By John Brinsley and Alison Vekshin
Dec. 5 (Bloomberg) -- Two top U.S. lawmakers warned Treasury Secretary Henry Paulson that he may not get the second half of the $700 billion financial rescue fund, joining Republicans upset with how the program is being managed.
“I would be a very hard person to convince that this crowd deserves to have their hands on the next $350 billion,” Senate Banking Committee Chairman Christopher Dodd told reporters yesterday in Washington, referring to the Bush administration. “I am through with giving this crowd money to play with.”
Some lawmakers are pushing the Treasury to use its Troubled Asset Relief Program to aid the beleaguered U.S. automakers, and Democratic legislators are also urging money for struggling homeowners. An increasing gulf between the Treasury and Congress makes it more likely that decisions on the remaining TARP funds will be up to the incoming Obama administration.
“It looks like the only way Paulson could get the TARP money is to make a deal on foreclosure relief,” said Tom Gallagher, head of policy research at International Strategy and Investment Group in Washington.
Paulson, who has committed all but $20 billion of the first half of the funds, is also under fire for abandoning the original TARP plan to buy toxic mortgage assets. Under the terms of the law, lawmakers have 15 days to reject a request for the second half of the TARP funds.
House Financial Services Committee Chairman Barney Frank yesterday warned that Paulson may be blocked from accessing the money.
Lawmakers’ ‘Intent’
The Treasury has ignored the “clear congressional intent” of the TARP to reduce home foreclosures, Frank, a Massachusetts Democrat, told reporters yesterday after a speech at a Consumer Federation of America conference in Washington. “At the very least, he’d have to agree that some of that money was going to be used for foreclosure relief.”
Dodd, a Connecticut Democrat, is also trying to forge a compromise in Congress that would give the automakers assistance, and held a hearing on the subject yesterday. He criticized the Federal Reserve for not sending a representative.
Dodd wrote Fed Chairman Ben S. Bernanke two days ago asking what’s preventing him from lending to the companies, an idea rejected this week by at least two central bank officials.
Frank and Dodd echoed House Republicans, who sent a letter on the day before yesterday to Paulson and Bernanke saying they oppose releasing any more TARP money without more clarity over past spending.
Collapsing Firms
Gallagher said lawmakers may still acquiesce if presented with a deep financial crisis again. Paulson first asked for the funds to shore up confidence after the collapse of Lehman Brothers Holdings Inc., demise of Merrill Lynch & Co. and government takeovers of Fannie Mae, Freddie Mac and American International Group Inc.
“I wouldn’t take all these comments at face value,” Gallagher said. “What if there’s another crisis in the next six weeks?”
Paulson and his deputies say they are considering additional avenues for TARP funding. Neel Kashkari, the interim assistant secretary in charge of the program, yesterday told a Senate hearing that the Treasury is looking at ways to boost banks’ capital.
“We continue to look at additional capital strategies and, as we do so, we will assess the impact of the first capital program and also take into consideration existing economic and market conditions,” Kashkari said.
He also pledged the Treasury’s commitment to “transparency and oversight in all aspects of the program,” things critics say are lacking.
Republican Questioning
“Little is understood about how these investments are contributing to the nation’s economic recovery,” House Minority Leader John Boehner and 11 other Republicans wrote in their Dec. 3 letter.
The rising opposition comes as Congress debates how to help General Motors Corp., Chrysler LLC and Ford Motor Co. House Speaker Nancy Pelosi favors using TARP funds, something Paulson opposes. In his letter to Bernanke, Dodd asked whether the Fed might be able to provide financial assistance to the car companies, something officials are unwilling to do.
Richmond Fed Bank President Jeffrey Lacker and St. Louis Fed President James Bullard said this week that legislators, not the central bank, should come up with a solution.
“Congress will have to decide how they want to play this,” Bullard said in a Dec. 2 Bloomberg Television interview.
Fed officials have an aversion to extending the too-big-to- fail doctrine beyond financial institutions. Obstacles involved in lending to carmakers might be finding large pools of collateral for the Fed to loan against.
Paulson has repeatedly said he hasn’t decided whether he will ask for the remaining funds. Most of the money has gone to injecting capital into financial firms in exchange for preferred shares and warrants.
“We have no timeline for drawing down the next tranche,” Paulson said at a Nov 25 press conference. “When the time is right, we’ll avail ourselves of the congressional process.”
To contact the reporters on this story: John Brinsley in Washington at jbrinsley@bloomberg.net; Alison Vekshin in Washington at avekshin@bloomberg.net
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