CHN: Congress Votes to Release Second Half of $700 Billion Bailout Bill
In September, amid concerns that inaction would result in the collapse of the banking system and potentially bring down the global economy, the Bush Administration pleaded with Congress to respond to a request for a $700 billion bailout. In early October, after a vigorous debate and much angst, the House and Senate passed the Emergency Economic Stabilization Act, (PL 110-343), to stop the financial hemorrhaging. The bill, with few strings attached, called for the immediate release of $350 billion to Treasury Secretary Henry Paulson to distribute as he determined appropriate, with the second installment not made available until Congress approved a request from the President.
The Act established the Troubled Asset Relief Program (TARP) to deal with fallout stemming from over-valued assets, in particular bundles of housing mortgages whose worth plummeted when the housing bubble burst and financial institutions lacked the capital to back the assets. The legislation was intended to provide authority for the federal government to purchase and insure certain types of troubled assets in order to provide stability to the financial industry which, in turn, would extend credit to businesses and individuals. Congress also expected that TARP would assist homeowners by facilitating loan modifications to stem the tide of foreclosures.
By late December the first $350 billion was committed – with large sums of money going to American International Group, Inc. (AIG), Citigroup, Bank of America and other banks, and a lesser amount to the auto industry. The loans to the auto industry fueled concerns that other troubled industries would soon seek TARP money. Congress reluctantly agreed to the loans for “the Big Three” automakers, but placed detailed conditions on them highlighting the absence of conditions in the majority of other TARP transactions.
Lingering concerns about TARP are reflected in the January 9 report from the Congressional Oversight Panel. The report highlights four specific concerns: 1) lack of accountability for what banks are doing with the taxpayer money, 2) the need for more transparent asset valuation, 3) the lack of focus on addressing foreclosures, and 4) the shifting explanations of its purposes and the tools used by the Treasury Department.
On January 12, with the first $350 billion depleted, and at the request of President-Elect Obama, President Bush sought the second half. The Emergency Economic Stabilization Act calls for the money to be released unless both the House and Senate vote in favor of a resolution to block the release. Amid lingering concerns about the TARP program, President-Elect Obama solicited Congressional support for the release, and his Director-designate of National Economic Council, Larry Summers, wrote a letter to Congressional leaders expressing the new Administration’s commitment to greater oversight and transparency and an emphasis on using TARP resources to address the foreclosure crisis.
Assurances offered by the Obama team were enough. On January 15, the Senate vote to disapprove releasing the funds failed 42-52. Thus the second $350 billion is now available to the Treasury. While the Senate decision renders a House vote unnecessary, it plans to vote next week to put Members on record. Prior to the vote, Financial Services Chairman Barney Frank (D-MA) plans to offer legislation, the TARP Reform and Accountability Act of 2009 (H.R. 384), to amend the TARP provisions in the Emergency Economic Stabilization Act by strengthening accountability, increasing transparency, and requiring the Treasury to take significant steps on foreclosure mitigation. The legislation is not expected to be enacted into law, but is intended to make a statement about the need for the new Administration to make these improvements.