Using $13.4 billion as an excuse to snatch $350 billion more

(11 am. – promoted by ek hornbeck)

On Friday morning, George W. Bush announced he would allow the Treasury Department to use a small fraction, $13.4 to $17.4 billion, of the $700 billion financial bailout to help automakers GM and Chrysler.

While normally Bush would have just let the automakers go bankrupt, he explained in a televised speech before the U.S. markets opened. “But these are not ordinary circumstances. In the midst of a financial crisis and a recession, allowing the U.S. auto industry to collapse is not a responsible course of action,” Bush said.

Then shortly after Bush’s finished his remarks, Treasury Secretary Henry Paulson announced that he needed more money. According to the Washington Post, Paulson noted that “that nearly all of the funds remaining at his disposal have now been committed for a loan to the nation’s automakers.”

The message being crafted is that helping the automakers forced the Bush administration to ask the second half of the bailout money. The message has been developing over the past two weeks.

At hearings before Congress last week, Treasury officials claimed they had already committed all but $15 billion of the first half of the $700 billion bailout authorized by Congress in early October and they would need the second $350 billion soon.

Most of the money borrowed in October by Congress went to TARP, the so-called Troubled Assets Relief Program, which was to be used by the Paulson Gang to buy nonliquid assets of dubious value from their banking friends for a price deemed fair by the Treasury Department to help ease the financial panic.

But, soon after they got their hands on the borrowed money, the Paulson Gang used it to buy shares — non-voting, direct equity — in banks to help strengthen them with no requirements, just a hope that banks would use the cash infusion to make new loans. Without any stipulations from the Treasury to how the money should be used, the banks pile up the money at the Federal Reserve. Instead of making loans, the banks held on tight to the cash.

The Paulson Gang has blown through nearly $350 billion without little, if any of the oversight promised by Congress. Reuters reported that some members of Congress expressed their outrage.

“We gave them money for one thing and then they used it for another,” said Rep. David Scott, a member of the House of Representatives Financial Services Committee, during a hearing that stretched over five hours and turned contentious at times as lawmakers questioned officials’ sensitivity to the needs of average Americans.

“They said we’d have more oversight; no oversight is in place. These are lies. We’ve been bamboozled. The Treasury secretary owes us an explanation,” said the Georgia Democrat.

So annoyed was Congress that members threatened not to dole out the second half of the bailout money to the Paulson Gang unless they actually helped people in mortgage trouble avoid foreclosure and get the banks making loans, something they mistakenly thought they were doing when they voted for the $700 billion bailout.

Congress had an “expectation that Treasury would work with lenders ‘to achieve aggressive loan modification standards’ to mitigate foreclosures, (but it) has not yet developed a program to maintain home ownership,” Gene Dodaro, the head of the GAO, told the House committee.

So once again, the Paulson Gang is out of money again. They committed the first $350 billion with no accountability and no mechanism in place to determine if their rescue attempts are working. According to the NY Times, Paulson now will be asking for the second $350 billion to spend during the final month of the Bush administration.

By law, once Mr. Paulson makes a formal request, the money is released unless Congress rejects the request within 15 days and denies the additional money. It was unclear when that request would be sent or if lawmakers, who have left Washington for the holidays, would return to debate it.

According to the Washington Post, the Democrats in Congress do not expect Paulson will ask for the money before January 6, 2009, but that would give the decision to the 111th Congress.

Once a request is made, lawmakers have 15 days to pass a measure that would block release of the money. With many lawmakers in both parties furious about Treasury’s use of TARP funds, such a measure would likely pass both chambers of Congress, congressional aides said, though it might not have sufficient support to survive a veto by Bush.

If the Democratic leadership were politically astute, I think they could force a party line vote to block the second $350 billion going to the Paulson Gang. I believe there will be enough angry Republicans that vote to override a Bush veto. Then once Barack Obama and his financial team takes office, the Democrats in Congress could allow the $350 billion to be used to help actual people in trouble.

So while it was necessary to provide some help to the real economy in the form of loans to GM and Chrysler, the financial economy can wait a month or two. The banks and credit markets can use the $335 billion they’ve already been given in the mean time.

How about this time we let the Paulson Gang come back empty handed from their taxpayer raid?

 

^{Cross-posted at Daily Kos.}