Tug-of-War Over How to Spend TARP Funds

Dec. 5, 2008 — -- There is a growing disagreement over how and whether to use the remaining $350 billion in the Congressional bailout bill.

Some economists fear the disputes could delay or disrupt action on the increasingly urgent economic meltdown.

"We may get some elements of gridlock until Jan. 20," said Martin Baily, former chairman of President Bill Clinton's Council of Economic Advisers, referring to the day President-elect Obama takes office.

With the financial markets already rattled, "This doesn't help," Baily said.

Citing the "pretty amazing" November job loss numbers that were announced today, the worst monthly figures since 1974, Baily added, "The way things are going, it would be good to do things as soon as possible."

But over the past few days, Obama, outgoing Treasury Secretary Henry Paulson and the leaders of Congress have all spelled out different priorities for the money.

Paulson has already spent or pledged nearly half of the $700 billion in the emergency fund dubbed TARP, for Troubled Asset Relief Program. Paulson initially said he intended to leave the second $350 billion for Obama to use in the long-running effort to stabilize the economy.

This week, however, Paulson indicated he may ask Congress to release the money to help recapitalize banks and to create a cheap mortgage program for people buying new homes. That money would not be available, however, to families in danger of losing their homes.

Obama on Wednesday said a priority for the TARP cash should be to stem the avalanche of foreclosures by helping homeowners already struggling with mortgages.

"The deteriorating assets in the financial markets are rooted in the deterioration of people being able to pay their mortgages and stay in their homes," Obama said. "We've got to start helping homeowners, in a serious way, prevent foreclosures."

President George W. Bush made clear today that his administration is keep its focus on financial institutions, rather than struggling homeowners.

"We are focusing on the root causes of the economic downturn in order to return our economy to health," the president said in a White House statement. "The most urgent issue facing the economy is the problem in the credit markets. Businesses and consumers need access to credit at affordable rates to spend an invest. And so we're working to stabilize the markets and make credit more affordable and available."

Senate Majority Leader Harry Reid, D-Nev., and House Speaker Nancy Pelosi, D-Calif., have demanded Bush spend a chunk of TARP to bail out Detroit's endangered car makers.