In radically reshaping the TARP legislation, Congressional Democrats want to make up for the past as much as provide for the future—and they’ll want assurances from the incoming Obama administration that it shares the new focus before signing off on its request for new funding.
Though the president-elect’s transition team has taken steps in that direction in recent days, some in Congress say more will be needed, especially now that President Bush has requested the second half of the $700 billion financial bailout fund on Obama’s behalf.
“There’s two ways to get changes,” says Rep. Brad Sherman (D.Calif), a senior member of the powerful House Financial Services Committee, whose chairman Barney Frank has been driving the TARP process. “One is to pass a new statute, which is preferable. The other is to get a letter from the [Obama] administration. A letter would be OK if it was comprehensive, explicit and unequivocal, and deals with the Frank issues.”
And here’s an indication of how high the bar may be.
“It would have to come from the President-elect,” adds Sherman, who is among those who thinks Frank’s tough new restrictions on companies and executives participating in the bailout program don’t go far enough.
Larry Summers, Obama’s nominee to head the National Economic Council, addressed some of those issues and concerns in a letter to Congressional leaders Jan 12.
Though favorably received by Frank and other Democrats, it does not offer much detail on key subjects such as foreclosure prevention; credit market relief for small business, municipalities and consumers, enhanced oversight and enforcement, as well as criteria for firms receiving assistance.
All of this is contained in new legislative proposals being pushed by Frank, who acknowledged the president-elect’s efforts Monday.
Video: Debating where the remaining TARP money should go.
“It seems clear the Obama administration agrees with what we are setting forward, and I believe this creates a framework so that the release of these funds,” he said.
Frank, however, is pushing forward, holding public hearings on the TARP plan and its new priorities and could hold hold a vote on his legislation as early as this week, even though the president will not be sworn in until Jan. 20.
“There’s a particular urgency within the Congress and the people who helped shape the TARP in the first place in dealing with the miserable reality of the people on the grassroots level,” says former Senate Banking Committee Chairman Donald W. Riegle. Jr.
Profound Congressional disapproval of Treasury Secretary Henry Paulson’s conception, management and execution of the program has not been limited to Democrats, whose biggest complaint is that too much money has gone to Wall Street, while doing little to address credit-crunch induced problems on Main Street, such as home foreclosures.
“A majority of my Democratic colleagues do not like the statue we passed in October,” says Rep Sherman, who was among a small minority of Democrats who voted against the legislation.” The Frank improvements are steps forward in the eyes of almost every Democrat I’ve talked to.”
“There’s no doubt Barney Frank and Democrats across the board want to see more home foreclosure mitigation efforts,” says one industry observer, who’s group is not commenting publicly on the TARP debate. “It’s clear their disappointment is palpable. These are some pretty dramatic changes.”
Though there’s widespread support in the financial services industry for foreclosure relief, Democratic efforts to create tighter restrictions on companies (and their executives) receiving financial aid, especially retroactive ones, are likely to encounter opposition, say Washington observers, particularly since Paulson essentially strong-armed a pivotal group of major banks to participate in the plan shortly after its October approval.
“We oppose onerous, retroactive restrictions,” says Scott Talbott, chief lobbyist for the Financial Services Roundtable, who adds that even prospective new restrictions would probably “have a chilling effect on a company’s desire to utilize the program.”
What seems like political brinkmanship may be maneuvering at the best, theatre at the least, especially given the complicated legislative process.
Once the request is made for new funds, TARP law states Congress has 15 days to “disapprove”, or reject it. The President can then veto that decision, assuming it will survive a legislative over-ride. Inaction essentially means approval.
Though it’s likely the House could vote on (and approve) Frank’s legislation before the expiration of that deadline, Washington watchers say the absence of a Senate version of the bill means the House one won’t go anywhere. At the least, however, it’s a marker for how TARP 2 proceeds.
Rep. Frank’s “makes it easier for Democrats to vote for the release of the additional $350 billion,” says Rep. Sherman, who adds "there is such euphoria about Obama on the Democratic side, I would expect a majority of the House” will support the new funding request.
Republican support for any version of TARP 2 is likely to be limited, say experts. Senate Minority Leader Mitch McConnell, who supported the original legislation and then faced a tough re-election battle partly because of it, sounded skeptical Tuesday.
“I would be hard-pressed to support additional funding for the TARP without sufficient assurances this money will not be wasted, misspent or simply used for more industry-specific bailouts," McConnell told the Associated Press.
Given the state of the economy, that's certainly hard to rule out. Obama himself, Monday said it would be "irresponsible" to start his administration without "potential ammunition." Although it was unclear what that might be immediately needed for, it certainly could apply to another systemic shock, as Paulson and Fed Chairman Ben Bernanke, have often talked about.
Pro or con, Congress appears to have strong ideas about the TARP, given the grief members have received from constituents since the first bill was proposed by Paulson and passed in a crisis environment.
Congress and taxpayers will get a better idea of where Treasury designate Timothy Geithner stands on the issues when he appears before the Senate for his confirmation hearing Thursday.
Congress ”wants a bigger piece of the direction of the rescue program, whatever it will be. They want results right now,” says former ten-term GOP Congressman Bill Frenzel now with the Brooking Institution "That is a bad omen for the future.”