By Binyamin Appelbaum
Washington Post Staff Writer
Wednesday, December 31, 2008
With the announcement of its $6 billion investment to stabilize GMAC, the Treasury Department has now spent or committed more money than Congress has allocated to its financial rescue program, effectively making more promises than it can afford to keep.
The scorecard: Congress gave Treasury $350 billion; Treasury has allocated $354.4 billion.
The department acknowledges that it needs Congress to approve the second half of the $700 billion rescue package simply to meet its commitments, let alone to address new emergencies. If Congress blocks the additional funding, as some members say they want to do, Treasury could be forced to break promises.
The situation gives increased leverage to those in Congress demanding concessions from Treasury, including greater transparency, restrictions on the use of the money and an ironclad guarantee that a significant portion is spent to reduce foreclosure.
"Here's Congress's opportunity to do the right thing," said Danielle Brian, executive director of the nonprofit Project on Government Oversight. "Now the opportunity is before them to ensure that there is some level of scrutiny and reasonable limitations on how the money is spent."
Treasury announced its GMAC rescue package Monday night. The government invested $5 billion in the auto financing company. It will also lend $1 billion to General Motors to allow the company to increase its investment in GMAC, which provides financing for most of the automaker's dealers and many of its buyers. The package expands the government's efforts to sustain domestic automakers through the economic crisis.
A senior Treasury official said Monday night that the investment was possible because in the short term the department can redirect money it has allocated but not yet invested. A Treasury spokeswoman declined to comment further yesterday.
Treasury Secretary Henry M. Paulson Jr. said last week that "Treasury effectively has allocated the first $350 billion." But he added that the department retained the ability to address what he called "a significant financial market event."
Treasury announced in November that it would invest $250 billion in financial institutions. So far Treasury has invested $162.4 billion from that pot. The department has pledged at least another $30 billion to specific companies, according to a tally by investment bank Keefe, Bruyette & Woods. The rest of the money has not yet been promised to specific banks.
GMAC's investment is not part of that $250 billion program, and Treasury officials say the size of that program has not been reduced. But it could be reduced if Congress declines to provide more money.
Paulson has called on Congress to release the second installment of funding for the rescue program, although Treasury officials have not approached congressional leaders to request that funding, according to people familiar with the situation. Once Treasury submits a formal request, the money will be allocated by default unless Congress votes to prevent it.
House Speaker Nancy Pelosi (D-Calif.) has said she favors allowing the funding with restrictions, a position also held by other leading congressional Democrats. But there is significant opposition among members of both parties.
Rep. Maxine Waters (D-Calif.) offered one of the stronger testimonials earlier this month, renouncing her initial support.
"Please don't come here and ask for another penny," she told Neel Kashkari, the Treasury official in charge of the program, "because if you do, I'm going to work 24 hours a day with the same people that I worked with to support you to make sure that they do not support giving you another dime."
House Republican leaders wrote Paulson earlier this month to warn that they would oppose additional funding so long as Treasury continued to stonewall their requests for basic information.
"Such opaqueness is unacceptable," wrote 12 representatives headed by Minority Leader John A. Boehner (R-Ohio).
A spokesman said yesterday that Boehner had not yet received a satisfactory response from Treasury.
The government previously committed some money from the second $350 billion as part of the aid package announced Dec. 19 for automakers General Motors and Chrysler. The Bush administration extended $13.4 billion in immediate loans from the first half of the rescue package and promised another $4 billion in loans from the second half of the package. But the $4 billion is conditional on Congress approving the second half of the rescue package.
The investment in GMAC, by contrast, has already been made.