NEW YORK (CNNMoney.com) -- If you think you're getting gouged at the pump - think again.

Like many other motorists, Daris Garnes thought she may be getting ripped off by her gas station when she filled up her Honda Accord in Brooklyn, N.Y., on Wednesday, a day that gasoline prices hit a new record.

"When I pull up, I don't even want to look at it sometimes," said Garnes, a speech therapist, as she paid $3.59 for a gallon of unleaded. That's more that the nationwide gas average, but it was the cheapest choice she had.

Garnes said she figured the gas stations's take was about $1.25 per gallon. Another motorist, construction worker Thomas Anthony, guessed 65 cents. But several other drivers estimated the station's take was less than a dime, and it turned out they were right.

Abby Razaque, manager of the BP station where Garnes filled up, said the owner's take was 8 cents per gallon, and that the lion's share of the proceeds go to BP.

"I get a lot of complaints," said Razaque. "I tell them I have nothing to do with the price. The [oil companies] are taking all the money that I am putting in my pocket."

For every gallon of gas, about 72% of the price goes to the producers of the crude oil from which it's made, according to the U.S. Energy Information Administration - producers like Chevron (CVX, Fortune 500), ConocoPhillips (COP, Fortune 500) and BP (BP). Exxon Mobil (XOM, Fortune 500) recently made history by reporting the highest annual profit ever for a U.S. company when it reported 2007 results.

13% of the remaining price of a gallon of gas goes to taxes, while 8% goes to the refiners, and another 8% goes to distribution and marketing, which includes gas stations.

"They're not getting gouged by the gas stations," said Peter Beutel, energy analyst for Cameron Hanover. Beutel said that 90% of all pumps are privately owned, and those owners make anywhere from 7 to 15 cents per gallon, so that a relatively petty expense, like a pump-and-run theft, can throw off their earnings for a whole day.

"Just because you're seeing the street prices go up, doesn't mean our profit has gone up," said Tom McSweeney, a co-owner of a Shell station in Jericho, Long Island. He said his former profit margin of 12 to 14 cents has dwindled to nothing.

"I bet the average person would say we were making 40 to 50 cents a gallon," said McSweeney, adding, "I wish that were the case."

Energy experts said that price gouging at the pump is a rare occurrence, largely because there is so much competitive pressure to keep the prices low.

"I don't think it's occurring at all," said Sara Banaszak, senior economist at the American Petroleum Institute. "The biggest factor in the price of gasoline is the price of crude oil."

Where gas stations make their money is off retail goods like candy bars, tires and frozen burritos, as well as services, like oil changes and auto repairs.

"A lot of times, the gas stations are making more on the coffee and donuts than on the gasoline they're selling," said Robert Sinclair, Jr., spokesman for AAA. "Sometimes the profit on a gallon of gas for the retailer is less than a penny a gallon."

Fadel Gheit, senior energy analyst for Oppenheimer, said retailers face even lower profit margins, as rising oil prices outpace gasoline. "It doesn't matter how high prices are at the pump," said Gheit. "If oil prices rise faster, you get margin squeeze."

How is the economy affecting your everyday life? Tell us about how your money situation has changed - or stayed the same - in the last few months. What's your biggest economic worry? Send us your photos and videos, or email us and share your story. 

NEW YORK (CNNMoney.com) -- Crude oil prices and the value of the dollar have been marching in different directions for months. But that may shift if the Federal Reserve signals on Wednesday that its rate-cutting campaign has come to a close.

One factor that has sent the dollar down and oil up recently has been the Federal Reserve's months-long round of rate cuts. In an attempt to stimulate the ailing U.S. economy, the central bank has cut rates by three percentage points since September. But the rate cuts are also inflationary, weakening the dollar and sending oil prices higher.

"The weak dollar is a major detriment to the price of oil," said Stephen Schork, publisher of the energyindustry newsletter The Schork Report. "It's keeping prices artificially high."

Since this time last year, the dollar has plummeted over 10% against global currencies, and oil has climbed about 80%. As the dollar continues to depreciate in value, investors have bought oil futures as a hedge against inflation.

Also, oil is priced in dollars worldwide, so a falling dollar provides less incentive for oil-exporting countries to increase output, or for foreign consumers to cut back on oil use.

As a result, oil traders will be closely watching the Fed on Wednesday. Though most economists have forecast a quarter of a percentage point cut to its key funds rate, many economists are also predicting the Fed will hint that it will keep rates steady, or even raise rates in future meetings, to protect against inflation.

"All of us are hoping for a 25-point cut with a statement that that's it," said MF Global energy analyst John Kilduff. "Some of us wouldn't mind if there's no cut."

Whispers that the current round of rate cuts is coming to an end may send crude prices lower.

"There is a very strong correlation between the dollar and crude, so it all depends on how dollar reacts to the news," said Schork. "If the dollar appreciates, then that will give crude leeway to move downward and drive a stick into this bubble"

Even the head of the Organization of Petroleum Exporting Countries (OPEC) has said that the weak dollar is a big reason behind record oil prices.

According to a report in Algerian government newspaper El Moudjahid on Monday, OPEC president Chakib Khelil said that crude prices probably would fall if not for dollar weakness. In fact, Khelil said if the dollar begins to gain back some significant ground, crude prices may fall of a cliff.

"If [the dollar] strengthens 10%, there is a good bet that [oil] prices will fall by $ 40," said Khelil.

But until that happens, don't count on OPEC to increase production again. In September, OPEC acknowledged that there was not enough crude to supply growing demand, and they allowed countries to produce more oil.

U.S. crude supplies have steadily increased since then, even as demand has fallen in the face of slowing consumer spending.

But oil prices have still jumped 58% since September, leading analysts to suggest that OPEC shouldn't increase production further since it probably won't work.

"The market went haywire regardless, so OPEC just decided they'd stick to their guns - and deservedly so," said Schork. "From their perspective, there's enough crude on the market, case closed." 

NEW YORK (CNNMoney.com) -- Congress appears eager to help more than a million homeowners facing foreclosure, but a proposal aimed at fixing the battered housing market could instead end up as the latest blow to a recovery.

An ambitious plan proposed by Rep. Barney Frank and Sen. Chris Dodd calls for up to $300 billion in loan guarantees from the Federal Housing Administration to refinance loans that homeowners can't afford as long as the original lender reduces the principal on the loan to 85% of the home's current market value.

Backers say borrowers would get out from under unworkable debt and original lenders would get back more than they would foreclosing. It would also prevent 1.5 million foreclosures and halt home-price declines since it would keep more houses from flooding an already battered market.

Critics, including some in Congress, say the rescue plan rewards reckless behavior and transfers risk to homeowners and lenders who were responsible during the housing boom.

But some experts think this is the wrong solution for purely financial reasons.

The plan won't work

Robert Shiller, a Yale economist who has long argued there was a bubble in home prices, thinks the plan will do little to stop the slide in housing prices.

The runup earlier this decade, fed by low interest rates from the Federal Reserve and lax underwriting standards by lenders, created a bubble that hasn't yet completely deflated.

Shiller notes that prices shot up 85% when adjusted for inflation from 1997 through mid-2006 and have fallen only about 15% since then.

Shiller adds that when compared to measures such as rents and household income, housing prices are still out of equilibrium

"I'm not sure we can achieve continuing high home prices," he said.

If he's right, more borrowers may find themselves owing more than their house is worth, which could add to the number of foreclosures and homes on the market.

In addition, the FHA would be left with a large portfolio of loans backed by houses worth less than the mortgage. In other words, instead of banks facing foreclosure risk, the government (and hence taxpayers) would be on the hook for billions of dollars in bad loans.

And the FHA is already strapped. The agency's estimated losses are already soaring and the FHA has been warning Congress it might no longer be able to count on premiums paid by borrowers to cover its losses.

Housing prices should be falling

Not everyone agrees with Shiller. Some think the Dodd-Frank plan willat least slow the decline in home prices. Problem is, that could ultimately be bad news for the economy too. That's because some think that, as painful as it may be, the best way to fix the housing crisis is for the free market to run its course.

After all, lower home prices might actually help stimulate demand again.

"What the market is in the process of doing is bringing home prices back to where they should be by any traditional measure," said Barry Ritholtz, CEO and director of equity research Fusion IQ. "If home prices don't go down, it means newlyweds can't go out and find a home they can afford."

The Bush administration seemed to be worried about just this kind of impact when the Dodd-Frank bill was first proposed.

"We must work to limit the impact of the housing downturn on the real economy without impeding the completion of the necessary housing correction," said Treasury Secretary Henry Paulson in a speech last month.

And Keith Hembre, chief economist of First American Funds, also is concerned that other efforts by the government to respond to problems in housing, including the Federal Reserve's recent move to accept mortgage-backed securities and collateral from lenders, will create more problems than they solve.

"Fixing the prices of one asset will distort the price of others," he said, adding that the Fed's actions could lead to inflation in other parts of the economy, as the Fed's efforts to inject money into the troubled credit markets could lead to an even weaker dollar and higher commodity prices, which would feed price pressures down the road.

There should be more renters

William Wheaton, a professor with the Massachusetts Institute of Technology's Center for Real Estate, says one quiet shift that occurred during the housing boom was that more homes and apartments went from being rental units to being owner-occupied.

Wheaton argues many of the homeowners now facing foreclosure could be better off renting the same home at current market prices, rather than trying to refinance the mortgage.

He adds that if there isn't a significant increase in the supply of homes for rent, rents will rise, which will just make things more difficult for those who do lose their homes.

For this reason, he thinks the government would be better off giving tax assistance to companies willing to buy foreclosed properties and then rent them to the current occupants.

"That could be just as good if not better for housing market, because it would also keep the foreclosed homes off the market, and limit the damage to house prices while also preventing rents from soaring," he said.

But Wheaton admits that such a move probably has little political support in Congress because politicians want to be seen as doing what they can to promote and preserve home ownership, even if people better off paying less in rent for a comparable home than they're now paying to own a home.

"It's very popular to say you're in favor of home ownership, even if it doesn't make any economic sense," he said. 

NEW YORK (CNNMoney.com) -- A pair of lawmakers on Thursday urged Congress to move forward with legislation aimed at remedying what they view as questionable practices of the credit card industry that keep consumers mired in debt.

Speaking before a panel of the House Financial Services committee, Senator Carl Levin, D-Mich. and Sen. Ron Wyden, D-Ore., urged action as Americans face rising unemployment and sluggishness in the overall U.S. economy.

"If this is going to be resolved, it has to be resolved here in Congress," said Levin.

The credit card industry has come under fire from lawmakers in recent months for what some critics have labeled "unfair" practices such as raising interest rates on debt even when consumers pay on time or when their credit scores change.

The focus of Thursday's hearing, the Credit Cardholders' Bill of Rights, was proposed earlier this year by subcommittee chairwoman Rep. Carolyn Maloney, D-N.Y.

Levin, who was among a group of 15 different witnesses scheduled to testify, introduced a similar bill in the Senate last year. If passed, the law would stop credit card issuers from charging interest rates on debt that is paid on time and require that interest rate hikes apply only to future credit card debt and not debt already incurred.

The issue has also garnered the attention of the Federal Reserve, which has proposed separate action, including requiring credit-card issuers to notify consumers at least 45 days notice if they plan on raising interest rates.

Credit card companies have argued, however, that such a law would have dire consequences on all consumers by making credit more expensive and less easily available. At the same time, issuers, and some federal regulators, have argued that new legislation could have unintended consequences.

"In short, if this bill is enacted, the financial burdens associated with the higher-risk customers will be spread across all customers," said John Carey, the chief administrative officer and executive vice president of Citigroup Inc.'s credit card division.

At the same time, some of the nation's largest credit card companies have attempted to shore up their practices. A year ago, Citigroup put an end to the practice of "universal default" which allows an issuer to raise interest rates on if you are late paying any other bills. Last fall, JPMorgan Chase announced it would work to help its customers better understand and manage their accounts through clearer pricing.

Still, lawmakers, including Rep. Maloney, stressed the need for greater protection for consumers.

"Credit cards are important part of economy, we just want them to be fair to consumers," she said.

Lawmakers on Thursday also heard tales from three consumers, including Susan Wones, a Denver woman who said the rates on her multiple credit cards spiraled higher even though she stayed below her credit limit.

"I don't believe that is fair for me to pay my bills on time and live by the rules of the contract and still be penalized," said Wones. "This system must be reformed so that customers like me are treated fairly and equitably."

Based on the most recent data from the Federal Reserve, the average American family carries an average of $2,200 in credit card debt. 

(Fortune Magazine) -- If Berkshire Hathaway's annual meeting, scheduled for May 3 this year, is known as the Woodstock of Capitalism, then perhaps this is the equivalent of Bob Dylan playing a private show in his own house: Some 15 times a year Berkshire CEO Warren Buffett invites a group of business students for an intensive day of learning. The students tour one or two of the company's businesses and then proceed to Berkshire (BRKA, Fortune 500) headquarters in downtown Omaha, where Buffett opens the floor to two hours of questions and answers. Later everyone repairs to one of his favorite restaurants, where he treats them to lunch and root beer floats. Finally, each student gets the chance to pose for a photo with Buffett.

In early April the megabillionaire hosted 150 students from the University of Pennsylvania's Wharton School (which Buffett attended) and offered Fortune the rare opportunity to sit in as he expounded on everything from the Bear Stearns (BSC, Fortune 500) bailout to the prognosis for the economy to whether he'd rather be CEO of GE (GE, Fortune 500) - or a paperboy. What follows are edited excerpts from his question-and-answer session with the students, his lunchtime chat with the Whartonites over chicken parmigiana at Piccolo Pete's, and an interview with Fortune in his office.

Buffett began by welcoming the students with an array of Coca-Cola products. ("Berkshire owns a little over 8% of Coke, so we get the profit on one out of 12 cans. I don't care whether you drink it, but just open the cans, if you will.") He then plunged into weightier matters:

Before we start in on questions, I would like to tell you about one thing going on recently. It may have some meaning to you if you're still being taught efficient-market theory, which was standard procedure 25 years ago. But we've had a recent illustration of why the theory is misguided. In the past seven or eight or nine weeks, Berkshire has built up a position in auction-rate securities [bonds whose interest rates are periodically reset at auction; for more, see box on page 74] of about $4 billion. And what we have seen there is really quite phenomenal. Every day we get bid lists. The fascinating thing is that on these bid lists, frequently the same credit will appear more than once.

Here's one from yesterday. We bid on this particular issue - this happens to be Citizens Insurance, which is a creature of the state of Florida. It was set up to take care of hurricane insurance, and it's backed by premium taxes, and if they have a big hurricane and the fund becomes inadequate, they raise the premium taxes. There's nothing wrong with the credit. So we bid on three different Citizens securities that day. We got one bid at an 11.33% interest rate. One that we didn't buy went for 9.87%, and one went for 6.0%. It's the same bond, the same time, the same dealer. And a big issue. This is not some little anomaly, as they like to say in academic circles every time they find something that disagrees with their theory.

So wild things happen in the markets. And the markets have not gotten more rational over the years. They've become more followed. But when people panic, when fear takes over, or when greed takes over, people react just as irrationally as they have in the past.

Do you think the U.S. financial markets are losing their competitive edge? And what's the right balance between confidence-inspiring standards and ...

... between regulation and the Wild West? Well, I don't think we're losing our edge. I mean, there are costs to Sarbanes-Oxley, some of which are wasted. But they're not huge relative to the $20 trillion in total market value. I think we've got fabulous capital markets in this country, and they get screwed up often enough to make them even more fabulous. I mean, you don't want a capital market that functions perfectly if you're in my business. People continue to do foolish things no matter what the regulation is, and they always will. There are significant limits to what regulation can accomplish. As a dramatic illustration, take two of the biggest accounting disasters in the past ten years: Freddie Mac and Fannie Mae. We're talking billions and billions of dollars of misstatements at both places.

Now, these are two incredibly important institutions. I mean, they accounted for over 40% of the mortgage flow a few years back. Right now I think they're up to 70%. They're quasi-governmental in nature. So the government set up an organization called OFHEO. I'm not sure what all the letters stand for. [Note to Warren: They stand for Office of Federal Housing Enterprise Oversight.] But if you go to OFHEO's website, you'll find that its purpose was to just watch over these two companies. OFHEO had 200 employees. Their job was simply to look at two companies and say, "Are these guys behaving like they're supposed to?" And of course what happened were two of the greatest accounting misstatements in history while these 200 people had their jobs. It's incredible. I mean, two for two!

It's very, very, very hard to regulate people. If I were appointed a new regulator - if you gave me 100 of the smartest people you can imagine to work for me, and every day I got the positions from the biggest institutions, all their derivative positions, all their stock positions and currency positions, I wouldn't be able to tell you how they were doing. It's very, very hard to regulate when you get into very complex instruments where you've got hundreds of counterparties. The counterparty behavior and risk was a big part of why the Treasury and the Fed felt that they had to move in over a weekend at Bear Stearns. And I think they were right to do it, incidentally. Nobody knew what would be unleashed when you had thousands of counterparties with, I read someplace, contracts with a $14 trillion notional value. Those people would have tried to unwind all those contracts if there had been a bankruptcy. What that would have done to the markets, what that would have done to other counterparties in turn - it gets very, very complicated. So regulating is an important part of the system. The efficacy of it is really tough.

At Piccolo Pete's, where he has dined with everyone from Microsoft's Bill Gates to the New York Yankees' Alex Rodriguez, Buffett sat at a table with 12 Whartonites and bantered over many topics.

How do you feel about the election?

Way before they both filed, I told Hillary that I would support her if she ran, and I told Barack I would support him if he ran. So I am now a political bigamist. But I feel either would be great. And actually, I feel that if a Republican wins, John McCain would be the one I would prefer. I think we've got three unusually good candidates this time.

They're all moderate in their approach.

Well, the one we don't know for sure about is Barack. On the other hand, he has the chance to be the most transformational too.

I know you had a paper route. Was that your first job?

Well, I worked for my grandfather, which was really tough, in the [family] grocery store. But if you gave me the choice of being CEO of General Electric or IBM or General Motors, you name it, or delivering papers, I would deliver papers. I would. I enjoyed doing that. I can think about what I want to think. I don't have to do anything I don't want to do. It might be wonderful to be head of GE, and Jeff Immelt is a friend of mine. And he's a great guy. But think of all the things he has to do whether he wants to do them or not.

How do you get your ideas?

I just read. I read all day. I mean, we put $500 million in PetroChina. All I did was read the annual report. [Editor's note: Berkshire purchased the shares five years ago and sold them in 2007 for $4 billion.]

What advice would you give to someone who is not a professional investor? Where should they put their money?

Well, if they're not going to be an active investor - and very few should try to do that - then they should just stay with index funds. Any low-cost index fund. And they should buy it over time. They're not going to be able to pick the right price and the right time. What they want to do is avoid the wrong price and wrong stock. You just make sure you own a piece of American business, and you don't buy all at one time.

When Buffett said he was ready to pose for photographs, all 150 students stampeded out of the room within seconds and formed a massive line. For the next half hour, each one took his or her turn with Buffett, often in hammy poses (wrestling for his wallet was a favorite). Then, as he started to leave, a 77-year-old's version of A Hard Day's Night ensued, with a pack of 30 students trailing him to his gold Cadillac. Once free, he drove this Fortune writer back to his office and continued fielding questions.

How does the current turmoil stack up against past crises?

Well, that's hard to say. Every one has so many variables in it. But there's no question that this time there's extreme leveraging and in some cases the extreme prices of residential housing or buyouts. You've got $20 trillion of residential real estate and you've got $11 trillion of mortgages, and a lot of that does not have a problem, but a lot of it does. In 2006 you had $330 billion of cash taken out in mortgage refinancings in the United States. That's a hell of a lot - I mean, we talk about having $150 billion of stimulus now, but that was $330 billion of stimulus. And that's just from prime mortgages. That's not from subprime mortgages. So leveraging up was one hell of a stimulus for the economy.

If that was one hell of a stimulus, do you think the $150 billion government stimulus plan will make an impact?

Well, it's $150 billion more than we'd have otherwise. But it's not like we haven't had stimulus. And then the simultaneous, more or less, LBO boom, which was called private equity this time. The abuses keep coming back - and the terms got terrible and all that. You've got a banking system that's hung up with lots of that. You've got a mortgage industry that's deleveraging, and it's going to be painful.

The scenario you're describing suggests we're a long way from turning a corner.

I think so. I mean, it seems everybody says it'll be short and shallow, but it looks like it's just the opposite. You know, deleveraging by its nature takes a lot of time, a lot of pain. And the consequences kind of roll through in different ways. Now, I don't invest a dime based on macro forecasts, so I don't think people should sell stocks because of that. I also don't think they should buy stocks because of that.

Your OFHEO example implies you're not too optimistic about regulation.

Finance has gotten so complex, with so much interdependency. I argued with Alan Greenspan some about this at [Washington Post chairman] Don Graham's dinner. He would say that you've spread risk throughout the world by all these instruments, and now you didn't have it all concentrated in your banks. But what you've done is you've interconnected the solvency of institutions to a degree that probably nobody anticipated. And it's very hard to evaluate. If Bear Stearns had not had a derivatives book, my guess is the Fed wouldn't have had to do what it did.

Do you find it striking that banks keep looking into their investments and not knowing what they have?

I read a few prospectuses for residential-mortgage-backed securities - mortgages, thousands of mortgages backing them, and then those all tranched into maybe 30 slices. You create a CDO by taking one of the lower tranches of that one and 50 others like it. Now if you're going to understand that CDO, you've got 50-times-300 pages to read, it's 15,000. If you take one of the lower tranches of the CDO and take 50 of those and create a CDO squared, you're now up to 750,000 pages to read to understand one security. I mean, it can't be done. When you start buying tranches of other instruments, nobody knows what the hell they're doing. It's ridiculous. And of course, you took a lower tranche of a mortgage-backed security and did 100 of those and thought you were diversifying risk. Hell, they're all subject to the same thing. I mean, it may be a little different whether they're in California or Nebraska, but the idea that this is uncorrelated risk and therefore you can take the CDO and call the top 50% of it super-senior - it isn't super-senior or anything. It's a bunch of juniors all put together. And the juniors all correlate.

If big financial institutions don't seem to know what's in their portfolios, how will investors ever know when it's safe?

They can't, they can't. They've got to, in effect, try to read the DNA of the people running the companies. But I say that in any large financial organization, the CEO has to be the chief risk officer. I'm the chief risk officer at Berkshire. I think I know my limits in terms of how much I can sort of process. And the worst thing you can have is models and spreadsheets. I mean, at Salomon, they had all these models, and you know, they fell apart.

What should we say to investors now?

The answer is you don't want investors to think that what they read today is important in terms of their investment strategy. Their investment strategy should factor in that (a) if you knew what was going to happen in the economy, you still wouldn't necessarily know what was going to happen in the stock market. And (b) they can't pick stocks that are better than average. Stocks are a good thing to own over time. There's only two things you can do wrong: You can buy the wrong ones, and you can buy or sell them at the wrong time. And the truth is you never need to sell them, basically. But they could buy a cross section of American industry, and if a cross section of American industry doesn't work, certainly trying to pick the little beauties here and there isn't going to work either. Then they just have to worry about getting greedy. You know, I always say you should get greedy when others are fearful and fearful when others are greedy. But that's too much to expect. Of course, you shouldn't get greedy when others get greedy and fearful when others get fearful. At a minimum, try to stay away from that.

By your rule, now seems like a good time to be greedy. People are pretty fearful.

You're right. They are going in that direction. That's why stocks are cheaper. Stocks are a better buy today than they were a year ago. Or three years ago.

But you're still bullish about the U.S. for the long term?

The American economy is going to do fine. But it won't do fine every year and every week and every month. I mean, if you don't believe that, forget about buying stocks anyway. But it stands to reason. I mean, we get more productive every year, you know. It's a positive-sum game, long term. And the only way an investor can get killed is by high fees or by trying to outsmart the market.  

NEW YORK (CNNMoney.com) -- The school buses in Dubuque County, Iowa, travel 4,900 miles each day ferrying kids to and from class. That's the equivalent of driving across the entire United States and halfway back again.

The price of the diesel these buses run on has jumped 35 percent over the last year. The extra money paid to fuel the buses must come out of the local school district's general fund - money it would prefer to spend on other things.

"It's computers, it's teachers, it's you name it," said Bob Hingtgen, director of transportation at Western Dubuque County Community School District, located 65 miles north of Iowa City. "The pie is only so big. If a bigger slice is going to transportation, it leaves a smaller slice for everything else."

Hingtgen said the district spent $50,000 more fueling its 80 buses this year than it did last year, or roughly what he said it would cost for the starting salaries of two teachers.

Districts hurt by high prices. Although the effect of the rising price of fuel on school funding hasn't gotten much attention from national school administration organizations, administrators working in school systems across the country are feeling the impact.

From teachers and books to bus routes and field trips, the soaring price of fuel is causing school districts across the country to cut back - especially in more rural areas where the tax base small and the distance to bus students is large.

About 90 miles west of Dubuque, administrators in Waterloo spent $70,000 more this year on diesel than they did last year.

Waterloo, with more than 10,000 students and 25 schools, is much larger than Dubuque. But even out of a budget of $100 million a year, $70,000 still hurts.

"When you're dealing with budgets that have been pared down to the thousands of dollars per building, it makes a big difference," said Michael Coughlin, director of administrative services at the Waterloo Community School District.

To cope, the district is freezing the budget for classroom supplies. That means no increase in workbooks and other materials, and updating things like textbooks and software will take a little longer than planned, said Coughlin.

In Northern California, some students in the Paradise Unified School District have to walk a little further to catch the bus, or catch a ride with their parents.

Paradise canceled three of its roughly 20 bus routes last year in response to high fuel costs, said Susan Stutznegger, the district's budget director.

"Even though we cut back, we still haven't been able to achieve any savings because [rising diesel prices] have eaten that up," she said.

So this year the district is axing three or four more routes, and not filling two vacancies for bus drivers.

Eventually, textbooks will have to be replaced and teachers hired. In many places the solution will likely be similar to the one in Helena, Mont.

The school district there has cut back on field trips, sports equipment, and other extra-curricular activities. But state law prohibits local districts from cutting educational funding, according to Superintendent Bruce Messinger.

"We have not altered service," said Messinger. "The increased costs are going to be passed on to local taxpayers." 

NEW YORK (CNNMoney.com) -- Americans are becoming increasingly worried about saving for their retirement as the nation's economic outlook continues to darken, according to a new survey of workers and retirees released Wednesday.

Only 18% of workers polled werevery confident about saving enough money for a comfortable retirement, according to the Employee Benefit Research Institute's 2008 Retirement Confidence Survey. That's the steepest annual decline in the survey's 18-year history, and down sharply from 27% in the previous year.

While confidence levels among all respondents declined, the survey found younger (ages 25-34) and lower income (under $35,000 annually) workers were the most dispirited about their ability to save for a comfortable retirement.

There are many factors that contribute to savings planning but "the economy and health costs are major concerns," said Dallas Salisbury, president of the EBRI, in a statement.

Health care woes. More than half of workers who retired earlier than planned, did so because of health problems or disability, according to the survey.

At the same time, nearly half of the retirees polled said their health care costs were higher than they expected and more than half say they are more worried about their financial future now than they were right after entering retirement.

Retirees aren't the only ones worried about health care costs. The survey showed that only 34% of workers expect to collect employer-paid health insurance after they stop working, down from 42% last year, as more employers eliminate health care for future retirees.

A rising awareness about the diminishing availability of employer-paid health care coverage in retirement may actually turn out to be a blessing in disguise, according to Salisbury.

"If there is a silver lining, it's that Americans finally may be waking up to the realities of being able to afford retirement," he said. And that reality may lead to more prudent savings plans.

Modest savings. Overall, the amount of money that workers are socking away for retirement is modest at best, according to the EBRI.

Nearly half of all workers have less than $25,000 set aside. And a full 22% of workers and 28% of retirees say they have no savings of any kind.

As a general rule, retirement savings - including social security benefits and pension - should be large enough to provide about 80% of pre-retirement income.

Unrealistic expectations. Workers may also be basing their retirement plans on "unrealistically low" estimates about how much they will spend after leaving the work force, according to the EBRI.

The survey found that 58% of workers think they will spend less money in retirement than they do while working.

However, only 46% of retirees said that was the case and 54% said they were more concerned about money now than they were at the beginning of their retirement.

Do the math. Completing a retirement savings calculation is one of the best ways to encourage good saving habits.

After calculating a goal amount for retirement, 44% of respondents said they modified their savings plans, with 59% increasing the amount they put away.

Other respondents changed their investment mix, reduced debt or spending, or enrolled in a retirement savings plan at work.  

NEW YORK (CNNMoney.com) -- At the center of all of Washington's efforts to rescue the battered housing markets is the formerly obscure Federal Housing Administration.

But it's not clear whether the agency is up to the task or whether it will need a taxpayer-funded rescue of its own.

The agency currently backs $385 billion in mortgage loans, but that figure could double in the coming year if some of leading proposals in the White House and Congress go through.

"We are asking a lot of an agency that, prior to this year, had seen its market share shrink to almost nothing," said Jaret Seiberg, senior vice president at the Stanford Group, a Washington policy research firm.

"Now we're asking it to fill the gap left by not only subprime lenders, but to be the first choice [for many borrowers.] That is an enormous challenge."

Even FHA officials concede they don't know if the agency can handle the increased role. The FHA has been a small lifeboat helping a select group of home buyers, but it could be overwhelmed by the rush of new borrowers trying to climb aboard.

"That's a pretty good analogy," said Bill Glavin, special assistant to the FHA Commissioner. "It's pretty much uncharted water. We've never been asked to do these things before. We were already facing a lot of uncertainty, to be honest. It's going to be a whole new FHA, and there are going to be risks that go with it."

The FHA is a New Deal-era agency that helped create the modern mortgage market. The FHA program is intended for mortgage borrowers with weak credit or little or no cash, who may not be able to otherwise get an affordable mortgage.

Borrowers get FHA loans from private lenders, just as they would any other mortgage. FHA offers insurance to cover lenders if those borrowers, who pay a small insurance premium to the FHA every month, default on the loan.The FHA uses those premiums to cover the lender in the event of foreclosure.

During the housing boom in recent years, FHA's share of mortgages fell to only 7% of mortgage loans outstanding in 2007. Now that the mortgage market has collapsed, the FHA is suddenly the only choice for many borrowers and lenders.

"Many of the financing opportunities available to even prime borrowers have really been scaled back, through increased down payment requirements and [the requirement of] higher credit scores," said Corey Carlisle, senior director of governmental affairs for the Mortgage Bankers Association. "FHA is playing an important role providing stability."

And Washington wants the agency to shoulder even more responsibility.

About 150,000 borrowers have refinanced under a new program called FHASecure in the past six months. Launched in September, this program is aimed at subprime borrowers facing steep mortgage rate resets that they couldn't afford. That volume compares to the total of 425,000 loans the FHA backed in its previous fiscal year.

What's more, the loan limit on FHA loans was increased in March, which will further expand FHA's portfolio.

Two of the leading Congressional Democrats, House Finance Chairman Barney Frank and Senate Banking Chairman Chris Dodd, proposed legislation that would have the FHA back an additional $300 billion in refinanced mortgages, after the lender cuts the loan principal to 85% of a home's current market value.

Sen. Hillary Clinton has called for the FHA to take a direct role in buying, restructuring and then reselling underwater mortgages, rather than asking the lender to work out an agreement.

The Bush administration has yet to endorse as extensive a role for the FHA as leading Democrats are calling for, but it has signaled a willingness to expand the eligibility requirements for the FHASecure program for at-risk borrowers.

But Federal Deposit Insurance Corp. Chairman Sheila Bair acknowledged the risks inherent to the Frank plan in her testimony before Congress on Wednesday, saying no one knows if FHA premiums will be able to cover the increased risk of FHA's expanded mission.

"Losses that exceed the funds available in the reserve would have to be covered by taxpayers," she warned.

Those concerns were echoed by FHA Commissioner Brian Montgomery during the same hearing.

"The FHA should not be forced legislatively to compromise its fundamental criteria at the future expense of the taxpayer," he said. "The FHA currently is self-sustaining. As you know, few government programs can claim the same. We do not want to cross that line, particularly at a time when we are most needed."

The agency began backing increasingly risky loans even before this crisis hit. The cost of potentially bad loans insured by the FHA was estimated at $7.5 billion as of Sept. 30, up from $3 billion a year earlier and just $1.9 billion a year before that.

There are already signs that the FHA is overburdened. "We're hearing from members that getting FHA approval is taking longer," said Carlisle.

Some experts back the idea of making the FHA more aggressive, even if it will eventually require a taxpayer bailout.

"We sometimes refer to these proposals as stealth bailouts," said Seiberg, "because they don't necessarily require money today, but they may require funds down the road."

Seiberg and other economists agree that there's a risk of a taxpayer housing bailout no matter what FHA does.

"Congress may decide that it wants FHA to take more risk because it doesn't require [the government] to appropriate money up front, and it may not require money on the backside if we're able to turn this crisis around," said Seiberg.

"But if you can't turn this crisis around, if home price declines continue for two or three years, all lenders will be in trouble, and so will the FHA." 

NEW YORK (CNNMoney.com) -- The average price of regular gasoline jumped more than a penny to a new record high, a AAA survey showed Wednesday.

The average price of regular unleaded rose 1.2 cents to $3.343 a gallon from the $3.331 the day before, according to AAA's Web site.

Gas prices are up nearly 20% from what they were last year. A month ago, the nationwide average was $3.222 a gallon.

Gasoline prices normally rise during the spring as people travel more. However, the record pump prices have also been supported by high crude prices as shrinking profit margins cause refiners to pull back on production.

United Parcel Service, a major shipping company, reduced its first-quarter earnings predictions because of the high price of fuel.

The average price per gallon of diesel fuel rose more than a cent to $4.032, just a few tenths of a cent below the record high set in late March.

The rising price of diesel fuel has been a major concern for workers in the trucking industry. Diesel averaged $3.829 a gallon last month and $2.904 a year ago.

Costliest in California. California led the nation in pricey gas, at $3.746 a gallon. Hawaii and Alaska both maintained gas prices above $3.60 a gallon.

New Jersey remained the only state to see gas prices below $3.10 a gallon. Prices rose almost 2 cents to $3.074 a gallon.

The AAA survey, updated daily, tracks prices at roughly 80,000 service stations across the country. It is conducted for the group by Oil Price Information Service. 

NEW YORK (CNNMoney.com) -- Some members of the Federal Reserve are worried about the possibility of a "severe and protracted downturn" in the U.S. economy that could last into next year, according to the minutes of the central bank's latest meeting released Tuesday.

The Fed said its staffers now expect the nation's gross domestic product (GDP) to shrink in the first half of this year, the clearest signal yet from the central bank that its members think the economy could be close to entering a recession -- if it hasn't already. Many Fed policymakers indicated that a downturn in the economy in the first half of the year "now appeared likely."

The minutes from the March 18 meeting show that some Fed policymakers are concerned the problems in the "housing sector had deepened and that considerable uncertainty surrounded the outlook for housing."

The release of the minutes come a week after Fed Chairman Ben Bernanke said during Congressional testimony that a "recession was possible." He also said that real GDP might grow slightly in the first half of the year but conceded that it could also contract.

The National Bureau of Economic Research is the official arbiter of when recessions begin and end and the NBER often does not declare an official recession until months after a downturn begins. But a common shorthand definition for a recession is two consecutive quarters of declines in GDP.

The Fed's forecasts for the rest of the year and next year are perhaps more worrisome, however. According to the minutes, the Fed said its staff is projecting only a slow rise in GDP in the second half of this year. It also said there is a risk that the economic slump could continue all the way into 2009.

The minutes pointed to the uncertainty in the battered housing and financial markets as the reason that the downturn could extend into next year.

"Several participants noted that the problems of declining asset values, credit losses, and strained financial market conditions could be quite persistent, restraining credit availability and thus economic activity for a time and having the potential subsequently to delay and damp economic recovery," the Fed said.

Fed members also conceded that even with its policy of aggressive rate cuts, the Fed may not be equipped to deal with more problems in these markets.

The Fed cut its key federal funds rate by three-quarters of a point at the March 18 meeting, its sixth rate cut since September.

The Fed has been cutting rates in an effort to keep the U.S. economy from falling into recession following the meltdown of the subprime mortgage market and resulting credit crunch.

Pessimism surprises Fed watchers

Fed watchers said they were taken aback by the new, grimmer view of the economy presented in the minutes, especially since some on Wall Street have been expressing hope that the worst may be over following the Fed's rescue of embattled investment bank Bear Stearns.

"They were more blunt, more pessimistic than I thought they would be," said David Wyss, chief economist with Standard & Poor's.

The Fed agreed to lend up to $29 billion to JPMorgan Chase last month to help it buy Bear Stearns and keep it from bankruptcy. There was no indication of any debate about this unprecedented move in the minutes.

John Silvia, chief economist for Wachovia, also said he was surprised by the Fed's tone. But he said he does not expect the Fed to cut rates aggressively at the conclusion of a two-day meeting later this month.

He's forecasting a quarter of a percentage point cut in the federal funds rate -- to 2%. Others on Wall Street also thinks a quarter-point cut is the most likely outcome after the Fed wraps up its meeting on April 30 as well. According to futures trading on the Chicago Board of Trade, investors are pricing in a 100% chance of a quarter-point cut but only a 44% chance of a half-point cut.

But that's up from only a 20% chance of a half-point cut as recently as last week. And Silvia thinks another cut at the Fed's meeting in June is now possible as the Fed continues to weigh concerns about the slowdown with fears of rising commodity prices and a weak dollar.

"I think that the committee is going to drag its feet. There are enough people on there concerned about the inflation risks longer term," said Silvia.

To that end, despitethe growing belief that the economy is already in recession, the presidents of the Dallas and Philadelphia Federal Reserve Banks voted against cutting rates by three-quarters of a point last month, a rare amount of dissent on the central bank. 

NEW YORK (CNNMoney.com) -- You may think your job is safe. But you still may not be spared the pain resulting from the weak labor market.

The loss of nearly a quarter-million jobs so far this year and a jump in the unemployment rate means the debate over whether there is a recession is pretty much over.

"There is a recession. The question now is how deep and how long," said Lakshman Achuthan, the managing director of the Economic Cycle Research Institute. And he thinks the economy could get worse.

Here's a look at how a deteriorating job market could lead to a worse recession than many are predicting.

Less money in workers' pockets

First of all, a weak labor market could lead to smaller wage increases for workers in all types of industries, as employers get more conservative.

A recent survey by human resources consulting firm Mercer found that 6% of U.S. employers are already trimming their compensation budgets and another 10% are considering cuts.

But the real problem for workers is that slim salary increases may not keep up with inflation, especially with food and energy prices soaring.

From November through February, average hourly wages have fallen compared to a year earlier, when adjusted for inflation, and the modest gain in wages reported for March will likely be wiped out by price gains when the Consumer Price Index is reported later this month.

Inflation pressures could intensify further if the Federal Reserve continues to slash rates in an effort to spur the economy. That's because the Fed's rate cuts have been one factor behind the weak dollar.

A weaker dollar means higher prices for imported goods, especially commodities like oil. The record high for gasoline and the record lows for the dollar are not a coincidence.

Ashraf Laidi, chief foreign exchange strategist for CMC Markets US, said the dollar could lose another 5 percent this year versus both the dollar and the yen as the economy continues to slow. He thinks it will be "difficult for the dollar to make any recovery" if the Fed keeps cutting rates.

Deeper problem for troubled sectors

It now appears the recession started late last year. But the labor market was the one bright spot for much of 2007. Now, a rising unemployment rate has the potential to further dent consumer confidence and put a crimp in spending.

"As long as the unemployment rate was low, people had the sense they could continue to spend and count on improving income," said Bernard Baumohl, executive director of The Economic Outlook Group, a Princeton, N.J. economic research firm. "That has all dramatically changed since the summer of 2007."

An even bigger fear is that the most troubled spots in the economy -- housing, Wall Street and the auto sector -- will suffer even more.

More home price declines

The housing market has already taken a major hit. And the plunge in home values, the worst since the Great Depression, happened even with the labor market being relatively healthy last year.

Normally, home sales and prices don't plunge unless there is weakness in the job market. Well, now there is. So that's another big concern for the already battered real estate market.

Some homeowners who lose their jobs may not be able to afford their mortgage payments because of a loss of income. That could force more people to sell at distressed prices, or have their homes go into foreclosure if they can't find a buyer.

And this could hurt you even if you have a safe job and home that's fully paid off since it may mean that your house will now be worth less than previously.

More shocks to Wall Street

The housing problems triggered a meltdown on Wall Street last year, the aftershocks of which are still being felt. When mortgage defaults and delinquencies on subprime mortgages started to rise, it caused big problems for securities backed by those riskier home loans.

But if more people who had conventional home loans find themselves out of work and have difficulty paying their mortgages, this could affect safer loans backed by government-sponsored mortgage finance firms Fannie Mae (FNM) and Freddie Mac (FRE, Fortune 500).

A rise in defaults in mortgages made to people with good credit, Fannie's and Freddie's bread and butter, would put more strain on their already stretched capital reserves.

In the worst case scenario, they might need their own government-sponsored rescue, said Dean Baker, co-director of the Center for Economic and Policy Research.

"Subprime loans went bad first but a lot of the prime loans will go bad as well," he said. "I would be surprised [Fannie and Freddie] don't need some help before this over."

What's more, Wall Street is awash in securities backed by other types of consumer debt, including car loans and credit card balances. If rising unemployment causes higher delinquencies with those types of loans, then there is a strong possibility of more unpleasant surprises ahead in the credit markets.

"I'll be surprised if we don't see another investment bank get itself into trouble," Baker said.

Auto woes: Not just Detroit any more

The auto industry was battered by high gas prices last year. Sales fell 2.5% in the U.S last year. This year started out even worse, with first quarter sales down 8% compared to a year ago.

And the weak economy is starting to hurt overseas automakers like Toyota Motor (TM), which also saw U.S. sales fall in the first quarter.

Automotivemarket research firm CNW reports that buyer traffic is sharply lower across the industry. According to the most recent report from CNW, floor traffic at dealerships plunged nearly 30% in the second half of March, the largest drop since the early 1990s.

If more people find themselves out of work, this trend is likely to continue. That could spell trouble for employees of leading Asian automakers, which now make about half the cars and trucks they sell in the U.S. at North American plants.

So far, many of these manufacturers have avoided the temporary shutdowns and closings common at GM (GM, Fortune 500), Ford (F, Fortune 500) and Chrysler. But weak demand could lead to job cuts and reduced hours by the likes of Toyota, Honda and others.

And if that happens, this could be bad news for many companies that depend upon the auto industry, from parts makers to dealerships and even to media companies that depend on advertising from car companies.

Simply put, fewer auto sales could lead to a deeper recession.