Monday, President-elect Barack Obama called for the second half of the $700 billion Troubled Asset Relief Program (TARP), passed by Congress in October.  Obama asked President Bush to submit a request to Congress making the remaining $350 billion available soon after his inauguration.  The first $350 billion of the fund was exhausted earlier this month, following dozens of concerns raised about how the bailout funds had been distributed, and a distinct lack of transparency in what banks and lenders had then utilized the bailout funds to accomplish.

Treasury Secretary Henry Paulson and members of the Bush administration defended against criticism following the release of the funds, stating that banks and lenders needed the funds right away and couldn’t be asking for government approval on all expenditures.  Months down the road, there has been almost no accountability amongst banks and lenders for the distribution of the funds.  Despite extensive inquiries, it seems bailout funds could have been used to line C.E.O.’s pockets rather than secure bad debt. 

Congress has called for extensive reform with the remaining $350 billion, including a greater deal of tact in how the funds are distributed, and a better method to track how the funds are utilized.  The thought that the first $350 billion just ‘disappeared’ into the financial system is more than ridiculous.  In a press meeting, President-elect Obama stated:

Many of us have been disappointed with the absence of clarity, the lack of transparency, the failure to track how the money’s been spent and the failure to take bold action.

In a letter to Congress, Obama’s pick to lead the National Economic Council, Lawrence Summers, said that the Obama administration would “launch sweeping efforts to address the foreclosure crisis”; a dire situation that banks and lenders made little to no effort to recompense. 

There has been much debate amongst politicians, economists, and the news media about the root cause of the current economic crisis, and where best to focus the repair effort.  Unemployment, weak retail sales, frozen credit markets, home foreclosures, plummeting stocks; all of these are central contributors to the economic crisis.  While those most affected by each central contributor advocate for reform of the source of their predicament, it’s all too natural to forget the issue that spurred the economic downturn; sub-prime mortgage lending.  It was malpractice on the part of banks, lenders, and even homeowners that sent the U.S. economy and economies around the world into dire straits.  Does it not make sense then to address the instigator; home foreclosures? 

This is the message the Obama administration seems to be sending Congress with their request for remaining TARP funds.  The Obama economic team has been working with House of Representatives Financial Services Chairman Barney Frank to allocate the TARP funds where most needed.  Frank proposed legislation that would allot $50 billion to combat home foreclosures.  But there is a definite need for urgency, apparent as Frank stated:

If we do not get the second $350 billion, I do not see any way we can get substantial foreclosure relief.

With President Bush’s formal request for the TARP funds Monday, Congress will have 15 days to block the request before the Treasury can start tapping the funds. 

Despite Obama’s insistence that “dramatic action” is required to combat the economic crisis, a resolution has already been drafted by Republican House Representative Virginia Foxx that opposes release of the TARP funds.  Foxx’s spokesman stated he believes the measure will receive substantial support, but its passage could depend on the success of the bill Representative Frank introduced.  While Frank’s legislation is under assessment, Congressional Democrats have done their best to stymie any measure that would prevent the release of TARP funds.   Regardless of the conditions under which the TARP funds are released, it’s clear that distribution of the second $350 billion will be much more controlled. 

While there is a need for immediate relief across all the financial sectors, with the manner in which bailout funds have been spent thus far, there is no doubt also a need for caution.  President-elect Obama has proposed a record amount of government spending, and while it’s clear that America needs the infusion, if the money does not address the core issues of the economic crisis, it might as well be thrown away. 

When U.S. automakers asked for a bailout of their industry, there were months of debate in Congress, and the motion failed.  President Bush used the remaining TARP funds to provide a lifeline to the ailing automakers, and the move was criticized by a number of politicians.  But when $350 billion disappeared into the books of banks and lenders, politicians didn’t give it a second thought until it was realized there had been little documentation or accountability.  At least with the automakers, Americans knew they would be producing cars; banks and lenders produced nothing and from most known accounts, only sought to secure their future. 

It can only be hoped that President-elect Obama, and Congress will use the second $350 billion of the TARP fund more responsibly.

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