Treasury Maintains Leeway in Auto Aid

The Treasury Department has given itself wide latitude in aiding U.S. automakers under formal guidelines published yesterday for its bailout of the industry.

Rather than setting detailed terms in advance, the Treasury "will determine the form, terms, and conditions of any investment made pursuant to this program on a case-by-case basis," according to the description of the Automotive Industry Financing Program.

The Treasury will similarly decide what companies are eligible for funding on a case-by-case basis based in part on "the importance of the institution" to the auto industry. Already the Treasury has pledged $17 billion for General Motors and Chrysler, and $6 billion to help GMAC, the auto finance company. The first $4 billion of the GM loan was paid to the company just yesterday. The vague language in the formal description of the program could leave room for the government to support auto parts suppliers or finance companies other than GMAC.

The Bush administration is using the $700 billion financial rescue package in part to rescue the auto industry after Congress declined to pass a separate bill designed to prevent the bankruptcy of GM and Chrysler.

The guidelines were one of three documents released by the Treasury yesterday that shed light on the department's use of the financial rescue fund established in October. The Treasury Department also distributed its responses to 10 questions posed by congressional overseers of the bailout program, and the department released minutes of a December meeting of top economic policymakers showing them wrestling with how to monitor the way financial institutions are using the money.

"The most important evidence that our strategy is working is that Treasury's actions . . . stemmed a series of financial institution failures," the Treasury said in responding to the questions. "The financial system is fundamentally more stable than it was when Congress passed the legislation."

The Congressional Oversight Panel created by the financial rescue legislation had asked the Treasury for detailed explanations of its actions, in particular why it is using the money to invest in banks when Treasury Secretary Henry M. Paulson Jr. had told Congress that the government would instead buy troubled assets from banks.

The short answer: Things got a lot worse in late September and early October, while the bailout debate occurred. Interest rates soared on loans between banks and key lending markets virtually shut down.

Paulson and Federal Reserve Chairman Ben S. Bernanke "determined the fastest, most direct way" to stabilize the financial system was "by buying equity in healthy banks of all sizes." In contrast, purchasing assets "require much longer to execute" and offer less "bang for the buck," according to the Treasury's answers to Congress.

The document ticks off various initiatives the government is taking to try to help homeowners at risk of foreclosure but does not describe any new efforts to use the rescue money for that purpose, something that Congressional Democrats are demanding.

Caleb Weaver, a spokesman for the oversight panel, said it is "in the process of reviewing" the department's answers and "will continue to work with the Treasury to get the information we need to fulfill our responsibilities to Congress and the American people."

Responding to a question about what banks are doing with the taxpayer money they have received, the Treasury told the panel that "it will be challenging to view the impact of the Capital Purchase Program in isolation and at the institutional level."

Indeed, top government officials are struggling with that issue, according to minutes of a Dec. 10 meeting of the Financial Stability Oversight Board, which is comprised of officials including Paulson, Bernanke, and Securities and Exchange Commission Chairman Christopher Cox and oversees use of the Troubled Asset Relief Program.

They discussed "the difficulty of isolating the effects of the TARP given the variety of policy actions taken by the U.S. government to support financial stability and promote economic growth" and "the difficulties associated with monitoring the use of specific funds by individual institutions."

Congressional leaders have criticized the Treasury for not ensuring that the investments the government is making in banks go to increase lending, as opposed to building up cash holdings, or toward executives' salaries.

Also yesterday, Citigroup said that its senior executives, including chief executive Vikram Pandit and board member and former Treasury Secretary Robert Rubin, will not receive bonuses for 2008.