WASHINGTON – Confronted with intense skepticism on Capitol Hill over the $700 billion financial rescue program, Treasury Secretary nominee Timothy 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 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.
That challenge is underscored by a report from a congressional oversight panel scheduled to be released today that hammers the outgoing Treasury Department for its handling of the financial rescue, including “what appear to be significant gaps in Treasury’s monitoring of the use of taxpayer money.”
The report, moreover, faults the Treasury for failing to properly measure the success of the program or establish an overall strategy and skewers the department for not using any of the funds on foreclosure relief as Congress had directed.
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.
The group has come to believe the program needs a fresh start after determining the Bush administration succeeded in providing a measure of stability for the financial system but failed to jump-start bank lending or stem foreclosures, three sources said, speaking on condition of anonymity because no announcement has been made.
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.