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President Barack Obama has placed a big political wager on his ability to pull off a radical remake of the U.S. auto industry.

The risks he faces are myriad, including a backlash from his union faithful and from voters worried that he may be taking too strong a role in deciding the fate of private companies.

Mr. Obama’s tough actions on General Motors Corp. and Chrysler LLC are also drawing critical comparisons to his more cautious approach to the problems of big, sick banks and insurance companies. Mr. Obama demanded the ouster of GM’s CEO, Rick Wagoner, just three days after hosting a gathering of bankers at the White House, and seeking their help with his financial rescue plan.

Michigan Gov. Jennifer Granholm, a Democrat and Obama ally, defended Mr. Wagoner as a “sacrificial lamb” and noted “a perception here that there’s been a double standard with respect to the way manufacturing companies are treated and the way Wall Street is treated.”

On Capitol Hill, reaction to Mr. Obama’s plan covered the spectrum. Some in Congress said he had overstepped his authority by ousting Mr. Wagoner. Others applauded him for decisiveness in protecting the U.S. taxpayer by threatening to cut off all additional loans to GM and Chrysler if the companies don’t move swiftly to trim their operations.

Democratic Rep. Sander Levin of Michigan, brother of Sen. Carl Levin (D., Mich.), said on television that he thought the administration had learned not to treat Wall Street favorably after the uproar over bonuses paid to employees of American International Group Inc. “I think the answer is we need to get tough with Wall Street,” Mr. Levin said. “I mean, that’s the answer. And I think there hasn’t always been a single standard.”

Republican Sen. Bob Corker of Tennessee was more blunt. “This is a marked departure from the past, truly breathtaking, and should send a chill through all Americans who believe in free enterprise,” he said.

Mr. Obama won office in part due to support from auto workers in Michigan, Ohio and Indiana. But his plan, which calls for shrinking the country’s No. 1 and No. 3 car makers and reducing workers’ wages, could reverberate badly in those states, especially if it strips these workers of retirement benefits to which they feel entitled.

The president’s concern about those three swing states was expressed in his announcement that he will appoint Edward Montgomery, a former deputy labor secretary, to be a new Director of Recovery for Auto Communities and Workers to oversee efforts to make sure workers and communities battered by GM and Chrysler shutdowns get help.

At the same time, Mr. Obama’s focus on the unionized Detroit auto industry risks turning off the thousands of people who work for nonunion auto-making operations set up by Honda Motor Co., Toyota Motor Corp., Nissan Motor Co., BMW AG, Daimler AG and others in Kentucky, Alabama, Mississippi, Texas, Tennessee and California, among other states. Mr. Obama today made almost no mention of these U.S. auto makers, none of which are seeking federal aid.

The administration’s intervention at GM, where the government plans to replace most of the board of directors, also sent a strong ripple of concern through corporate America. “Are we moving toward a system similar to the French government’s ownership and control of corporations in France?” asked James E. Rogers, chief executive of Duke Energy. “If I was a banker that took [Treasury Department loans], I’d find a way to give it back as soon as possible.”

Union leaders reacted wearily to President Obama’s call for still deeper concessions. “It seems apparent to me that when you have the largest auto maker in the country, they’re going to get hit the hardest by what’s happening in the economy. Whose fault is that?” said Jeff Manning, the 46-year-old president of UAW Local 31, which represents GM workers who build Chevrolet Malibu sedans in Kansas City, Kansas. President Obama “has a responsibility to all Americans, so I can understand what he’s trying to do, but we need more time to recover,” Mr. Manning said.

There are also many risks inherent in Mr. Obama’s strategy to fix GM and Chrysler. Chrysler’s proposed alliance with Italy’s Fiat SpA might fall through. And even if it succeeds, it will take time for Fiat technology and cars to reach Chrysler showrooms. Fiat’s small cars, while successful in Europe and Latin America, could easily fall flat in the U.S. unless gas prices rise again and spur consumers to shift to more compact rides. As U.S. gas prices have eased since last summer, so has demand for hybrid and small cars, dealers say.

GM poses even more significant challenges. The administration is looking to shear off sagging brands as well as the company’s retiree health-care obligations.

Credit markets showed modest signs of improvement Friday, but even as government debt prices dipped, they remained near record highs, indicating that investors were still very fearful.

The overnight bank-to-bank lending rate dropped for the fifth day running Friday after a handful of European central banks slashed interest rates. Government debt prices gyrated, but remained elevated, after the Labor Department reported that that payrolls lost more jobs in November than in any single month in 34 years.

The overnight Libor rate fell to 0.28% Friday according to the British Bankers’ Association, from 0.52% Thursday, setting a new low for the lending rate. One month ago, the overnight Libor rate dropped to 0.32%, which was overnight Libor’s lowest level since the British Bankers’ Association began calculating the rate in 1997.

Meanwhile, the 3-month Libor rate remained at 2.19%, unchanged from Thursday. The bank-to-bank lending rate had fallen for three consecutive days.

Libor, the London Interbank Offered Rate, is a daily average of what 16 different banks charge other banks to lend money in London, and is used to calculate adjustable-rate mortgages. More than $350 trillion in assets are tied to Libor.

The plunging overnight bank-to-bank lending rate "shows you the amount of short term liquidity in the system is huge," said Steve Van Order, fixed income strategist at Calvert Funds. "They have made progress on the Libor rate but further out the curve, it does remain sticky."

Confidence in the credit market depends on institutions being able to trust each other, and the government has guaranteed a lot of the transactions. "If you are dealing with a program that has a got backstop, things are better," said Van Order. However, lending facilities that have not been guaranteed by the federal government are still facing tight credit conditions, he added.

Europe slashed lending rates: Short-term lending rates plunged to record lows the day after the European Central Bank, Bank of England and the Swedish Riksbank all announced interest rate cuts. Central banks lower their key lending rates in order to spur economic activity.

Meanwhile, the U.S. Federal Reserve has slashed its key lending rate nine times since September 2007, and at the end of October the Fed cut the key lending rate in the U.S. to 1%. Other central banks have not moved as quickly as the U.S. to cut lending rates, but they have started stepping up. The European central banks "really just trying to get caught up as quickly as possible," said Van Order.

The U.S. central bank is focusing on other ways to help the credit market recover to health, besides lowering its key lending rate. The Treasury is considering plans to get 30-year home mortgage rates down to 4.5%.

In a prepared remarks that Federal Reserve chairman Ben Bernanke delivered Monday, he said that while the government can only lower interest rates so far, "the second arrow in the Federal Reserve’s quiver - the provision of liquidity - remains effective."

Bernanke said that the central bank can do more than just lend out capital. One of the options Bernanke mentioned as a possibility was purchasing government debt. "The Fed could purchase longer-term Treasury or agency securities on the open market in substantial quantities," said Bernanke.

Last week, the Treasury unveiled a $600 billion plan to invest in mortgage securities of the government-backed Fannie, Freddie and Ginnie Mae.

Government debt: Treasury prices dipped Friday, but debt prices held near record highs and yields at record lows. Investors have been spooked out of riskier investments like stocks amid unprecedented market volatility during what was this week officially declared a recession.

The U.S. entered the current recession in December of 2007. A jobs report released by the government Friday said the economy shed 533,000 jobs in November, bringing the year’s total job losses to 1.9 million. The job losses recorded in November were the largest since December 1974.

The unemployment rate rose to 6.7% in November from 6.5% in October, lower than economists’ forecast of 6.8%, according to the Labor Department’s monthly jobs report. It is the highest unemployment rate since October 1993.

Also adding to investor uncertainty, the fate of Detroit’s Big Three - General Motors (GM, Fortune 500), Ford Motor (F, Fortune 500) and Chrysler LLC - is in limbo as the executives from the three companies plead their case for a bailout on Capital Hill.

Treasurys are perceived as one of the safest places for investors to keep their assets in times of economic uncertainty, and higher prices signal a flight to safety.

In addition to the market uncertainty and dour economic outlook that have kept investors paying a premium for the safe haven of government bonds, Van Order said that the possibility that the government could be purchasing its own debt in the future could be affecting the Treasury market.

The price on the benchmark 10-year note fell 1-4/32 to 109-11/32 and its yield rose to 2.68% from 2.55% late Thursday. Last week, the 10-year yield fell below 3% for the first time since the note was first issued in 1962. Bond prices and yields move in opposite directions.

The 30-year bond fell 1-19/32 to 126-22/32 and its yield rose to 3.11%. The bond was 3.08% late Tuesday, pushing past the record 3.17% low point set Wednesday. The yield on the long bond has been setting new record lows daily.

The 2-year note dipped 8/32 to 100-20/32 and its yield rose to 0.94% from 0.84% late Thursday.

The yield on the 3-month ticked slightly higher to 0.02% from 0.01%. That yield hovered very close to 0% for most of the session Thursday and approached the same level again Friday.

The 3-month bill is closely watched as an indicator of investor confidence. Investors and money-market funds shuffle funds in and out of the 3-month bill frequently, as they assess risk in the rest of the marketplace. A higher yield indicates that investors are slightly more optimistic.

Credit market gauges: Several credit market gauges were little changed Friday.

The "TED spread" narrowed to 2.17 percentage points from 2.18 percentage points late Thursday. The TED spread measures the difference between the 3-month Libor and the 3-month Treasury bill, and is a key indicator of risk. The higher the spread, the more unwilling investors are to take risks.

Another indicator, the Libor-OIS spread, widened to 1.88 percentage points from 1.86 percentage points late Thursday. The Libor-OIS spread measures how much cash is available for lending between banks, and is used for determining lending rates. The bigger the spread, the less cash is available for lending