Paulson Urges Release of Next $350 Billion From TARP (Update4)
By Robert Schmidt
December 19, 2008
Dec. 19 (Bloomberg) -- Treasury Secretary Henry Paulson urged Congress to release the second half of the $700 billion financial rescue fund after the government exhausted the first $350 billion in less than three months.
Congress, which passed the Troubled Asset Relief Program on Oct. 3, "will need to release the remainder of the TARP to support financial market stability," Paulson said today in a statement released in Washington.
The Treasury today agreed to lend $13.4 billion to General Motors Corp. and Chrysler LLC, after spending $335 billion mostly to increase bank capital. Lawmakers, who can vote against giving Paulson the remaining funds, have criticized the Bush administration for not using the rescue package to help stem foreclosures.
Paulson's call for the other $350 billion may set off a debate in Congress, where some members have demanded more help for struggling homeowners. House Financial Services Committee Chairman Barney Frank said today he's crafting legislation to unlock the unallocated money.
Today's statement from Paulson wasn't a formal request for the funds, a move President George W. Bush or his successor would have to make. Paulson intends to consult with Congress and President-elect Barack Obama's staff on the strategy for officially requesting the next $350 billion, a Treasury official told reporters on a conference call. The official, who spoke on condition of anonymity, said he expected talks to begin soon.
"We should have an agreement among Obama, Paulson and the congressional leadership to release the $350 billion with conditions on how it's spent," Frank said in an interview. "We need the second $350 billion, but it can only be done if there's an agreement as to how to do it."
Obama said yesterday that Paulson would need to explain to his staff how the funds would be disbursed.
"At the point where the Treasury comes forward" with a request for the remainder of the TARP, "I would expect that they would provide a clear justification for why they need additional dollars and how they intend to use it," Obama said in a press conference in Chicago.
In his statement, Paulson said he would consult with congressional leaders and the Obama team "in the near future."
The Treasury likely would need to come up with a program for helping homeowners before Congress signs off on a request for the funds.
Another $4 Billion
The loan package for the automakers released today has another $4 billion contingent on "drawing down the second tranche of TARP funds," according to a White House statement.
"It's not necessarily true that this administration in the remaining 31 days, I believe, will go back to Congress," said Joel Kaplan, the White House deputy chief of staff, said in a press conference. "But in the very short term, we will need to go -- we, or the next administration -- will need to go to Congress to get the second $350 billion if they are to get the last chunk of the loan that's being discussed today."
Treasury officials have been working on programs designed to ease the housing crisis.
Most Republicans on Capitol Hill are opposed to giving Paulson any additional funds. Still, Democrats may take Paulson's actions on housing and the car industry as positive steps and not mount a campaign against the request, lobbyists and congressional staff said.
Securing the extra money would give the Treasury a cushion in case another bank or insurer neared collapse.
While the Treasury has allocated most of the first $350 billion, not all of it has actually been disbursed. Paulson said he was confident that "in the very short-term" the government has enough money on hand to "address a significant financial market event."
To access the rest of TARP, Paulson has to report to Congress on how the funds would be used. Lawmakers then have 15 days to pass legislation blocking the money. The president could then veto the congressional vote, forcing lawmakers to come up with a bigger majority to prevent the disbursement.
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