As Senate Mulls Approval, Bank of America Stakes Claim to Bailout Funds
Bank of America is set to receive another $15 billion in financial bailout money, as the Senate prepares to vote on whether to release the second half of the $700 billion package.
Thursday, January 15, 2009
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National Economic Council Director-designate Lawrence Summers, right, walks to a meeting on Capitol Hill, Wednesday, Jan. 14, 2009, in Washington. (AP Photo/Haraz N. Ghanbari)
President-elect Barack Obama's economic adviser Lawrence Summers, right, walks to a meeting on Capitol Hill on Wednesday. (AP Photo)
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With the Senate set to vote on whether to approve $350 billion in financial bailout money, Bank of America is already staking claim to a sizeable chunk of the funding -- setting up a potential clash with lawmakers who think banks have misspent the money they've already received.
A financial industry source told FOX News the Treasury Department plans to inject about $15 billion into Bank of America, which received $15 billion in bailout funding in October and another $10 billion at the beginning of the year. Bank of America wants the additional money to help the bank integrate Merrill Lynch after acquiring it.
At the same time, President-elect Barack Obama's top economic adviser sent a letter to Senate Majority Leader Harry Reid pledging to spend up to $100 billion of the remaining $350 billion on reducing foreclosures. And he promised more transparency and monitoring in tracking the money they distribute.
Some senators were still not convinced of the need for more bailout funding.
"I'm concerned that TARP (Troubled Assets Relief Program) now could be more of a problem-creator than a problem-solver," Sen. Bob Corker, R-Tenn., said Thursday. Corker said he's "leaning against" voting in favor of releasing the funding, because he thinks banks are hoarding the government aid to hedge against future losses.
The financial industry source said Bank of America's financial health continued to deteriorate after announcing the acquisition of Merrill Lynch. In mid-December, executives met with Treasury Secretary Henry Paulson and asked him for assurances that if the bank needed additional TARP capital because of the Merrill merger, Treasury would provide. Otherwise, the executives told Paulson they would cancel the Merrill acquisition. The source said Paulson agreed to the request.
Citigroup, which received billions in bailout dollars last year, could also soon depend on another infusion, according to recent reports.
Some lawmakers are skeptical about the TARP funding because little has been done to track how the money is being spent. They want assurances, in writing, from Obama that he will enact strict accounting of the remaining half of the $700 billion fund.
"There is a real concern that it's one thing to say it in the privacy of that room; it's another thing entirely to put something on the record," said Sen. John Thune, R-S.D.
Seeking to secure votes from wary members of both parties, Obama aides fanned out across the Capitol on Wednesday. Their lobbying effort culminated in a closed door meeting between Senate Republicans and Obama's economic adviser Larry Summers and incoming White House chief of staff, Rahm Emanuel.
"It worked," Sen. Debbie Stabenow, D-Mich., said of the hard sell Thursday. "His administration will focus this where it should have been the first time -- on jobs and housing. And the flexibility is there to deal with the autos."
Some lawmakers, though, were disappointed that part of the first half of the money was dedicated to ailing automakers.
Senate Democratic Whip Dick Durbin, D-Ill., would not reveal the Democratic vote count but would only say, "It's going to be very close."
Democrats were growing increasingly optimistic that the Senate would agree to release the money to the new administration. And even reluctant Republicans praised Obama's outreach.
"These folks have much more credibility already than Secretary Paulson," Sen. Jim DeMint, R-S.C., said, referring to the Bush administration's treasury secretary, Henry Paulson.
Summers on Thursday sent a letter to Reid promising to spend between $50 billion and $100 billion of the financial bailout fund to reduce the number of foreclosures.
Summers also told Reid that Obama has "no intention of using any funds to implement an industrial policy." That addressed Republican concerns about using the money to help out nonfinancial sector industries, as President Bush did with automakers.
In the House, Financial Services Committee Chairman Barney Frank, D-Mass., said Summers assured him that Obama would commit a significant portion of the bailout money to foreclosure relief.
The House on Thursday was scheduled to vote on Frank legislation that would place broad restrictions on the bailout program. One major provision would require that the new administration spend between $40 billion and $100 billion on reducing the number of foreclosures.
"I believe they would have done this anyway," Frank said after speaking to Summers on Wednesday.
Obama's transition office would not comment on discussions held with members of Congress.
The House bill has little chance of passing the Senate.
Summers this week submitted a three-page letter to congressional leaders as part of Obama's request for the money that outlined the Obama economic team's goals. But several Republicans and Democrats said the letter was not specific enough and said they needed more information from the president-elect.
Congress built in a safeguard by requiring that after the first $350 billion of the bailout fund was spent, Congress could reject spending the second half. Obama has said he needs the additional money to help extend loans to small businesses, consumers, homeowners and local governments.
Lawmakers from both parties have complained that the Bush administration did not spend the money as it initially intended.
Paulson told legislators last year that the money would be used to buy toxic assets held by the banks in hopes that would help them make more loans. But the Treasury soon changed course and used the money to make direct infusions of capital into financial institutions with few strings attached. Lawmakers complained that the money has not appeared to loosen credit.
"It is critical we provide a real road map on how this funding will be spent," said Rep. Jim McGovern, D-Mass.
Republicans argued that Frank's bill was a futile effort.
"That we would just go ahead with the bill that everyone acknowledges is not going to become law as cover for us to then release the $350 billion is just plain wrong," said Rep. David Dreier, R-Calif.