Treasury Faces Challenges in Aiding Automakers
Saturday, December 13, 2008
The Bush administration's decision yesterday to consider opening its $700 billion bailout for Wall Street to Detroit is likely to hasten a reckoning for the Treasury Department's financial rescue program.
Senior Treasury officials talked with top executives from the automakers yesterday and were working on their own evaluation of how much money the companies may need, according to sources familiar with the discussions. But those needs could strain or even exceed the Treasury's resources. Of the first $350 billion in rescue funds granted to the Treasury by Congress in October, it has only $15 billion left.
Getting the rest of the money would require Treasury officials to request the funds from Congress. And some lawmakers yesterday expressed firm opposition to that idea unless the administration agrees to help financially strapped homeowners as well.
With a hostile political environment on Capitol Hill, sources said, Treasury officials have come to realize that they need the support of President-elect Barack Obama and have been in regular contact with his transition team. Transition officials have encouraged the administration and Congress to look at all existing resources to provide help for the automakers, as long as that aid is tied to reform at the companies.
Stephanie Cutter, an Obama spokeswoman, said that if the administration believes the second half of the rescue program is needed, the transition team "would do everything possible to ensure Congress gives it full consideration."
"But until they make that decision," she said, "all parties involved are in a holding pattern."
Senior Treasury officials are worried that they may not have enough money remaining to prevent the collapse of a major financial institution, according to sources who have been in contact with the department. Recently, the Treasury committed $25 billion in rescue funds to prop up Citigroup, on top of an earlier $25 billion infusion. Now it may have to use nearly all of what it has left to aid General Motors and Chrysler.
"Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry," said Treasury spokeswoman Brookly McLaughlin.
Treasury Secretary Henry M. Paulson Jr. has been cautious about asking for more rescue funds, though many senior officials within the department believe the financial system needs the money, the sources said.
Paulson would be taking a risk by asking for the next $350 billion. If Congress were to reject his request, it could trigger a free fall in the markets similar to the crash on Sept. 29, the day the House initially rejected the $700 billion rescue plan, known as the Troubled Asset Relief Program, or TARP.
Treasury's help for firms on the verge of collapse has come with a price for the beneficiaries. When it crafted rescues for mortgage financiers Fannie Mae and Freddie Mac as well as insurance giant American International Group, it required the top executives to resign. Sen. Christopher J. Dodd (D-Conn.), for one, said this week that GM chief executive G. Richard Wagoner Jr. should consider stepping aside if his firm receives a government bailout.
Dodd said yesterday that he would likely lead opposition to a request from Paulson for the next $350 billion, unless Treasury agreed to using some chunk of the money to help homeowners facing foreclosure.
"The fact that they've not been willing to deal with the consumer side of this problem, financial crisis, causes me to be most reluctant to be willing to write a check of $350 billion without some very firm assurances as to how those resources would be allocated," said Dodd, who said he talked with Paulson yesterday afternoon.
If Paulson were to ask for the money, Congress would have 15 days to block the request. Dodd predicted that a large majority of senators would do so.
"I don't think there's any way, under these circumstances, the administration would be able to get the resources. Show me some leadership on the automobile question, show me some leadership on foreclosure mitigation issue, show me some leadership on consumer credit, and I think that door opens up," Dodd said.
House Democrats also remain opposed to releasing more money unless some of it will be put toward modifying mortgages, according to congressional aides.
Dodd said Paulson could use the remaining $15 billion on the auto industry or ask the Fed to step in. As for potential failures among financial firms, he said, Paulson and Federal Reserve Chairman Ben S. Bernanke should engage in negotiations with the nine banks that received $25 billion cash infusions from the first TARP funds, some of whom have not been freely lending money since receiving Treasury money.
"There a lot of pockets you can go to, it seems to me, to meet this need," Dodd said.