Ruth Marcus -- Bailout II: Obama's Hardest Sell

By Ruth Marcus
Sunday, March 1, 2009

It's fortunate that President Obama works out every day. He's going to need all the muscle he has for what is likely to be the big lift ahead. A lift in the range of $750 billion, in fact.

That's the amount the administration set aside in its budget proposal for another infusion of cash to stabilize the nation's shaky financial architecture. This was cast as a just-in-case-we-need-it placeholder -- a contingent bookend to the $700 billion already allocated for that purpose.

But if you think the administration isn't going to end up asking Congress for this money, well, I've got some Citigroup shares you might like to buy. The president said as much in his not-quite-State of the Union address Tuesday night. Getting the banking system in order, he said, "will require significant resources from the federal government -- and yes, probably more than we've already set aside."

That was no throwaway line; of course, nothing in an address to a joint session of Congress ever is. Indeed, the decision to ante up money for another round of financing in the budget was hotly debated, late in the process, and made by the president himself. One camp argued that signaling the need for even more cash would produce a backlash from lawmakers reeling from bailout fatigue; others contended that refusing to account for a request already widely anticipated would show lack of commitment to honest budgeting and/or a failure to take the banking crisis seriously enough. "The discussion was this: We don't know with certainty if we'll need the money...," said senior adviser David Axelrod. "The question was do you want to trigger a debate prematurely. The president came down on the side of being candid."

In the end, the carefully crafted language notes that, "should a request become necessary, the Administration is committed to working with the Congress so that to the maximum extent possible, taxpayers are paid back over time." To calm congressional nerves jangled at the thought of giving another few hundred billion to bankers flying on corporate jets, the administration dangles the possibility of imposing "a fee or assessment on financial institutions or financial activity" once the economy has recovered.

The administration's budget shows the cost of the new money at $250 billion, on the theory that however the money is spent -- buying toxic assets, taking equity stakes, making loans -- the government won't be out anywhere near the full amount it anted up. This is something of a guess, but, as John Maynard Keynes said, "It is better to be roughly right than precisely wrong."

That's all well and good, but the administration knows that Congress, even with comfortable Democratic majorities and a popular new president, is not now prepared to underwrite another huge bailout.

The Obama administration managed to dodge a political bullet before his swearing-in when he convinced a reluctant Congress to release the second $350 billion in already-approved bailout funds. But the narrowness of the vote underscored the difficulty of getting any more money: The House voted to block the release of the money while the Senate approved it just 52 to 42, with eight Democrats and independent Bernie Sanders of Vermont voting against.

Asked last week at a lunch sponsored by the Christian Science Monitor about the administration's prospects for getting more money, House Minority Leader John Boehner predicted bipartisan balking.

"I don't see the congressional Democrats or Republicans going down that path until we know what happened to the first $700 billion and we understand why do they want more," Boehner said. "It's not that members have bailout fatigue. It's that our constituents have bailout fatigue." As a result, he said, "without some compelling case it's going to be a pretty tough sell."

In a sense, the administration is in a race for time. It is hoping that the needs of the financial system do not become so dire so fast that it will have been unable to lay the proper foundation to convince the public -- and therefore Congress -- that more money is necessary and that it will not be wasted. What would that take? Among other things: showing that foreclosures have been abated, executive compensation brought under control and oversight tightened. Also, that this is the last ask.

"This one is a high-stakes initiative, and you've really got to be able to leave people with a sense that the new administration will bring real oversight and real accountability," said Oregon's Sen. Ron Wyden, a Democratic member of the Senate Banking Committee who voted against releasing the second round of funds.

As one person painfully familiar with the difficulties the administration would face in selling another wave of financing told me, the Chicken Little argument worked to secure the first $700 billion, when there was a well-founded fear of the sky falling. It won't work for the second -- even if the heavens are on the verge of collapse.

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