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Bailout funds face major hurdles

Paulson foes on left, right

By David R. Sands (Contact) | Sunday, December 21, 2008

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Under fire from the left and the right, Treasury Secretary Henry M. Paulson Jr. has a tough fight and few allies as he seeks congressional approval to top off the tank with the second $350 billion from the federal bailout fund.

Key Democrats, including House Speaker Nancy Pelosi of California and House Financial Services Committee Chairman Barney Frank of Massachusetts, complained that the Treasury's $700 Troubled Asset Relief Program, or TARP, has done little to help struggling homeowners even as it has pumped out the first $350 billion to boost the balance sheets of banks and other financial firms.

"Despite Congress' clear intent that TARP be used to stem foreclosures, so far no TARP funds have been used for that purpose," Senate Majority Leader Harry Reid told a forum in the Democrat's home state of Nevada last week.

At Mrs. Pelosi's instigation, Mr. Frank's committee has started drafting a bill that would strengthen conditions that the next round of TARP funding focus strongly on homeownership. Mr. Frank said a new consensus -- including Mr. Paulson, President-elect Barack Obama and top congressional leaders -- will be required before the second tranche of $350 billion could be approved.

"We need the second $350 billion, but it can only be done if there's an agreement as to how to do it," he told Bloomberg News in an interview.

For their part, Republicans and many conservative critics slammed the administration's decision last week to use the bailout fund to help Detroit's struggling carmakers -- the first time the rescue kitty was tapped to help a nonfinancial firm.

Adding to their anger is the fact that the auto bailout closely tracks a plan that Senate Republicans united to block earlier this month, after failing to reach a deal for new concessions from the United Auto Workers in exchange for taxpayer aid. That bill would have used money from an existing Department of Energy loan program, not TARP money, to bail out Detroit.

"I am deeply troubled by the precedent set by expanding the TARP into areas beyond its original intent," said Rep. Paul Ryan, Wisconsin Republican.

"Allowing the Big Three to access funds from the financial-rescue package creates a dangerous precedent for other corporations to lay claim to TARP funds," he said.

Announcing plans Friday to lend up to $17.4 billion in taxpayer funds to struggling U.S. automakers General Motors Corp. and Chrysler LLC, Mr. Paulson revealed that the Bush administration had already burned through the first $350 billion approved by Congress in October.