Once upon a time, Henry Paulson and Barney Frank were the bestest of friends.
Now, not so much.
Frank, the Massachusetts Democrat who chairs the House Financial Services Committee, criticized the Treasury secretary on Monday for using money from the $700 billion Wall Street bailout to prop up Citigroup before earmarking any of those funds to mitigate foreclosures for cash-strapped homeowners.
In a bid to save the ailing financial titan, Paulson has agreed to set aside money from the Troubled Asset Relief Program, or TARP, in order to absorb potentially billions in distressed assets on Citigroup's balance sheet.
“The decision by the Secretary of the Treasury to use TARP funds for Citigroup underlines the contrast between the administration’s activity in this area and its failure to take similarly decisive action to reduce mortgage foreclosures," Frank said in a statement.
The Financial Services chairman, who has been lampooned repeatedly on Saturday Night Live for his advocacy of the rescue plan, told Paulson again on Monday morning that "it is essential that TARP funds be used immediately to fund mortgage foreclosure relief."
Paulson spent much of the first $350 billion allocated under TARP on direct cash infusions to banks of every size. The fight now turns to what will become of the second $350 billion - if anything at all (Paulson suggested earlier this month that he might not use it).
Frank and others would like to see the Department of the Treasury embrace a plan advanced by Sheila Bair, the chairwoman of the Federal Deposit Insurance Corp., to use some of this money to guarantee troubled home loans. Early estimates suggest that plan could prevent 1.5 million foreclosures in the next year.
In a letter last week, the Financial Services chairman offered the Treasury secretary other ideas to use this money to mitigate foreclosures. These include: issuing new loans to offset some of the depreciation in home prices; reducing fees and upfront costs under a new federal home-loan program; and buying big batches of home loans "on a large scale for the specific purpose of modifying those loans and keeping the borrowers in their homes."