- The Washington Times - Friday, January 16, 2009

The Senate on Thursday turned back a bid to cut off the second $350 billion phase of the unpopular Wall Street bailout, after President-elect Barack Obama fulfilled Democrats’ desire to use funds to aid homeowners facing foreclosure and met Republican demands to restrict its use.

Mr. Obama, who dodged an embarrassing political setback, said he was “gratified” by the 52-42 Senate vote, which ensures his Treasury Department will be able to spend the remaining bailout funds within days of taking office even as rumblings of instability in the banking industry are resurfacing. The Treasury may have to arrange yet another $15 billion bailout of Bank of America even before he takes office.

“I know this wasn’t an easy vote because of the frustration so many of us share about how the first half of this plan was implemented,” Mr. Obama told reporters after the Senate vote.

Senate Majority Leader Harry Reid, Nevada Democrat, said Mr. Obama’s pledges to tighten oversight of the Troubled Assets Relief Program, or TARP, helped salvage the package, which has become so politically toxic that even its supporters can muster little enthusiasm for it.

“President-elect Obama has made clear he understands the mistakes of the previous administration, and he will try to correct them,” said Mr. Reid. “Inaction now would punish an American public that is already suffering.”

Still, the original emergency bill setting up the $700 billion bailout program had passed the Senate in October by a 74-25 vote, a clear signal of the erosion of popular support for the financial rescue effort in recent months.

“I don’t know any single member who likes dealing with this,” said Sen. Christopher J. Dodd of Connecticut, the chairman of the Banking, Housing and Urban Affairs Committee who led Democratic efforts to defeat the bid to block the money.

Lawrence H. Summers, who will head the White House National Economic Council under Mr. Obama, sent a letter to Mr. Reid just hours before the Senate vote in an effort to prevent the program’s downfall, offering new pledges to meet objections from both Democrats and Republicans. Mr. Summers said in the letter that Mr. Obama would personally scrutinize major new spending under the TARP.

“No substantial new investments will be made under this program unless President-elect Obama has reviewed the recommendation and agreed that it should proceed,” Mr. Summers wrote.

The Treasury is negotiating another $15 billion cash infusion for Bank of America, which is faltering under the weight of bad loans it took on as a result of its mergers with Countrywide, the biggest mortgage lender, and Wall Street titan Merrill Lynch. An announcement from the No. 2 bank could come before the Tuesday inauguration.

Meanwhile, Citigroup, the largest bank, is struggling with mounting loan losses despite having received $45 billion from the Treasury, along with a partial government guarantee on more than $300 billion of souring loans in November. Citigroup is seeking to sell off key assets to raise money rather than approach the Treasury for further aid.

All of the nation’s banks are suffering not only from continuing fallout from the mortgage crisis, but increasing delinquencies on loans of all types that previously had been profitable, whether commercial real estate, credit cards or small business loans.

Lawmakers from both parties criticized how the Treasury Department had dispensed the first half of the $700 billion bailout fund, passed in October to address what officials said was an imminent meltdown of the nation’s credit markets. Opponents said the program had been inconsistently implemented, with little evidence it has spurred more bank lending or provided relief to millions of homeowners facing foreclosure.

Several Republicans who supported the original bailout legislation voted Thursday to deny the incoming Obama administration the second $350 billion.

“There’s just too many questions about the TARP program,” said Sen. Christopher S. Bond, Missouri Republican.

Senate Minority Leader Mitch McConnell, Kentucky Republican, lobbied heavily last fall to help pass the original bailout law. He praised Mr. Obama’s pledges on the new TARP funding, but ended up voting to block it.

Democrats such as Sen. Jim Webb of Virginia, Sen. Tom Harkin of Iowa and Sen. Barbara Boxer of California said they were voting to release the second $350 billion because it was the Obama administration that would be overseeing the program.

“If the Bush administration was going to continue to dole out this money, I wouldn’t give them $3, let alone $350 billion,” Mrs. Boxer declared.

One sign of Mr. Obama’s clout even before he takes office was the decision by a several freshmen Democratic senators who campaigned against the bailout, including Sen. Mark Udall of Colorado and Sen. Kay Hagan of North Carolina, to give Mr. Obama the right to the second $350 billion.

President Bush, at Mr. Obama’s behest, Monday formally informed Congress that the Treasury would spend the second $350 billion of the bailout fund, with the first half of the fund already committed to bolster banks, financial firms and the U.S. auto industry. Under the law approving the rescue package, the administration could spend the remainder of the money unless majorities in both houses of Congress voted explicitly to block the money.

Mr. Obama then could veto the blocking resolution, requiring two-thirds majorities in Congress to override the veto. That prospect was remote, but Mr. Obama and congressional Democrats have been eager to avoid an unseemly veto battle in the very opening days of the new administration.

For Democrats, Mr. Summers said Mr. Obama would use between $50 billion and $100 billion of the money on aid to struggling homeowners facing foreclosure. The Obama administration would insist on strict accounting of how banks and financial firms use the money, and would place strict limits on executive compensation and dividends for companies who accept taxpayer aid.

Addressing a key Republican concern, the Summers letter said the TARP money would be restricted to banks and to the Big Three auto firms and not be expanded to other industries. Senate Minority Whip Jon Kyl, Arizona Republican, cited that pledge as critical to his decision in the end to support releasing the second $350 billion.

Mr. Obama has “no intention of using any funds to implement an industrial policy,” Mr. Summers said.

The TARP vote was a milestone of sorts in another way - the last vote as a senator for Joseph R. Biden Jr., the seven-term Delaware Democrat who will become vice president on Tuesday, and the first vote for Sen. Roland Burris, Illinois Democrat, sworn in just hours earlier by Vice President Dick Cheney. Both voted in support of Mr. Obama, and Mr. Biden formally resigned just minutes after the roll call ended.

The House of Representatives, which is planning its own vote on whether to approve the second $350 billion, continued debate Thursday on a separate bill to mandate new restrictions on the TARP program. The TARP funding vote is purely symbolic, given the Senate result.

House Financial Services Committee Chairman Barney Frank said the bill was a “trust-but-verify” measure designed to ensure the Obama administration lives up to its pledges, but Republicans derided the bill as an empty gesture that has little chance of passage.

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