Reply #5: Geithner Preparing Overhaul Of Bailout; Obama Team Broadens Scope to Secure Final $350 Billion [View All]

[Demeter]

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/08/AR2009010804109.html?hpid=topnews


By David Cho
Washington Post Staff Writer


Confronted with intense skepticism on Capitol Hill over the $700 billion financial rescue program, Treasury Secretary nominee Timothy F. Geithner and President-elect Barack Obama's economic team are urgently overhauling the embattled initiative and broadening its scope well beyond Wall Street, sources familiar with the discussions said.

Geithner has been working night and day on the eighth floor of the transition team office in downtown Washington with Lawrence H. Summers and other senior economic advisers to hash out a new approach that would expand the program's aid to municipalities, small businesses, homeowners and other consumers. With lawmakers stewing over how Bush administration officials spent the first $350 billion, Geithner has little chance of winning congressional approval for the second half without retooling the program, the sources added...Much of the work by Obama's team has focused on establishing principles that would clearly define the program's course and the conditions of government aid to financial firms.

With Geithner leading the discussions along with Summers, who will head the National Economic Council in the White House, the group is devising plans that would use rescue funds to help homeowners avoid foreclosure and unclog the credit markets that finance loans to consumers, small businesses and municipalities. The team is also planning to have the government take more stakes in financial firms, but companies receiving federal aid would have to submit to greater restrictions on executive compensation than were imposed by the Bush administration.

Geithner is also considering creating a new bureau within the Treasury to manage the Troubled Asset Relief Program, or TARP, in an attempt to improve the program's operations and oversight...Although the timing has not been settled, one source said details of this new approach may be laid out before Geithner's confirmation hearing, which is likely to be held late next week.

Some lawmakers are not waiting for the transition team to release its plans. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, was set to announce legislation today that would force the Treasury to meet conditions if it requested the second $350 billion of the rescue funds. Frank's terms include many of the proposals Geithner is considering as well as several others such as restricting executive bonuses and requiring firms that receive federal aid to explain how they are spending the money. Frank has scheduled a Jan. 13 hearing on the future of the rescue program.

Yesterday, Senate Democrats took their own action to help homeowners whose mortgages are larger than the value of their house, announcing a deal with Citigroup that would allow bankruptcy judges to set new repayment terms for mortgage holders.

Even if Geithner provided additional help for homeowners, he must overcome discontent among rank-and-file lawmakers about the program. Geithner faces a tremendous risk in asking for the money because if the request is turned down, it could wreak havoc in financial markets.

But he cannot wait long to ask for more funds. In December, the Bush administration made $4 billion of its $13.4 billion loan to General Motors contingent on whether Congress approves the second half of the TARP funds. GM needs the money to meet a massive debt obligation due in mid-February.

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A date for Geithner's confirmation hearing has not been set. But two congressional sources said they expect it will take place Jan. 15...

Staff writers Binyamin Appelbaum and Neil Irwin contributed to this report.