’s €72 billion loan book and to restore the lender’s capital reserves to international norms.

Minister for Finance Brian Lenihan said last week that any further capital injection into the bank would not exceed the €4 billion already invested by the State.

The bank will sell loans of €28.4 billion to the National Asset Management Agency (Nama), which will crystallise losses at the bank as the State will buy the loans at an as-yet-undisclosed discount.

Allied Irish Banks (AIB) said on Wednesday it was increasing its bad debt charge for this year by €1 billion to €5.3 billion, primarily due to expected higher losses on Nama-bound loans of €24.1 billion.

Anglo will move 110 staff into a separate division to supervise loans moving to Nama.

Irish Nationwide has hired a team of accountants from Ernst Young to assist the building society on the valuation of €8 billion loans moving to Nama and to establish a unit within the lender to work with the State agency.

The Irish Examiner reports that Ryanair will be applying within weeks to the High Court for a judicial review of what it calls the Department of Transport’s order to the aviation regulator to increase passenger prices at Dublin Airport by 40% next year.

And Michael O’Leary has reiterated his calls for the office of the Aviation Regulator to be closed down on the grounds that "it now serves no useful purpose".

He added that if the office has no statutory independence anymore, then it has no role to play. Ryanair has called for the regulator to be subsumed into the Department of Transport to bring about annual savings of about €5 million. However, the airline has called also for the winding up of the Department of Transport.

Mr O’Leary said the judicial review application would be an attempt "to expose the corruption of the Department of Transport", adding, "I think the courts will side with us. The alternative is to roll over and accept our fate."

That fate could be a €40m hit to Ryanair costs next year on the back of state attempts to recoup the cost of building the second terminal at Dublin Airport. The airline has also renewed its calls for the break-up of the Dublin Airport Authority (DAA), the selling off of Cork and Shannon airports, the scrapping of the tourism tax, the ‘mothballing’ of Terminal 2 and the lowering of existing airport charges.

Transport Minister Noel Dempsey instructed Aviation Regulator Cathal Guiomard, in a recent letter, to ensure the DAA’s financial viability is protected, something which is likely to result in increased passenger prices.

In a terse response to Ryanair’s latest call, the Department of Transport said it respects the airline’s right to disagree with Government policies. However, it said: "We fundamentally reject Mr O’Leary’s characterisation of the department and its officials as corrupt, by virtue of their implementation of these policies. We will not lend dignity to the accusation by making any further comment on it."

The DAA has, however, rejected some of Ryanair’s claims, saying it is "utterly untrue" that Terminal 2 will cost €1.3bn as Ryanair has said and it will cost just over €600m. The authority has also dismissed the airline’s claims that there was no consultation over the terminal plans, saying there was "a vast amount" of consultation over the project.

Meanwhile, Mr O’Leary said it is now "highly unlikely" Ryanair will be doing a deal for new aircraft with Boeing, as no agreement is likely to happen before the end of this month.

The airline had already said it would consider cancelling its fleet expansion plans over unresolved cost negotiations with the manufacturer and pass on the unused funds to shareholders. Mr O’Leary said the latter could take place in mid-to-late 2011.

The Financial Times reports that European Union member states on Thursday rejected a plan to extend anti-dumping duties against Chinese and Vietnamese footwear.

The vote in the member states’ anti-dumping committee was an embarrassment for Baroness Ashton, the trade commissioner, who had advocated extended duties. The 15-10 vote, with two abstentions, underlined the difficulty of forging a compromise for one of the most divisive trade disputes facing the bloc.

The complexity of that task has been increased by an economic crisis that has raised fears of protectionism and added a new element of tension to the European Union’s trade relations with China.

Commission officials said member states could change their positions before a final vote next month. They were also understood to be exploring a way to provide some legal guarantee that the proposed 15-month extension, if approved, would not be renewed.

The Commission failed to secure the committee’s support when it first proposed the duties three years ago. It ultimately prevailed after a campaign marked by allegations of intense lobbying and backroom dealing.

But opponents of the duties, including Lord Mandelson, the UK business secretary, seized on the vote to argue that the Commission should back down.

“I welcome the result of today’s meeting and urge the Commission to reflect the views of the majority of member states and end these duties,” said Lord Mandelson, who initiated the duties in his previous post as trade commissioner.

Retailers such as Clarks and Adidas, which have increasingly outsourced production to Asia, also applauded the committee.

“Today’s outcome is a vote in favour of European business, free trade and, most importantly, European consumers,” said Manfred Junkert, director of the Federation of the German Footwear Industry.

A representative for Lady Ashton said the Commission would “carefully consider” the member states’ position, but declined to comment further.

Lord Mandelson initiated the duties – 16.5 per cent for Chinese imports and 10 per cent for Vietnamese – in 2006 when he was trade commissioner amid a surge in imports. He opted for a two-year period rather than the usual five in an acknowledgment of the deep disquiet caused by the case.

Lady Ashton’s recommendation of a 15-month extension was intended to serve as yet another compromise.

Commission officials argued that the duties have thus far done little damage to consumers, boosting prices by an average of only €1.50 per pair of shoes, while helping manufacturers to restructure.

One diplomat said the vote was less an endorsement of free trade than an expression of frustration after the Commission appeared to renege on a political deal from 2006 to allow the duties to lapse after two years. “We have ended up in a situation where you can’t trust the Commission,” he said. “Now it’s payback time.”

The FT also reports that European Union leaders on Thursday night awarded two of its top jobs to politicians relatively unknown on the international stage, after almost a decade of wrangling over how to project Europe’s global presence.

At a Brussels summit the EU picked consensus builders rather than star names, choosing Herman Van Rompuy, Belgium’s centre-right prime minister, over Tony Blair as the EU’s first full-time president.

Britain secured the position of foreign policy supremo for Lady Ashton, the EU trade commissioner, who has never held publicly elected office and has only been in her post for a year.

Gordon Brown admitted disappointment that Mr Blair had failed, but claimed Lady Ashton would give Britain “a powerful voice” in EU foreign affairs and in her dual role as European Commission vice-president.

Lady Ashton, 53, only emerged to take the job at the last minute. European socialists agreed to back a British candidate, but Mr Brown also toyed with the idea of putting up Geoff Hoon, former defence secretary.

David Miliband, foreign secretary, had turned down the job and Mr Brown had made it plain to Lord Mandelson – whose name was mentioned again in Brussels yesterday – that he wanted him to stay in London.

The decision over a short dinner healed internal disagreements within the EU but left a question mark over whether the best candidates were chosen for the posts, created after the adoption of the Lisbon treaty last month.

The appointments, designed to improve the EU’s decision-making, ended weeks of deadlock among the EU’s 27 national leaders and averted an acrimonious clash of the kind that marred previous summits handling the distribution of big jobs.

Mr Brown said Lady Ashton’s appointment was in Britain’s “national interest” while he said Mr Van Rompuy had a reputation for “integrity and resolve”, demonstrated in holding his country’s fractious coalition together.

Part of Mr Van Rompuy’s role will be to represent the EU on the world stage. Lady Ashton will take charge of the bloc’s common foreign and security policy and run a new diplomatic service likely to employ several thousand staff.

Mr Van Rompuy will officially take office from January 1, while Lady Ashton is expected to be confirmed by the European parliament.

Mr Brown denied Tory claims that he should have held out for a top economic job in the European Commission to fend off protectionist forces. He insisted Lady Ashton could balance her foreign trips with a strong presence at the Commission table.

Lady Ashton has little high-level experience of foreign affairs and took over as trade commissioner from Peter Mandelson, now UK business secretary, in 2008. “Am I an ego on legs? No, I’m not,” she said last night.

Mr Van Rompuy, 62, is a Flemish Christian Democrat virtually unknown outside Belgium, who only became prime minister last December.

However, he has impressed other EU leaders with his conciliatory skills and multilingualism. They were also attracted by the fact that he comes from a small EU country that has long favoured European integration.

Mr Van Rompuy, who writes haiku, gave a press conference in fluent Dutch, French and English, promising to listen to all EU members.

Writing a pre-summit blog, Carl Bildt, Sweden’s foreign minister, warned that Europe would be making a “historic missed opportunity” if it went for a “minimalist” solution in its search for a president.

France concentrated its efforts on securing a top economic post in the next Commission while Germany is aiming to install its candidate as the next president of the European Central Bank in 2011. Mr Sarkozy originally supported Mr Blair but switched after talks with Ms Merkel, who said at an October 29-30 EU summit that the first full-time president should come from a small country.

Mr Brown was forced to abandon his support for Mr Blair after it became clear that there was not enough backing for the ex-premier. “What has been concluded is that the preferred candidate for the high representative role is going to be an existing commissioner and a woman, and that’s Cathy Ashton,” said Mr Brown’s spokesman.

The New York Times reports that once lauded for its nimble operations and quick decision-making, Dell continues to suffer from a sweeping reorganization that resembles something of an endurance test for investors.

The latest batch of disappointing financial results from Dell, based in Round Rock, Tex., arrived on Thursday. The company reported a 54 percent drop in net income during its third quarter and a 15 percent decline in revenue.

The company was optimistic, however. “We are seeing improvement in underlying demand trends in a number of areas,” said Brian T. Gladden, Dell’s chief financial officer, during a conference call. Mr. Gladden said that companies had started buying more equipment and that Dell expected consumers to increase purchases during the holidays.

Dell could be poised to capitalize on a resurgence in technology spending, said A. M. Sacconaghi, an analyst at Sanford C. Bernstein & Company. More than any other major computer company, Dell depends on sales to businesses rather than consumers and has typically benefited the most from surges in corporate spending coming after downturns.

The big question this time is whether Dell has done enough, fast enough, to profit as much as competitors during an era that appears less favorable to the company’s historical strengths.

“I think we are satisfied with what we have done on the cost side,” Mr. Gladden said, adding that the company had made progress shifting toward higher-margin businesses as well.

But many investors focused more on the disappointing results than on the optimistic outlook.

Dell reported net income of $337 million, or 17 cents a share, in the quarter that ended on Oct. 30, down from $727 million, or 37 cents a share, it earned in the same period last year. Excluding charges, Dell earned 23 cents a share in the quarter, missing the forecast of 28 cents a share expected by analysts polled by Thomson Reuters.

Dell’s revenue fell to $12.9 billion from $15.16 billion, while analysts looked for the company to report revenue of $13.18 billion.

Dell’s shares tumbled more than 6 percent to $14.87 in after-hours trading, after closing down about 1 percent at $15.87 on Thursday.

Since Michael S. Dell, the founder of the company, returned as chief executive in 2007, Dell has been trying to redefine its strategy. The company that once championed direct sales of computers to businesses has been replaced by an organization seeking to sell more services to business customers.

In addition, Dell has focused more on selling products to consumers at retail stores and on disposing of its own factories in favor of doing business with contract manufacturers.

The global economic slump makes it difficult to judge how effective Dell has been at shifting its strategy, according to analysts. “The story has been muddied by the economic downturn,” said Mr. Sacconaghi. “I think the jury is still out.”

In previous public remarks, Mr. Dell has acknowledged that the company took too long to shift away from its sole dependence on the direct sales model that turned Dell into one of the great business stories of its time.

The extent of Dell’s long-term structural problems came to light this month in an usual manner. New York’s attorney general, Andrew M. Cuomo, filed an antitrust lawsuit against Intel that contained numerous internal e-mail messages and exchanges between Dell and Intel executives.

The messages depict a Dell that as far back as 2005 had privately lost faith in the vaunted Dell business model, though publicly proclaiming that it continued to be the exemplar described in business school case studies.

Far from trumping rivals through its efficiency and unique operations, Dell had started to depend more and more on product rebates from Intel to meet its quarterly financial figures and produce higher profits than rivals, according to the lawsuit. The New York lawsuit alleged that Dell’s rebates were so high because it remained loyal to Intel, rather than buying products from the rival chip supplier Advanced Micro Devices.

“If you extract those monster payments, they suddenly don’t look so profitable,” said Roger L. Kay, president of Endpoint Technologies, a consultancy for technology companies.

Dell made the decision to stick with Intel alone despite customer requests for A.M.D.’s products. “We are losing the hearts, minds and wallets of our best customers,” Mr. Dell complained in an e-mail message to Intel’s chief executive Paul S. Otellini, according to the lawsuit.

Today, Dell sells fewer PCs than Hewlett-Packard and Acer.

Dell also finds itself well behind Hewlett-Packard in the services market and in the bid to fine-tune its PC manufacturing operations. While H.P. was shifting production of PCs and other products to contract manufacturers long ago, Dell was still building factories, including a plant in North Carolina that opened in 2005. In its most recent quarter, Dell reported a charge of $123 million that included costs tied to closing that factory this year.

The NYT also reports that in a display of populist anger toward the Federal Reserve, a House panel voted on Thursday to let Congress carry out sweeping new oversights of the central bank’s policy decisions and operations.

The House Financial Services Committee approved a measure proposed by Representative Ron Paul of Texas that would allow Congress to order audits of all the Fed’s lending programs as well as of its basic decisions to set monetary policy by raising or lowering interest rates.

If the measure becomes law, it would expose the Federal Reserve to far more political pressure than it has faced for decades. Fed officials have adamantly opposed the measure, saying it would undermine the central bank’s political independence and gravely threaten its credibility as a bulwark against inflation.

The vote on Thursday occurred despite the opposition of Representative Barney Frank, Democrat of Massachusetts, who had wanted to shield the Fed’s decisions on monetary policy from political pressures.

Mr. Paul, a libertarian Republican who has called for abolishing the Fed entirely, has introduced a version of his bill in every session of Congress since the early 1980s and never made any progress. But the Fed’s trillion-dollar efforts to bail out major banks and rescue the financial system provoked a popular firestorm that ignited both right-wing Republicans and left-wing Democrats.

Mr. Paul’s amendment would instruct the Government Accountability Office, the investigative arm of Congress, to carry out audits of all the Fed’s operations. Those include an array of emergency lending programs, bailouts of giant financial institutions, dealings with foreign central banks and the central bank’s efforts to drive down interest rates by intervening in bond markets.

Mr. Frank had already agreed that the G.A.O. should be authorized to audit all of the Fed’s rescue programs, but he had wanted to wall off the Fed’s more basic job of setting interest rates to steer the economy.

Mr. Paul’s bill would abolish a longstanding exemption that shielded the Fed from Congressional audits of its monetary policy. Supporters of the Fed’s independence have argued the shield provided crucial insulation from political pressure, which would make it much harder for Fed officials to take unpopular action aimed at heading off inflation.

“This is a political warning shot,” said Vincent R. Reinhart, a former top Fed official who is now a senior fellow at the American Enterprise Institute. “It says that Congress has a mechanism to opine about monetary policy. The fear is that every time there’s a threat of higher interest rates, someone in Congress will ask for a study of the costs of higher interest rates.”

The Fed was not the only institution exposed to political wrath on Thursday. Timothy F. Geithner, the Treasury secretary, came under fire from both conservative Republicans and liberal Democrats at a hearing of the Joint Economic Committee. Representative Kevin Brady, Republican of Texas, told Mr. Geithner he should resign.

At the House Financial Services Committee, which was working on a sweeping bill to overhaul financial regulation, Mr. Frank had argued that Mr. Paul’s amendment went too far and would damage the Fed’s credibility.

Fed officials have argued that global investors would immediately become more skeptical about the central bank’s willingness to fight inflation by raising interest rates, which in turn would force the Fed to raise interest rates higher to accomplish it owns goals to keep prices stable. The result, they have warned, could be both higher inflation and slower growth.

But Mr. Paul and his supporters argued that the measure would do nothing to undermine the central bank’s independence. Its only purpose was to force the Fed to be more transparent and accountable to the public.

In a surprising display of political rebellion, about half the Democrats present and all the Republicans voted for Mr. Paul’s bill instead of a compromise measure drafted by Representative Mel Watt, Democrat of North Carolina.

In a related move on Thursday, the House Financial Services Committee also approved an amendment by Representative Paul E. Kanjorski, Democrat of Ohio, that would give the government new power to restrict financial institutions deemed too big to fail.

But Mr. Frank surprised some of his colleagues by postponing a vote on the overall bill until after Thanksgiving. Mr. Frank said he wanted time to address concerns raised by members of the Congressional Black Caucus.