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Paulson: Congress needs to release second $350B
2008-12-19
WASHINGTON - Treasury Secretary Henry Paulson said Friday that Congress will need to release the last half of the $700 billion rescue fund because the first $350 billion has been committed. Paulson said the use of the rescue fund to provide loans to the auto industry along with all the other rescue efforts for the financial system meant that the administration has now basically allocated the first half of the largest government bailout program in history. He said he was confident that the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. had the resources to address a significant market event if one should occur before Congress approves the use of the second half of the rescue fund. But it's important for Congress to release the second half of the rescue fund "to support financial market stability," Paulson said in a statement. Paulson said he will be consulting with congressional leadership and President-elect Barack Obama's economic team to determine how to proceed. Under terms of the $700 billion rescue fund that Congress approved on Oct. 3, when the administration determines the second $350 billion is needed it has to submit a report to Congress detailing how it plans to use those funds. The money automatically will become available unless both houses of Congress pass legislation blocking the funds within 15 days of receiving the administration's report. The request is expected to generate significant debate on Capitol Hill with key Democrats vowing to block the release of more money unless the administration includes greater efforts to help homeowners threatened with foreclosure. House Financial Services Committee Chairman Barney Frank, D-Mass., has said the administration must allocate some of the new money for borrowers facing foreclosure, and impose more conditions to make sure banks use their rescue funds to increase lending. "They're not going to get the (money) unless they get very serious about the foreclosure modifications and showing us how we're going to get some lending out of the banks," Frank said earlier this month. Treasury officials said Friday that no decision had been made on when the request for the second $350 billion will be sent to Congress. They said Paulson was consulting on the matter with congressional leaders and members of Obama's transition team. In his statement, Paulson said the loans for Chrysler LLC and General Motors Corp. were being extended with the expectation that the two companies would move quickly to develop acceptable plans for long-term viability. The administration believed there was a need to help the two companies given the state of the economy, which is facing a severe financial crisis amid the longest recession in a quarter-century. "This step will prevent significant disruption to our economy while putting the companies on a path to the significant restructuring necessary to achieve long-term viability," Paulson said. "At the same time, we are including loan provisions to protect the taxpayers to the maximum extent possible." The initial $350 billion from the rescue fund includes $250 billion being used to buy stock in hundreds of banks as a way to bolster their balance sheets and get them to resume more normal lending. Critics have charged that not enough conditions have been imposed on those funds to make sure the banks use the money to increase lending.
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