Rolling Out The TARP
President-elect Obama has asked the President to request the second half of the TARP funds, about $350 billion dollars.
“This morning, President-elect Obama asked President Bush to formally notify Congress, on his behalf, of his intent to exercise the authority under the Emergency Economic Stabilization Act to access the last tranche of $350 billion in funding for Treasury programs addressing the financial crisis,” Dana Perino, the White House press secretary, said in a statement. “President Bush agreed to the president-elect’s request.”
The decision to request the money now reflects the calculation by Mr. Obama and his aides that it would be better to have both the incoming and outgoing presidents urging lawmakers to release the money, given the high level of anger and frustration on Capitol Hill over how the Bush administration has managed the bailout program.
In addition, Lawrence H. Summers, who will be Mr. Obama’s top economic adviser at the White House, released a three-page letter on Monday addressed to the top Congressional leaders of both parties asking for the authority to release the rest of the rescue plan while promising a five-point plan ensuring the money would be used for lending or preventing further crises and not for “enriching shareholders and executives.” To that end, the Treasury Department would limit executive compensation for institutions receiving “exceptional assistance.”
There's more in this WSJ story. Lawmakers want to attack strings to the money, but the incoming Treasury Secretary is drawing up a "letter of assurances" that would detail how the money would be spent, such as to limit foreclosures. Both Barney Frank and Chris Dodd have said that they are willing to take Obama at his word that the new plan will hew to these guidelines.
Now, I'm willing to take him at his word as well. But we need more in a democracy. Congress makes the laws and holds the purse strings, and they shouldn't let that $350 billion out of their sight until they put strict limits on how it is used and what it is used for. The first half of the TARP funds were blown. Wasted. In fact, that's the best impression; we don't even know what the banks did with it (only now is the Congress getting access to the contracts signed by the major banks and Treasury). It's kind of hard to figure out who's even running TARP. The Congress has the authority to demystify the whole thing, and in fact they have the duty to appropriate taxpayer money in such a manner that they actually know where it's going.
David Sirota, for this reason and a couple others, opposes the release of the additional funds. I do think there's another point to consider, however. This $350 billion, if allocated correctly, can be credibly seen as a boost to what most economists think is a too-small recovery package. Using TARP money to limit foreclosures would produce an economic lift, for example. The current Treasury Department says that no other monies are needed, but that's under the current iteration of the program. If the money is channeled differently, suddenly an $800 billion dollar recovery becomes a $1.1 trillion dollar one.
TARP as stimulus would be a good idea to get things going quickly, but Congress needs to set the parameters, as per their job description. Failing that, I tend to agree with Sirota.