Paulson May Ask for Remaining $350 Billion of TARP (Update2)
By Robert Schmidt and John Brinsley
Nov. 24 (Bloomberg) -- Treasury Secretary Henry Paulson, less than a week after indicating he would let the Obama administration decide how to use the second half of the $700 billion financial fund, is considering asking for the money.
Paulson may ask Congress for the remaining $350 billion from the Troubled Asset Relief Program as he puts together plans to boost consumer credit. Treasury and Federal Reserve officials are working on an effort to buttress the market for securities backed by auto, student and credit-card loans, Paulson said last week. He’s also assembling an office to address mortgage foreclosures.
Six days ago, Paulson told Congress “it was only prudent to reserve our TARP capacity, maintaining not only our flexibility, but that of the next administration.” Since then, the collapse in Citigroup Inc. shares threatened a renewed bout of financial turmoil, and forced the Treasury to mount a rescue of the bank late yesterday.
“We plan on using our resources aggressively to support the normalization of credit markets and the expansion of credit to support economic recovery,” Paulson said in a Nov. 20 speech in Simi Valley, California. “We are actively engaged in developing programs to be implemented when ready.”
Latest Shift
Paulson’s pivot is the latest in a series of changes. He won authorization from Congress in July to aid mortgage companies Fannie Mae and Freddie Mac by saying he doubted he would need to use it, seven weeks before doing exactly that.
Two weeks ago he abandoned the TARP’s original intent of buying bad bank assets in favor of direct capital injections.
“The markets got awfully shook up when Paulson spoke,” said Fred Dickson director of research at DA Davidson & Co. in Lake Oswego, Oregon. “The credibility right now in terms of Treasury and the administration is part of the problem. We’re not at all past concerns about financial institutions.”
The Citigroup rescue came five days after Paulson told the House Financial Services Committee that Treasury and the Fed’s actions had resulted in “a significantly more stable banking system where the failure of a systemically relevant institution is no longer a pressing concern rattling the markets.”
Lawmakers used his appearance to criticize the decision to not use TARP funds for mortgage relief.
‘Fear Everywhere’
“You have systemic fear everywhere,” said David Winters, who manages $3 billion as chief executive officer of Wintergreen Advisers LLC in Mountain Lakes, New Jersey. “People don’t know what to believe” and “confidence is completely drained out of the system.”
President-elect Barack Obama today said at a press conference that there has been “confusion on what the overall direction might be” of the Bush administration’s plans for dealing with the financial crisis.
In announcing his nomination of New York Federal Reserve Bank President Timothy Geithner to succeed Paulson as Treasury chief, Obama also pledged to “honor the commitments” of the outgoing teams, suggesting he has no plans to overhaul the implementation of TARP funds committed so far.
Paulson, with less than two month left in his tenure, spent much of last week defending his actions. At the Nov. 20 speech at the Ronald Reagan Presidential Library, he pushed back against suggestions that he exacerbated the financial crisis in September by ruling out a government rescue of Lehman Brothers Holdings Inc.
“Some have chosen to scapegoat the Lehman failure as the cause of the deepening crisis in September, as opposed to a symptom,” he said. “That is at best naïve, and at worst disingenuous.”
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