Obama team, Congress divided on TARP

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By Sean Lengell

The Obama administration and Congress are squabbling over how to spend the hundreds of billions of dollars that remain from last year's $700 billion bank bailout fund.

The debate will grow more pressing in the coming months as Capitol Hill lawmakers review the progress and map out the future of the nine-month-old Troubled Asset Relief Program, or TARP.

While TARP was established to help jump-start the faltering economy by offering quick capital to financially distressed financial institutions, many lawmakers see the fund a potential pot of gold to help advance personal causes.

Rep. Barney Frank, chairman of the House Financial Services Committee, has introduced a bill that would set aside a portion of the dividends paid by financial institutions that have received TARP money for affordable housing programs.

"We clearly face a new wave of foreclosures" because of rising unemployment, the Massachusetts Democrat said at a committee hearing Thursday.

But fiscal conservatives - such Rep. Spencer Bachus of Alabama, the top Republican on Mr. Frank's committee - say the money instead should be used to pay down the national debt.

"Today, soaring deficits are the biggest threat to financial stability, economic recovery and job growth," Mr. Bachus said at the hearing.

Mr. Bachus added that if Mr. Frank's proposal were implemented, some of the money could find its way into the hands of nonprofit groups such as ACORN, the grass-roots community organization that have been accused of engaging in voter fraud.

The Government Accountability Office (GAO), the nonpartisan investigative arm of Congress, says the government has disbursed $339 billion in TARP money and promised $102 billion more, according to a report released Thursday. That leaves $259 billion left in the fund, plus $70 billion that the banks have repaid.

TARP is set to conclude at the end of the year unless Treasury Secretary Timothy F. Geithner extends it through fall 2010.

Mr. Geithner has said he wants any extra money in the program left to his disposal in case it's needed for other Wall Street emergencies.

Sen. Judd Gregg of New Hampshire, the top Republican on the Senate Budget Committee, complained on the chamber floor Tuesday that proposals by Mr. Frank and others in Congress to spend TARP dividends "was totally the wrong thing to do."

But Mr. Frank warned that with unemployment rate rising to 26-year high at 9.5 percent in June, the economy will continue to slump unless the federal government steps in.

"It's not a forgiveness program," Mr. Frank told the Boston Globe in an interview Wednesday. "We do have serious unemployment."