After a period of intense lobbying by President-elect Obama and his economic team, the Senate voted 52-42 yesterday against a resolution that would have blocked the release of the second installment of $350 billion in Troubled Asset Relief Program (TARP) funds. (The House could still vote against the release, but it would be meaningless because the law requires action by both the House and Senate to block the funds.)
This clears the way for the President-elect to pursue his plans for the bailout. Lawrence Summers, Obama's pick to head up the National Economic Council, wrote to Congress yesterday with a more detailed proposal, including a commitment to spend up to $100 billion in a “sweeping effort to address the foreclosure crisis,” and a pledge to impose more restrictions on firms that receive TARP funds. In addition, Obama's team is considering an even more dramatic proposal to set up a “bad bank” that would absorb hundreds of billions of dollars in banks' toxic assets. But we've seen in the past how the government's bailout plans can change at the last second, so we'll just have to wait and see what shape the bailout actually takes under an Obama administration. In the meantime, some conservatives are even wondering if the bailout is unconstitutional.
We've also learned this morning that Bank of America, which recently acquired Merrill Lynch, just received $20 billion in bailout funds under Treasury's Targeted Investment Program, a deal that was modeled on the November bailout of Citigroup (for those keeping track, this is the third time BofA has been the recipient of TARP funds, bringing the running total to $45 billion). The government has also agreed to limit the company's losses on $118 billion in troubled assets. Interestingly, it looks like Treasury was already making plans for the BofA bailout even before Congress agreed to release the second $350 billion in TARP funds.
-- Michael Smallberg
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