In Budget, Signal of a Bigger Bailout
Friday, February 27, 2009
With public anger still simmering over the $700 billion bailout of the financial system, the Obama administration signaled yesterday that the rescue effort may yet grow by an astronomical amount -- an additional $750 billion or more.
While not carved in stone, the figure sets the stage for a contentious battle over whether Congress should approve another massive spending package to rescue Wall Street firms. Passing aid packages for the banking system and the economy have left lawmakers suffering from bailout fatigue, Republicans warned.
Senior Treasury officials said they will pursue more funds only after they have finished combing through the books of the nation's largest banks and have developed a detailed plan. They cautioned that the $750 billion, which was revealed in the budget summary presented yesterday, was only a rough estimate of what may be needed.
Some Republicans, rather than expressing outright opposition to more financial bailout funds, took a wait-and-see approach yesterday. Sen. Bob Corker (R-Tenn.) said his support would depend on how well the administration explains its plans and its approach to getting the government's money back.
He expressed frustration that the administration was vague about seeking more rescue money until after the $787 billion economic stimulus bill passed this month. He also questioned whether ordinary Americans who found the Bush administration's original bailout program hard to digest would swallow yet another huge request for money.
"What would have been the public reaction if it knew the actual [bank rescue] request was a trillion and a half?" Corker asked, adding that he believes the additional request will ultimately be larger than $750 billion.
But Democratic leaders praised President Obama for being open in his budget about what the cost of the financial rescue could be, arguing that the Bush administration did not fully account for the cost of the wars in Iraq and Afghanistan.
"They're not saying they will need it. They're just making sure it's there in case they do need it," said Sen. Charles E. Schumer (D-N.Y.), chairman of the Joint Economic Committee. "And that shows prudence."
The administration yesterday announced that it had budgeted $250 billion in reserves, based on a conservative estimate of what would be lost if the government spent the additional $750 billion to relieve banks of the troubled loans and assets that are clogging their books. Senior Treasury officials said no decision had been made as to whether the government will actually need to tap those reserves.
But the administration has strongly indicated in recent weeks that it will seek more rescue dollars. Treasury Secretary Timothy F. Geithner, in announcing his plan to overhaul the financial rescue earlier this month, said the administration and Congress will "work together to make sure we have the resources and the authority to make this program work." In his address Tuesday night, President Obama said that "this plan will require significant resources from the federal government -- and yes, probably more than we've already set aside."
The budget plan states that the administration will work with lawmakers to determine the size of any request for more rescue funds. A table in the index of the 134-page document also indicates that the government plans to hold on to any assets or shares in firms that it purchases for at least 10 years.
Treasury officials said they will have a better idea of what the nation's largest banks need to survive a further deterioration of the economy after they complete a "stress test" in several weeks that will examine their balance sheets.
The estimate of the cost of the financial rescue in the budget is "just a placeholder, a reserve," said one of the senior Treasury officials. "You cannot tell in January with precision what the cost will be . . . but it reflects a conservative estimate of what may be needed."