President-elect Barack Obama is planning to use the remaining $350 billion in Troubled Asset Relief Program (TARP) funds to prevent foreclosures, impose tough conditions on companies that receive government help, and thaw credit markets.
Lawrence Summers, director-designate of the National Economic Council, outlined the President-elect's request for the final tranche of TARP money in a letter Monday to Congressional leaders.
"Today, he is asking for the authority to implement the rest of the financial rescue plan because the American people need to know that going forward our government has the resources to do whatever is necessary to stabilize our financial system and protect our economy from a potential catastrophe," Summers wrote. "With the first half of the rescue package now committed, President-elect Obama believes the need is imminent and urgent. We cannot afford to wait."
In the letter, Summers said Obama is disappointed in the lack of transparency and accountability of TARP and with the Bush administration's unwillingness to help small business owners and homeowners.
Summers said the funds would be used to prevent foreclosures.
"The President-elect has directed his White House and cabinet to work with Congress immediately to implement smart, aggressive policies to reduce the number of preventable foreclosures by helping to reduce mortgage payments for economically stressed but responsible homeowners while also reforming our bankruptcy laws and strengthening existing housing initiatives like Hope for Homeowners," Summers wrote.
He said addressing rising foreclosures is "an absolute imperative if we are to restore the health of our housing sector and the financial system as a whole." Democrats have insisted that they would not release the remaining TARP money without a foreclosure-mitigation plan.
The Obama team also said it intends to place conditions on executive compensation and dividend payments for companies that receive government assistance. Summers said those receiving "exceptional" assistance will be subject to "tough but sensible" executive compensation limits, dividend payment limitations, and limits on stock buybacks and acquisitions of already financially strong companies.
Summers also said the incoming administration planned to use TARP funds to provide more assistance to community banks and committed to work with regulators to restart lending for small businesses, auto purchases and municipalities.
The letter added that the Obama administration plans to move quickly on a revamp of regulation of the financial sector.
"We will work with Congress to strengthen oversight and move quickly to reform a weak and outdated regulatory system to better protect consumers, investors, and businesses," wrote Summers. "We will operate as one government with strong coordination among all major financial regulators."
Summers said the Obama administration would receive input on reform recommendations from the Congressional Oversight Panel, which supervises TARP, and plans to "ensure international coordination on recovery, financial and regulatory policies."
The letter effectively counts as an official request for the remaining TARP funds, and is being submitted on Obama's behalf by the Bush administration.
"This morning, President-elect Obama asked President Bush to formally notify Congress, on his behalf, of his intent to exercise the authority to access the last tranche of $350 billion in funding for Treasury programs addressing the financial crisis," White House spokeswoman Dana Perino said. "President Bush agreed to the President-elect's request. We will continue our consultations with the President-elect's transition team, and with Congress, on how best to proceed in accordance with the requirements of the statute."
By law, Congress has 15 days from the date of a formal request to pass a resolution blocking the release of funds.