WASHINGTON: For the first time in four years, economic concerns are rivaling the war in Iraq as a top issue on the political agenda.

Sensing new political momentum, Democrats in Congress and on the presidential campaign trail are stepping up their criticism of President George W. Bushs handling of the economy and offering their own proposals.

And now that the malaise in housing and credit markets appears to be infecting the wider economy, the Federal Reserve could feel more political pressure from Democrats and Republicans alike than it has since Alan Greenspan, then the Fed chairman, incurred the wrath of the first President George Bush for not cutting rates faster in the early 1990s.

The Fed is all but certain to reduce interest rates at its next policy meeting on Sept. 18, but the big debate among economists is how much further and faster it cuts rates after that.

The Bush administration, on the defensive, rushed out with a message of calm reassurance, as a phalanx of top officials insisted that the economy remains poised for growth despite a government report that seemed to show that the broader economy is suffering from the mortgage meltdown.

“Were still confident that were going to see high growth for next year,” said Edward Lazear, chairman of Bushs Council of Economic Advisers. And Commerce Secretary Carlos Gutierrez warned that the prospect of tax increases would merely heighten economic uncertainty.

On Friday, a top House Democrat announced his intention to push for a sweeping revision of Bushs tax cuts that would favor middle-income families at the expense of the rich. “It will be the mother of all tax reforms,” vowed Representative Charles Rangel, Democrat of New York, chairman of the House Ways and Means Committee.

Other Democrats are criticizing Bushs economic policies and pushing for more help for low-income people who face foreclosures after buying their houses with subprime mortgages, as well as for an expansion of government-financed health care and more money for education.

But perhaps the most important participant in the drama - the Federal Reserve - remained silent and will probably continue to say nothing until its next policy meeting in eight days.

Ben Bernanke, the Fed chairman, has signaled his readiness to reduce a key interest rate, the overnight rate for loans between banks, if the turmoil in the mortgage markets threatens to derail economic growth. But Fed officials still have lingering worries about the risk of rising inflation, and they do not want the central bank to be seen as rescuing investors and lenders from bad bets on mortgage-backed securities.

Typically, the Fed raises interest rates to ward off inflation when the economy is growing fast and in danger of overheating, and lowers rates when the economy is slackening.

Fed officials and politicians alike know that decisions about monetary policy right now are likely to affect the broader economy about the time of the presidential elections in November 2008, because changes in interest rates usually take effect after a lag of 12 to 18 months.

But the political repercussions could be greater than in many years. For the last decade, the Fed has given politicians little to criticize: It has either spurred faster growth with low interest rates or raised rates modestly amid fast growth and low unemployment.

Now the central bank is in a less comfortable position. Even as Wall Street analysts ratchet up worries about a recession, Fed officials are far from convinced that a true downturn is likely. At the same time, many officials still have worries about higher inflation.

Republican and Democratic presidential candidates all jumped on the weak job numbers issued Friday to make political points.

“It does not surprise me that theres been some adjustment there,” said Fred Thompson, who officially declared his candidacy for the Republican nomination last week. “Unemployment is at a level that used to be considered full employment in this country. Nothing is sustainable forever. Things ebb and flow.”

Democratic candidates used the first monthly decline in employment in four years to attack Bush. Senator Barack Obama of Illinois said Bushs economic policies demonstrated his “failure to lead.” Senator Hillary Rodham Clinton of New York said the jobs data proved the administrations strategy was “not working for working Americans.” John Edwards, the former senator from North Carolina, said Bushs support for globalization had “accelerated the winnings of the winners.”

But for Bernanke, who has to make the most immediate decisions, the new employment numbers are unlikely to have settled the issue. Fed officials were almost certainly taken aback by the drop in jobs last month. Forecasters had predicted an increase of about 100,000 jobs, though many had trimmed back their forecasts in recent days.

Homeowners and consumer advocates urged a state Senate committee to help save foreclosure victims’ homes and improve lending standards on Tuesday, the same day a study showed that foreclosure filings in California almost quadrupled in July compared with a year ago.

“Unless I can figure out a way to get out of this mess, I’m going to lose the home I’ve lived in for almost 40 years,” said Dorothy Hicks, an Oakland resident, during public comments at a hearing on the subprime mortgage crisis. Hicks refinanced her home twice to get cash for a new business and ended up with payments far beyond her means, she said. The adjustable-rate payments continue to go up.

The Senate hearing comes at a time when home prices are falling and adjustable loans are resetting to higher rates, causing millions of homeowners nationwide to start missing mortgage payments. As defaults and delinquencies have mounted, dozen of subprime lenders have closed their doors. Most recently, mortgage woes have spread to jumbo mortgages (those above $417,000) for people with good credit, which have become more expensive and harder to get.

RealtyTrac.com, an Irvine company that sells foreclosure data, said 39,013 California households, 1 of every 333 in the state, received a notice in July that it was in some stage of foreclosure. That was 289 percent higher than in July 2006 and gave the state the fourth-highest foreclosure rate in the nation, after Nevada, Georgia and Michigan.

Of those, 27,071 homes received notices of default, indicating that they were behind on mortgage payments; 7,498 received notices of trustee sale, meaning that their homes were scheduled for foreclosure auctions; and 4,400 became “real- estate owned” properties that reverted to the lender after auction.

In Sacramento, officials from consumer groups told the Senate Banking, Finance and Insurance Committee that California must address the foreclosure crisis caused by a raft of subprime loans to people with poor credit. Many of those loans had low initial rates that are now resetting into unaffordable amounts at the same time that housing prices have started to decline in many areas of the state.

“There are a number of concrete steps that California can take today to minimize foreclosures and stabilize housing markets, including providing emergency funding for foreclosure prevention counseling and legal assistance, establishing a strong monitoring system for loan modifications, and a target refinance product to help borrowers refinance loans,” said Paul Leonard, California director of the Center for Responsible Lending, in prepared testimony.

“Today illustrated that we’re looking at the tip of the iceberg in terms of the problems of foreclosures,” said Sen. Michael Machado, D-Linden (San Joaquin County), committee chairman, in an interview after the hearing. “In October, $50 billion in loans (will) reset as part of $1 trillion over the next year and a half.”

The committee also heard testimony from mortgage lenders. “We found out that lenders do have options to be able to help people who are in trouble to restructure their loans,” Machado said.

Machado has two bills pending that would help curb future loan abuses, he said. One would require lenders to strengthen underwriting standards and improve consumer disclosures. The other would protect appraisers from being pressured by lenders to value homes artificially high.

Machado said legislation to help people already facing foreclosure is another possibility, but meanwhile the Legislature and regulatory agencies will urge lenders and servicers to help homeowners with troubled loans.

“The state has an obligation to use its bully pulpit to encourage lenders to be more aggressive in their outreach and their workouts with borrowers who are in trouble,” he said.

Meanwhile, foreclosures are mounting dramatically.

“In California we had a lot of people overextend themselves to buy houses they really couldn’t afford,” said Rick Sharga, vice president of marketing at RealtyTrac. “Home prices accelerated so rapidly that it priced most people out of the market using traditional financing, (so) they used very high-risk loans. When you have the combination of stagnant or decreasing home prices and sales, combined with these loans resetting (to higher monthly payments), you have the kind of problem we have now.”

In the Bay Area, foreclosures were up significantly in July compared with a year ago, RealtyTrac said. The most-affected county, Contra Costa, saw 1,271 homeowners receive notices that they were behind on their mortgages, 649 receive notices their properties would be auctioned and 389 lose their properties to foreclosures. The 2,309 total foreclosure notices in Contra Costa was up 466 percent from last July.

Nationwide, foreclosure filings almost doubled to 179,599 total, RealtyTrac said. Developments

President Bush sought to calm investors, saying “the fundamentals of the U.S. economy are strong.”

Treasury Secretary Henry Paulson said the administration is “thinking through policy options” to address the mortgage crisis.

SEC Chairman Christopher Cox said Wall Street firms are holding up well under turbulent conditions.

First Magnus Financial, the second-largest privately held mortgage company, filed bankruptcy papers. C3

E-mail Carolyn Said at csaid@sfchronicle.com.

May 22, 2007 — Shares of footwear companies Skechers USA Inc. and Genesco Inc. rose yesterday, following a published report that they are being targeted by a buyout firm to take them private in two separate deals.

The plan is to combine the companies, after the deals are completed.

The buyout firm is possibly Kohlberg Kravis Roberts & Co., according to industry trade paper Women’s Wear Daily, which cited anonymous sources. The acquisition price could not be determined.

Officials at Skechers did not immediately return phone calls. Both David Lilly, a spokesman for KKR, and Claire McCall, a spokeswoman at Genesco, declined to comment.

Shares of Skechers rose more than 9 percent, or $2.97, to $34.11, while shares of Genesco rose more than 3 percent, or $1.60, to $51.47.

Genesco, an accessories and footwear company, has retail brands such as Journeys and Hat World in its repertoire as well as Dockers Footwear.

Skechers markets a variety of men’s, women’s and children’s casual footwear.

On April 23, Genesco formally rejected Foot Locker Inc.’s $1.2 billion takeover offer for all outstanding shares of the company.

But Foot Locker at the time said it isn’t ruling out the possibility of raising its bid for its footwear and accessories rival.

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