Obama presses for rest of bailout funds

January 13, 2009 10:51:42 AM PST
A week shy of taking office, President-elect Barack Obama already is putting his persuasion skills to a high-stakes test with Congress as he seeks to put his emerging administration in control of more than $1 trillion in economic stimulus and financial bailout money. Obama met with Senate Democrats for lunch in the Capitol Tuesday. And his transition team prepared to dispatch top aides to meet with Senate Republicans this week in anticipation of a possible vote Thursday on whether to release $350 billion from the embattled rescue fund for the financial sector.

In the House, the Financial Services Committee scheduled a hearing on the program in advance of legislation offered by committee Chairman Barney Frank, D-Mass., that would place tough new restrictions on recipients of the money and require spending to reduce mortgage foreclosures.

The legislation is scheduled to reach the floor of the House on Wednesday, with a vote set for Thursday. At the Treasury Department, officials were putting in place tools to measure whether banks that receive funds from the financial rescue program are increasing lending.

That flurry of activity comes in the wake of President George W. Bush's decision Monday to act on Obama's behalf and ask Congress for access to the remaining $350 billion in the Troubled Asset Relief Program. The request reached Congress as lawmakers and Obama also were assembling a spending and tax-cutting stimulus package of $800 billion, or possibly more.

If he succeeds, Obama would have more than $1.1 trillion at his disposal to tackle sinking employment and clogged credit within weeks of assuming the presidency.

"It is clear that the financial system, although improved from where it was in September, is still fragile," Obama said Monday in making the case for the additional bailout funds.

In London, Federal Reserve Chairman Ben Bernanke said Obama's stimulus package could provide a "significant boost" to the sinking economy. But he warned in a speech prepared for the London School of Economics that such a recovery won't last unless other steps are taken to stabilize the shaky financial system.

Although Bernanke has previously endorsed the notion for a fresh round of government stimulus to lift the country out of a recession, it marked the first time the Fed chief has referenced the roughly $800 billion recovery plan now being worked on by Obama.

In Congress, key tax provisions in the stimulus package remained in flux, with Obama's call for a break for companies that create new jobs described by Democratic officials as all but dead. Several Democrats prefer to use the funds to make sure upper middle class families are not ensnared by the alternative minimum tax.

Democrats are more favorably inclined toward Obama's proposal for a tax break for lower-paid individuals and couples, of up to $500 and $1,000. Democratic congressional aides also said the idea of an extra Supplemental Security Income payment was gaining traction on Capitol Hill.

Democratic lawmakers hope to have an economic stimulus bill ready for Obama's signature by mid-February, although officials indicated that numerous provisions are unsettled.

On the bailout fund, Bush's notification set a 15-day deadline for Congress to disapprove of the request. The Bush administration's handling of the money has met bipartisan criticism in the House and Senate. Lawmakers have complained that the Treasury Department's use of the money has been muddled and misleading, that recipients of the funds have faced little accountability and that the program has done nothing to reduce home foreclosures.

If the Senate rejects a motion to disapprove the funds, it would pave the way for Obama to begin dispensing the money about a week after he assumes office Jan. 20.

Congressional Democrats said they hoped Obama's desire to place greater restrictions on the money and broaden its goals to loosen more credit would build support among otherwise skeptical lawmakers. The House tentatively scheduled a vote for next week. If both chambers refuse to release the money, it would be up to Obama to issue a veto - a dramatic first act by a new president - in hopes that Congress would not override him.

The request by the Bush White House made it clear that the money was to be used by the incoming Obama administration. It directed lawmakers to a letter Monday from top Obama economic adviser Larry Summers that vowed to make significant changes in the way the program is administered.

In the Senate, Majority Leader Harry Reid, D-Nev., said he was encouraged by Obama's efforts to add more conditions and to require greater accountability for the use of the money. Senate Minority Leader Mitch McConnell, R-Ky., voiced skepticism but left open the possibility that he and other Republicans could be persuaded.

"We'll hear from the incoming administration soon," McConnell said Tuesday. "We'll be happy to listen. They'll have a receptive, albeit cautious, audience."

Summers' letter to leaders was not as detailed as the legislation proposed in the House by Frank. That bill would set new conditions on the institutions that receive the money, requiring limits on executive pay and an end to owning or leasing private jets. It also would require spending at least $40 billion from the fund on foreclosure mitigation.

Financial services industry lobbyists said they opposed a provision in Frank's bill that would allow the Treasury Department to apply executive pay restrictions to banks that already have received government money.

Some lobbyists hoped Summers' letter would reassure lawmakers and make legislation such as Frank's less likely to pass. Summers' letter doesn't address the question of retroactive limits on executive pay.