Under fire from the left and the right, Treasury Secretary Henry M. Paulson Jr. has a tough fight and few allies as he seeks congressional approval to top off the tank with the second $350 billion from the federal bailout fund.
Key Democrats, including House Speaker Nancy Pelosi of California and House Financial Services Committee Chairman Barney Frank of Massachusetts, complained that the Treasury’s $700 Troubled Asset Relief Program, or TARP, has done little to help struggling homeowners even as it has pumped out the first $350 billion to boost the balance sheets of banks and other financial firms.
“Despite Congress’ clear intent that TARP be used to stem foreclosures, so far no TARP funds have been used for that purpose,” Senate Majority Leader Harry Reid told a forum in the Democrat’s home state of Nevada last week.
At Mrs. Pelosi’s instigation, Mr. Frank’s committee has started drafting a bill that would strengthen conditions that the next round of TARP funding focus strongly on homeownership. Mr. Frank said a new consensus — including Mr. Paulson, President-elect Barack Obama and top congressional leaders — will be required before the second tranche of $350 billion could be approved.
“We need the second $350 billion, but it can only be done if there’s an agreement as to how to do it,” he told Bloomberg News in an interview.
For their part, Republicans and many conservative critics slammed the administration’s decision last week to use the bailout fund to help Detroit’s struggling carmakers — the first time the rescue kitty was tapped to help a nonfinancial firm.
Adding to their anger is the fact that the auto bailout closely tracks a plan that Senate Republicans united to block earlier this month, after failing to reach a deal for new concessions from the United Auto Workers in exchange for taxpayer aid. That bill would have used money from an existing Department of Energy loan program, not TARP money, to bail out Detroit.
“I am deeply troubled by the precedent set by expanding the TARP into areas beyond its original intent,” said Rep. Paul Ryan, Wisconsin Republican.
“Allowing the Big Three to access funds from the financial-rescue package creates a dangerous precedent for other corporations to lay claim to TARP funds,” he said.
Announcing plans Friday to lend up to $17.4 billion in taxpayer funds to struggling U.S. automakers General Motors Corp. and Chrysler LLC, Mr. Paulson revealed that the Bush administration had already burned through the first $350 billion approved by Congress in October.
“It is clear that Congress will need to release the remainder of the TARP [funds] to support financial market stability,” Mr. Paulson said Friday. He said he would be discussing what to do in the coming days with both congressional leaders and members of the incoming Obama administration.
Under the law, the administration must seek congressional approval to obtain access to the second tranche of $350 billion. The auto bailout announced Friday makes a tough sell even more difficult.
The conservative Heritage Foundation, in a new policy paper issued late last week, argued that it was time to shut down a bailout program that had “morphed into a political slush fund.”
“The only way to prevent further misuse of the program is to end it,” the think tank said. “Congress should not only say ’no’ to any request to use the second half of the TARP funds, but it should repeal TARP entirely.”
Congressional staffers say that is unlikely, and say it is not even clear that Mr. Paulson will formally seek the second $350 billion before Mr. Obama takes office Jan. 20. The Treasury Department would — just barely — have enough funds to cover the first $13.4 billion pledged to GM and Chrysler, with the remaining money not needed until late January.
But the auto package will leave the administration with virtually no cushion to meet unexpected financial crises, which have come with depressing regularity in recent months.
Lawmakers say Mr. Paulson has hurt his cause by switching the means and methods behind the $700 billion rescue plan.
After pitching the program as a way to buy up “toxic” debts poisoning the books of the nation’s banks, the Treasury Department switched gears and has largely used the money to directly recapitalize banks around the country.
And after first refusing to use the TARP money to help Detroit’s Big Three, Mr. Paulson abruptly reversed course Friday after Congress failed to approve the use of the Department of Energy loan program.
To obtain the second $350 billion, the administration must submit a report to Congress on how it will spend the new money and specifically what steps are being taken to aid homeowners. Many top Democrats are backing a $24 billion homeowner-relief program developed by bank regulator Sheila Bair, chairman of the Federal Deposit Insurance Corp., but Mr. Paulson has resisted the idea.
Under the law, Congress has 15 days after the administration formally requests the next $350 billion to decide whether to take floor votes in the House and Senate on the request.
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