WASHINGTON – The Senate voted Thursday to release the second half of the Treasury’s hugely unpopular initiative to stabilize the fragile U.S. financial system, granting President-elect Barack Obama virtually unfettered authority to spend $350 billion to revive sluggish credit markets and help millions of homeowners avoid foreclosure.
With the financial crisis threatening anew to further depress the economy, the Democratic Congress was moving rapidly to give Obama the tools he has requested to try to ease the effects of a recession that many economists predict will be the deepest, longest and most dangerous since the Great Depression.
The bailout program attempts to forestall trouble in the financial system, where risky lending practices helped spark the recession in the first place.
Obama praised lawmakers for their quick response to the crisis, and thanked senators for helping him score an important victory in the first test of his administration’s ability to forge consensus. The Senate voted 52 to 42 to defeat a resolution that would have blocked the second installment of the $700 billion financial rescue program, guaranteeing that the money will flow to the Treasury soon after Obama takes office Tuesday.
The House may vote on a similar measure next week, but its defeat in the Senate makes that effort largely symbolic.
Obama acknowledged that it “wasn’t an easy vote” for many senators “because of the frustration so many of us share” over how the Bush administration managed the first half of the rescue fund, known as the Troubled Asset Relief Program, or TARP.
Lawmakers, pressured by the Bush administration to approve the rescue in October amid warnings of an imminent global financial meltdown, have been furious about the program’s implementation – as have many of their constituents. By one count, Sen. Sam Brownback, R-Kan., said his office had received 44 calls in favor of the program and 2,000 calls against. “Kansans were hot and mad and upset and strongly opposed,” he said during Thursday’s debate.
The Treasury has already committed the first $350 billion. During Senate debate, Republicans and Democrats alike said they had been misled by Treasury Secretary Henry Paulson, who told them he would use the money to buy “toxic” assets backed by failing mortgages but instead used it to infuse cash into large banks. They complained that Paulson also did little to help distressed homeowners renegotiate mortgages that are defaulting at historic rates.
Obama has offered to address some of those criticisms. In a personal pitch to Democratic senators this week and in two letters sent to lawmakers by his top economic adviser, Lawrence Summers, Obama has pledged to focus the rest of the TARP funds on homeowners and credit markets, and to bolster oversight of companies participating in the program.
In the latest letter, transmitted hours before Thursday’s vote, Summers pledged to advise Congress before making any “substantial new commitment of funds,” to quickly disclose the details of any purchase of stock or assets and to force financial firms that accept the money to limit executive salaries and prove they are using it to increase lending.
Summers also vowed to dedicate $50 billion to $100 billion to a “sweeping effort” to reduce foreclosures. And he assured lawmakers that Obama “has no intention of using any funds to implement an industrial policy,” a reference to the concerns of many Republicans that the money would be used to prop up the failing auto industry, which has been awarded a small share of the funds.