Senate Votes to Release Second Half of TARP Funds
Thursday, January 15, 2009; 5:21 PM
The Senate voted narrowly today to permit President-elect Barack Obama to spend another $350 billion to stabilize the fragile U.S. financial system.
On a vote of 52 to 42, the Senate defeated a resolution that would have blocked the second half of the money from a $700 billion financial rescue program from flowing to the U.S. Treasury Department.
The vote was a victory for Obama, who made personal appeals to deeply skeptical lawmakers in recent days to try to rally support. Obama's economic team says the money is urgently needed, along with a massive spending package, to restore health to financial markets and the slumping economy.
The Senate's defeat of the resolution to disapprove the funds means the money will be available to Obama about a week after he takes office Tuesday.
Obama appeared to have largely succeeded among Democrats, persuading some senators who voted in October against the financial rescue program to switch their position. He also persuaded some freshman senators who campaigned against the program to vote to give him the money. Only nine Democrats voted to block it.
But Obama's lobbying offensive was less successful among Republicans, who abandoned the highly unpopular rescue program in droves. While 34 Senate Republicans voted for the program in October, only six voted today to give Obama access to the next $350 billion. Sen. John McCain (R-Ariz.), who briefly suspended his presidential campaign to negotiate creation of the rescue program, was among those voting against release of the funds.
Before the vote, many Republicans said they wanted more detail from the Obama team about how it plans to spend the money and a pledge that none of it would be used to salvage industries outside the financial sector, such as the auto industry, which was last month awarded a small loan from the financial rescue pot.
Today, Lawrence H. Summers, Obama's top economic adviser, sent a three-page letter, his second this week, in response to those demands. Summers pledged to advise that Congress, before making any expenditure of the funds, dedicate at least $50 billion to reducing the skyrocketing rate of home foreclosures, to quickly disclose the details of any purchase of stock or assets and to force financial institutions that accept the money to limit executive salaries and to prove that they are using it to increase lending to businesses and consumers.
Summers also said the Obama team "has no intention of using any funds to implement an industrial policy," a reference to the faltering car companies.
Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, said the letter "ought to provide some confidence to those who are concerned about how this program will be managed and run." But key Republicans said the missive fell flat.
"This thing is so hated by voters," Sen. Robert F. Bennett (R-Utah) said of the financial rescue program. "They're not going to read the Summers letter."
The Treasury Department has already committed the first $350 billion of the financial rescue program, and lawmakers in both parties are furious about the way it has been spent. During Senate debate, Republicans and Democrats alike said they had been misled by Treasury Secretary Henry M. Paulson Jr., who told them he would use the money to buy "toxic" assets backed by failing mortgages but instead used it to infuse cash into a variety of large banks.
The law that created the Troubled Asset Relief Program gave Paulson vast power to use the first half of the money to revive the financial system and unfreeze panicked credit markets. But Congress reserved the right to block the second half of the money.
The House might vote to do so when that chamber takes up the matter next week. Opposition to the program is running high in the House, prompting the Democrats to focus on the Senate.
But any House vote would be symbolic. The Senate vote means the funds will be available to Obama.