Obama pushes to redirect bailout
He aims to expand access to the remaining $350 billion in TARP funding.
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“Many of us have a great deal of confidence in the Obama administration, but I am prepared here to draw on the wisdom of a previous Republican president: We will trust but verify,” said Frank at a Jan. 9 hearing, echoing a phrase Ronald Reagan used when describing superpower arms treaties.Skip to next paragraph
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From the first, Treasury Secretary Henry Paulson and other Bush administration officials said their top priority for TARP was saving the US financial system. To them, this meant saving the institutions that make up that system.
The Treasury has, under a capital investment program, injected $189 billion in 257 financial institutions around the country, Neel Kashkari, assistant secretary of the Treasury for financial stability, said Tuesday in a speech at Georgetown University.
Add in TARP funds separately allocated to insurance giant AIG and to Citigroup, and the amount committed so far nears about $330 billion. Add the $19 billion pledged to Detroit automakers on top of that, and the Bush administration now has just about spent the first $350 billion of the rescue fund’s $700 billion total.
The Treasury Department now is developing tools to measure whether banks that took TARP money in fact are increasing lending, Mr. Kashkari said. But to critics, that effort comes too little, too late, as the Bush administration has handed out money to banks without requiring how the funds be used.
“We have to put strings on the TARP,” says Peter Morici, an economist at the University of Maryland.
What the Obama team should do is require that financial firms refocus on the securitization market, says Dr. Morici. The flow of mortgages, credit-card debt, student loans, and other consumer loans packaged into securities and sold by banks to long-term investors is clogged, he says, and must be restarted.
Duke’s Dr. Fullenkamp agrees that the credit system remains clogged. But to free up lending, he says, the Obama administration should return to the Treasury’s original bailout idea and buy toxic mortgage-based assets from financial institutions. More direct government involvement would be a mistake, he says.
In the Senate, majority leader Harry Reid said he was encouraged by Obama’s efforts to require greater accountability for use of TARP funds. Minority leader Mitch McConnell was skeptical, but left open the possibility that he could be persuaded.