Second Half Of Funds Should Be Aimed At Main Street
$700 Billion TARP Funds To Now Be Used For Consumers
With today marking the inauguration of Barack Obama, new is that his presidency will focus more on helping consumers, local governments and businesses than banks as his administration deploys the second half of the $700 billion rescue fund, said Lawrence Summers, the president- elect’s top economic adviser.
“The focus isn’t going to be on the needs of banks; it’s going to be on the needs of the economy for credit,” Summers said on CBS’s “Face the Nation” program. Obama’s team will manage the Troubled Asset Relief Program “in a very different way,” he said.
In fact, Summers’ remarks indicate banks and their executives face tougher scrutiny in seeking money from the bailout after the Obama administration takes office Jan. 20. The TARP may be redirected to address “housing to prevent foreclosures,” “automobile loans, consumer credits, small business, municipalities,” he said.
On the other hand, Treasury Secretary Henry Paulson committed most of the initial $350 billion of the TARP to capital injections in exchange for warrants and preferred equity. Summers said banks will be subject to more oversight in their use of the funds.
“There’s going to be a very different level of rigor in the evaluation of institutions, the plans that are designed, and the expectations for institutions,” Summers said. “Institutions that are healthy, that don’t need it just to survive, are going to be expected to lend above their baseline levels as part of this program.”
Following up, Treasury Secretary-nominee Timothy Geithner and his advisers will be “carefully” monitoring Wall Street bonuses of banks that have participated in the TARP, Summers said.
Bank Take Overs
Summers also said, “What’s not going to happen is the funds that could be supporting increased lending are going to be used to finance acquisitions that may serve a bank but don’t serve the country”. The new administration will also prevent banks that accept government funds from pursuing acquisitions to the detriment of increasing lending, he said.
Summers said the results of TARP so far have been “unsatisfactory,” a sentiment echoed by another Obama adviser speaking today in a separate interview.
“It’s clear that it has to be administered in a much different way,” David Axelrod Obama’s chief political adviser, said in an interview on ABC’s “This Week” program. “The point is to get credit flowing again to businesses and families across the country -- that hasn’t happened with the expenditure of the first $350 billion.”
$825 Billion On The Way?
Summers said he is confident Congress will pass a spending plan, coupled with tax cuts, similar to the $825 billion package that Obama has offered. Such a stimulus has been forecast to create 3 million to 4 million jobs, he said.
“I expect the program will pass within in a month,” Summers said. “He is going to do what is necessary to get us out of this economic hole.”
As the U.S. economy showed further signs of buckling, according to reports last week, it is clear there is still work to be done.
“There’s almost no question that the economy is going to decline for some time to come,” said Summers, who served as Bill Clinton's last Treasury secretary. “Our errors are not going to be of standing back.”
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