By David Cho and Lori Montgomery
Washington Post Staff Writers
Saturday, December 20, 2008
Treasury Secretary Henry M. Paulson Jr. said yesterday that Congress must release the second half of the $700 billion financial rescue package, warning that emergency loans to the nation's automakers have all but depleted the funds available to stabilize the still-fragile financial markets.
Without fast action to replenish the fund that serves as the primary safety net for the financial system, Treasury officials and others said, the government would be hampered in its ability to respond to a fresh round of market turmoil.
Treasury officials are also facing a hard deadline. Although they had enough to give the car companies $13.4 billion yesterday, they need the second installment of the rescue package to help General Motors make another $4 billion debt payment in mid-February.
Paulson said the Treasury and the Federal Reserve have enough resources to handle a crisis for the time being. "It is clear, however, that Congress will need to release the remainder of the TARP to support financial market stability," he said in a statement.
Despite the urgent need for the funds, the Bush administration has not yet made a decision on whether to request the money, a Treasury official said. Paulson is concerned that Congress would say no, an event that could trigger havoc on the markets, according to sources who have been in contact with the Treasury.
The possibility of congressional rejection is real. Key lawmakers in both parties have expressed anger at how Paulson used the first half of the money, saying it was haphazardly managed, and have said they would be reluctant to hand over the rest to the Bush administration.
House Speaker Nancy Pelosi (D-Calif.) said this week that any request from the administration for more rescue money would have to be accompanied by a proposal to use some of the money to help distressed homeowners avoid foreclosure.
Paulson has already begun talks with House Financial Services Committee Chairman Barney Frank (D-Mass.) to craft such a plan, Frank said yesterday.
He said his discussions with Paulson have focused on several issues, including funding a proposal by Federal Deposit Insurance Corp. Chairman Sheila C. Bair for mortgage relief, initiating a program that would lower interest rates on loans for home purchases to 4.5 percent and compelling banks to lend out rescue money they receive from the federal government.
"I think agreement will easily be reached," Frank said.
If Paulson asks for the extra rescue funds, Frank said he would draft legislation on mortgage mitigation and offer it to lawmakers who might otherwise reject release of the additional money.
Treasury spokeswoman Michele Davis cautioned that the department is simply examining mortgage relief plans and that no decision has been made on the issue.
Even with an agreement on foreclosure prevention, however, Paulson could face serious obstacles in the Senate.
Sen. Charles E. Schumer (D-N.Y.), chairman of the Joint Economic Committee, said it would be "better for the sake of the economy" if President-elect Barack Obama makes the request after he takes office on Jan. 20. Schumer said there's a strong chance that the Senate would not approve a request from the Bush administration under any circumstances because of its track record managing the rescue package.
"There are other problems, too," besides foreclosure prevention, Schumer said. "There would be all kinds of conditions people would want to put on it."
Congressional leadership aides added that they are getting conflicting messages from the administration, with Paulson eager to move quickly and the White House more reluctant to ask for the money.
Complicating matters is the transition between the Bush and Obama administrations. Treasury officials have come to realize that they need support from Obama, who will eventually administer the program, to gain a congressional green light for the second half of the rescue funds. Treasury officials approached Obama's transition team in recent weeks to air the possibility of getting access to this money.
Davis said no decision has been made about when to ask for additional rescue funds, leaving it unclear whether it will be the current administration or the next one that will make the request. Meanwhile, transition officials have said they are still waiting for the Treasury to pull together a meeting with Capitol Hill leaders.
Democrats said they don't expect a request to come before Jan. 6, when the new Congress is scheduled to convene. Once a request is made, lawmakers would have 15 days to pass a measure that would block release of the money.
Of the first $350 billion allocated to the Treasury, the department has committed $315 billion to inject capital into banks and American International Group and $20 billion to unfreeze consumer credit markets. Yesterday's announcement of a $13.4 billion loan for General Motors and Chrysler leaves the Treasury with less than $2 billion at its disposal.