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Senate Votes To Release Bailout Funds To Obama

New disclosures about the extent of the troubles at Bank of America helped boost the vote total in the Senate, Charles E. Schumer (D-N.Y.) said.
New disclosures about the extent of the troubles at Bank of America helped boost the vote total in the Senate, Charles E. Schumer (D-N.Y.) said. (By Mario Tama -- Getty Images)

The Treasury has already committed the first $350 billion. 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 large banks. They complained that Paulson also did little to help distressed homeowners renegotiate mortgages that are defaulting at historic rates.

Obama has offered to address some of those criticisms. In a personal pitch to Democratic senators this week and in two letters sent to lawmakers by his top economic adviser, Lawrence H. Summers, Obama has pledged to focus the rest of the TARP funds on homeowners and credit markets, and to bolster oversight of companies participating in the program.

In the latest letter, transmitted hours before yesterday's vote, Summers pledged to advise Congress before making any "substantial new commitment of funds," to quickly disclose the details of any purchase of stock or assets and to force financial firms that accept the money to limit executive salaries and prove they are using it to increase lending.

Summers also vowed to dedicate $50 billion to $100 billion to a "sweeping effort" to reduce foreclosures. And he assured lawmakers that Obama "has no intention of using any funds to implement an industrial policy," a reference to the concerns of many Republicans that the money would be used to prop up the failing auto industry, which has been awarded a small share of the funds.

Backed by an aggressive lobbying campaign that involved personal calls from Obama to dozens of skeptical lawmakers, that message largely met with approval from Senate Democrats. He won over four senators, including Debbie Stabenow (Mich.) and Mary Landrieu (La.), who voted against the bailout program in October. And he persuaded seven of the eight Democratic freshmen -- most of whom blasted the bailout while running for office -- to support him.

"I feel like they've given me a lot of commitment on the housing front," said Sen. Mark Begich (D-Alaska), who along with the other newcomers received a private briefing from Summers this week.

But Obama was less successful among Republicans, who abandoned the rescue effort in droves, and the vote marked a starkly partisan start to his presidency. While 34 Senate Republicans voted to create the program, only six voted to release to Obama the rest of the money, joining 46 Democrats.

Minority Leader Mitch McConnell (R-Ky.), who voted to create the rescue program and then faced five weeks of commercials from his opponent blasting that decision, waited until the fate of the measure was determined before casting a vote against Obama. He cited the last-minute letter from Summers, which included a pledge to change bankruptcy laws to help homeowners renegotiate their mortgages, a proposal opposed by many Republicans.

"I appreciate the incoming administration's assurance in that letter to use these funds for the original purpose of stabilizing the economy and preventing a systemic economic collapse," McConnell said in a statement. "However, the incoming administration also indicated it would use the money in ways I cannot support."

Sen. John McCain (R-Ariz.), who briefly suspended his presidential campaign to help negotiate the creation of TARP, also voted against releasing the money.

Sen. Charles E. Schumer (D-N.Y.) said two factors boosted the vote total: A renewed "sense of crisis" stemming from new disclosures about the extent of the troubles at Bank of America and "faith in Obama to do the right thing."

Staff writer David Cho contributed to this report.

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