WASHINGTON — Upset about how the first half of the $700-billion Wall Street bailout fund was spent, lawmakers are working with incoming Treasury Secretary Timothy F. Geithner to impose tougher restrictions on recipients of the remaining money and make sure a large chunk is used to help homeowners avoid foreclosure.
President-elect Barack Obama's transition team and Bush administration officials are discussing the possibility of notifying Congress before the inauguration of their plans for using the second $350 billion, which would trigger a 15-day period in which lawmakers could block the move. And although Geithner and Obama's economic team are working on their own reforms of the Troubled Asset Relief Program, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, introduced legislation Friday to mandate numerous changes.
"We intend to trust, but verify," Frank said, invoking a phrase made famous by President Reagan in describing his approach to arms negotiations with the Soviet Union.
"We intend to say that if they are going to spend the second $350 [billion] -- as I think they should, I think there is a need for it in the economy -- it will be done in a reasonable way."
When Congress approved the $700-billion fund last fall, Treasury Secretary Henry M. Paulson said he intended to use the money to buy troubled mortgage-backed securities to stop the failures of large financial institutions and ease the economic crisis. Lawmakers also gave Paulson the authority to use some of the money to revise existing mortgages to reduce foreclosures.
Paulson did neither. Instead he used almost the entire first half of the fund to inject money directly into banks to try to ease the credit crunch. But rather than risk lending it, most banks apparently held onto the money.
That angered many lawmakers, who were further upset that Paulson had not expressly required the banks to lend the money.
Frank's legislation would mandate that between $40 billion and $100 billion of the remaining TARP money be used to help modify existing mortgages to avoid home foreclosures. Treasury officials would have to craft a plan by March 15 and start funding it by April 1.
The bill would tighten executive compensation requirements on recipient firms, bringing them in line with the tougher restrictions recently placed on U.S. automakers that are receiving federal aid. The restrictions would apply retroactively.
