Critics see bailout free-for-all

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By David R. Sands

Give away $700 billion and you tend to attract a crowd, but a growing number of lawmakers and economists are criticizing the Bush administration for extending the massive Wall Street rescue plan far beyond what they had thought were its original limits.

In the three weeks since President Bush signed the bailout bill, the Treasury Department has pledged to purchase at least $163 billion in preferred stock to boost the capital of nearly 35 national and regional banks. In addition, life-insurance companies, automakers, stockbrokers, privately held commercial banks and even hedge funds are lining up to make their pitches to an increasingly sympathetic government.

Critics fear the expanded offer will lead to a free-for-all as rival industries fight for access to the bailout funds, while the federal government faces increasingly tough choices over which private companies to help and which to ignore.

"There are already a lot of people sniffing around at this money, and it has the makings to become a real feeding frenzy," said Bert Ely, an Alexandria-based banking consultant.

Sen. Charles E. Schumer, New York Democrat, is one of several lawmakers who has said he is worried that financial firms will use the Treasury's capital to bolster their balance sheets or to acquire other banks instead of approving new loans.

"I remain especially concerned that, in the Treasury's zeal to make the program easily digestible for the banks, we're feeding them a little too much dessert and not making them eat enough of their vegetables," he told Treasury officials and bank regulators at a recent congressional hearing.

Mr. Ely predicted that the government will impose new conditions on the bailout money as the competition for the available dollars sharpens.

"As the number of claimants grows, I think it's inevitable that the government, and certainly the new administration, will want to put new strings on how the money gets used," he said.

The Treasury Department and its defenders say the rescue package was intended from the start to address the crisis in the broader credit markets, not just the problems of the commercial banks.

Nonetheless, Assistant Treasury Secretary Neel Kashkari, the point man in administering the $700 billion Troubled Asset Rescue Program (TARP), faced sharp questioning at a Senate hearing last week over the program's first moves.