A final decision has not been made, but this is a marked change of tone from just a week ago, when Secretary Henry Paulson was giving interviews suggesting he had enough of a cushion that the second $350 billion could be left to the incoming Obama administration in January.
Between the Citigroup rescue over the weekend and a $20 billion Treasury contribution Tuesday to a new facility to shore up consumer loans, Paulson appears to be down to his last $15 billion.
Under the law enacted in October, Paulson had easy access to the first $350 billion of the $700 billion fund. But asking for the second half triggers an expedited procedure in which Congress must vote up-or-down on a resolution of disapproval — free of any filibuster threat but still requiring a two-thirds majority in both houses to be effective and overcome a veto by President Bush.
Given the market turmoil — and the White House transition — few expect that the money will be blocked. But it reopens debate on the future of the rescue fund and could increase the pressure on Paulson to devote more resources to forestall mortgage foreclosures on homeowners — a major priority for Democrats.
A second issue is the fate of aid to the Big Three automakers, and House and Senate leaders have already said they are prepared to bring Congress back Dec. 8 to consider emergency loans to help for the auto industry. Over Paulson’s objections, Democrats have proposed taking $25 billion from the Treasury fund for this purpose, but the industry would be required to first submit a more detailed plan by Dec. 2 on how it would use the money to make itself more viable.
After sitting on the sidelines — and watching the markets fall — last week, Obama has become more active himself, appointing his new economic team Monday and proposing a far more aggressive stimulus bill than the $100.3 billion package left to die in the Senate only days ago.
In this context, the whole character of the Treasury fund also raises unique questions of shared responsibilities between the incoming and outgoing administrations. “It’s really a president-and-a-half,” House Financial Services Committee Chairman Barney Frank told Politico. And the Massachusetts Democrat has reached out to top Obama advisers, urging that the president-elect step in and ask Treasury to commit rescue funds to ease the foreclosure crisis.
One option would be to give at least start-up money to a $24 billion plan proposed by the Bush administration’s Sheila Bair, chair of the Federal Deposit Insurance Corp. But given the tensions between Paulson and Bair, Democrats are looking at other routes, and Treasury officials appear reluctant to contribute to Bair’s plan even as a pilot program.
Democrats' own Hope for Homeowners bill enacted this summer to deal with the foreclosure problem has proved less effective than its authors promised. Frank is open to legislative fixes but these will take time. And the chairman said Paulson has such discretion under the Treasury rescue law that the secretary could step in and get around these road blocks.