By Lori Montgomery and David Cho
Washington Post Staff Writers
Tuesday, January 13, 2009
President-elect Barack Obama yesterday launched an aggressive campaign to persuade a deeply skeptical Congress to permit him to spend another $350 billion to stabilize the still-fragile U.S. financial system, as the Bush White House formally notified lawmakers of Obama's intention to use the money.
Obama began calling lawmakers, promising to respond to their intense criticism of the financial rescue program by expanding its scope to aid struggling homeowners, small businesses and others. His top economic adviser, Lawrence H. Summers, sent a three-page letter to congressional leaders, vowing to better track how the money is spent and bolster oversight.
The president-elect plans to appear today at a luncheon in the Capitol where he will ask Senate Democrats to stand with him on an issue that is shaping up as an early test of his ability to build bipartisan consensus. Yesterday, he was forced to relent to skepticism on a separate politically complicated initiative, the economic stimulus package, by dropping his proposal to give businesses a $3,000 tax credit for every job they save or create.
The Treasury Department has already committed the first $350 billion of the financial rescue program. Lawmakers from both parties have complained that the Bush administration rushed the bailout through Congress and then badly mismanaged the program. Some lawmakers were upset that no help came for struggling homeowners. Others said banks and other financial institutions that have received money have failed to resume lending.
Congress has 15 days to approve a resolution blocking the funds. With anger over the financial bailout at a boiling point in the House, Obama and Democratic leaders are focusing on the Senate, which could vote as soon as Thursday on a measure to prevent release of the money.
Obama has already secured an important ally: Sen. Judd Gregg (R-N.H.), who helped negotiate the October passage of the financial rescue package known as the Troubled Asset Relief Program, said he spoke to Obama yesterday and has agreed to help him navigate the stormy waters of the Senate.
"It is critical that they have [the money] and that they have it with maximum flexibility" to keep the financial system functioning, Gregg said. If Congress blocks the cash, he said, "we'll be forcing them to manage this economy with one arm tied behind their back. There's no point in doing that to them."
But other lawmakers from both parties said Obama has offered insufficient information about his plans. Several said they would oppose release of the funds unless Obama offers more specific assurances about how he will use the money.
"I didn't see a whole lot of detail in the Summers letter," said Sen. Blanche Lincoln (D-Ark.), who said she cast a reluctant vote to create TARP but now has "great reservations about approving" the rest of the money. "I'm persuadable to the extent that somebody's got a plan and an idea of how it's going to be administered, and how it's going to be accounted for and how it's going to help Arkansas."
Several Republicans, meanwhile, were still smarting over the Bush administration's decision last month to lend a small portion of the rescue funds to the nation's faltering automobile industry.
"Bringing stability to the credit markets is critical to improving the overall economy, but 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," Senate Minority Leader Mitch McConnell (R-Ky.) said in a statement.
Congress created the Troubled Asset Relief Program after dire warnings from the Bush administration that panic had seized credit markets and that the global economy was on the verge of meltdown. Barely two weeks later, Congress rushed through a measure giving Treasury Secretary Henry M. Paulson Jr. sweeping authority to spend up to $700 billion to inject cash into troubled financial institutions and buy "toxic" assets such as those backed by failing mortgages.
However, lawmakers reserved the power to block release of the second half of the TARP money. A resolution to do just that has already been filed in the House; Republicans in the Senate were poised to file one today, according to a senior Republican aide.
Under the TARP law, the resolution cannot be amended or filibustered, and it needs only a majority of votes in both chambers to pass. While the House is likely to approve the resolution, Jim Manley, spokesman for Senate Majority Leader Harry M. Reid (D-Nev.), said Senate leaders were optimistic that they could defeat the resolution in the Senate, allowing the funds to flow.
"We're still unsure of where the votes are, but we're working hard on that right now," Manley said.
The Obama team had been pressing the Bush administration to issue a formal notice to Congress that the second half of the bailout money would be needed. Bush agreed yesterday after receiving a call from Obama.
Speaking to reporters after meeting with Mexican President Felipe Calderón, Obama said he, like many senators who voted to create TARP, has been "disappointed" with the program. But he said the financial system remains "fragile, and I felt that it would be irresponsible for me, with the first $350 billion already spent, to enter into the administration without any potential ammunition should there be some sort of emergency or weakening of the financial system."
He added: "My commitment is that we are going to fundamentally change some of the practices in using this next phase of the program."
Over the weekend, key Democratic senators requested a written statement of Obama's intentions. Yesterday's letter from Summers provided a response.
In it, Summers described the need for the money as "imminent and urgent," and said that Obama would dedicate a portion of the funds to a "sweeping effort" to stem the skyrocketing rate of foreclosures, as lawmakers had originally intended.
Summers did not say how those homeowners would be helped, however, nor did he offer details of the other new programs that he and other Obama advisers have been developing behind closed doors in their downtown Washington office. Much of their plan is not expected to be unveiled until after Obama takes office next Tuesday.
Summers did say that Obama plans to impose strict limits on executive compensation at firms that accept TARP funds, ban dividend payments beyond a penny a share, and prevent the money from being used to buy back stock or acquire other companies. But these terms would apply only to companies that got "exceptional assistance" from the government; it was unclear what restrictions, if any, would apply to the vast majority of companies participating in the program.
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, is pressing a measure that would go much further. His bill, which could be voted on in the House as soon as Thursday, would change the TARP law to limit executive salaries at all firms that take federal aid, including those that have already received funds. It would also require Obama to spend at least $40 billion to help distressed homeowners.
Though Obama and his team have said they agree with those goals, Frank said in a statement yesterday that he intends nonetheless to seek legislation "that sets forth the conditions we believe are necessary to assure that the public gets the full benefit of these funds."
Key Senate Democrats seemed more inclined to trust Obama. Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, indicated in a statement that he was satisfied with Summers's letter, calling it "an important first step" toward "a sharp course correction."
Sen. Barbara Boxer (D-Calif.) also suggested she was willing to give the president-elect the benefit of the doubt. After receiving a call from Obama yesterday, Boxer said she is now more comfortable that her demands for mortgage relief and greater transparency would be met.
"I was leaning 'no,' and now I'm leaning 'yes,' " Boxer said.
Staff writer Paul Kane contributed to this report.