Bush Requests Release of Remaining TARP, Congress Calls for Conditions
At the request of President-elect Obama, President Bush today agreed to ask Congress for the remaining $350 billion of the Troubled Asset Relief Program (TARP) funds. Steps taken by the Obama economic team over the weekend appear to have smoothed the path for the release of the funds. Congressional posturing began late last week and into this weekend in anticipation of the request. The funds are released unless Congress passes a resolution of disapproval within 15 days. If Congress wants to take formal action to put strings on the money, they would need to enact a resolution detailing them within that time frame.
Congressional Democrats are divided over whether or not to release the remaining funds and what strings to attach. Despite the fact that the Obama Treasury Department will oversee the funds, House and Senate Democrats want to ensure the release of the remaining TARP money has strict conditions attached. They are struggling with how to impose new conditions outside of passing legislation, which requires too much time. Both House Financial Services Committee Chairman Barney Frank (D-MA) and Senate Banking Committee Chairman Chris Dodd (D-CT) indicated over the weekend that a written pledge of reform by the incoming administration would give them enough assurances to release the second half of the TARP.
Such a pledge appears to have been issued today by the Obama transition team. After meeting with Senate Democrats for two hours on Sunday, Lawrence Summers, Obama’s designate for Director of the National Economic Council, sent a letter to the Congressional leadership this morning laying out the incoming administration’s plans to reform the TARP. Summers wrote, "President-elect Obama believes there has been too little transparency and accountability; too much upside for financial institutions and executives who acted irresponsibly without providing enough help for small business owners, families who are struggling to keep their jobs and make ends meet, and innocent homeowners." Stressing the need to act quickly, Summers listed the following changes the new administration will implement:
- Stimulate lending for small businesses, auto purchases, and municipalities by working with Congress, the Federal Reserve, and other agencies to "get credit flowing again to families and businesses."
- Reform financial oversight, regulation, and management by providing more accurate accounting of TARP funds; working with Congress to strengthen oversight and update the regulatory system; improving coordination among financial regulators; and working with the G8 and G20 "to ensure international coordination on recovery, financial, and regulatory policies."
- Reduce preventable foreclosures by working with Congress on policies that will reduce mortgage payments for "economically stressed but responsible" homeowners, reform bankruptcy laws, and strengthen existing housing initiatives such as Hope for Homeowners.
- "Impose tough and transparent conditions on firms receiving taxpayer assistance," such as executive compensation limits, dividend payment bans, stock buyback limits, and limiting use of the funds to acquire sound companies.
- "Maximize the role of private capital and plan for [the] exit of government intervention."
Referring to past TARP missteps, Summers concluded with a warning and plea, "We cannot allow the failures of the past to prevent us from doing what we must to secure America’s future." These assurances should be sufficient to allay most of the Democratic concerns.
House Republicans are lining up behind their leadership in support of a Congressional resolution of disapproval. However, in the absence of significant Democratic support, such a resolutions will not fare well.
Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This alert should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.