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Obama Presses Congress for Rest of TARP Funds

President-elect Barack Obama asked Democratic senators Tuesday not to stand in the way of an additional $350 billion in bailout funds, calling the money essential to helping the ailing economy.

Obama made his pitch at the Capitol, where he attended the Democratic senators' closed-door luncheon as part of his stepped up campaign to have economic tools at the ready shortly after he assumes office next week.

Lawmakers who emerged from the session said the president-elect pledged to correct what they believe were shortcomings in the way the Bush administration handled the first $350 billion of the Troubled Asset Relief Program, also known as TARP. They said he would veto any attempt to block his own administration's use of the funds.

Barack Obama
Photo By: Beth Rankin
Barack Obama

"He said TARP is necessary," said Sen. Charles Schumer, D-N.Y., after emerging from the luncheon. "Nobody wants to do it, it's hardly a thing that anyone would pick as the first thing that we'd want to do. But you have to do TARP."

A week shy of taking office, Obama 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's transition team is ready 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, Financial Services Committee Chairman Barney Frank, D-Mass., said the speedy release of the next $350 billion was necessary to help stem the rising tide of foreclosures, which was one of the original purposes of the bailout legislation.

"If we do not get the second $350 billion, I do not see any way that we can get substantial foreclosure relief," Frank said.

But Rep. Spencer Bachus of Alabama, the committee's ranking Republican, questioned whether the money was necessary.

The fund is becoming "a grab-bag where people can just reach in and get taxpayer money," he said.

Frank was presiding over a hearing on the bailout program in advance of legislation that would place tough new restrictions on recipients of the money and require spending to reduce mortgage foreclosures.

Frank's bill 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.

On Monday, President George W. Bush, at Obama's request, asked Congress for access to the remaining billions in the bailout fund. 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 Tuesday that 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 recession, it marked the first time the Fed chief has referenced the roughly $800 billion recovery plan now being worked on by Obama.

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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 or it will be released to the Obama administration.

Lawmakers have complained that the Treasury Department's use of the original $350 billion 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 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.

Larry Summers, Obama's top economic adviser, delivered a three-page letter to congressional leaders Monday outlining the transition team's goals for the bailout fund. But several lawmakers from both parties said the Obama team would have to provide more information.

"That's a broad-scope type of letter," said Sen. Ben Nelson, a moderate Democrat from Nebraska. "What we really need is something with more details so we can truly make those decisions about how the money is going to be spent."