Treasury exceeds limit of financial rescue funds

By Michael R. Crittenden
The Wall Street Journal
Tuesday, December 30, 3008

http://online.wsj.com/article/SB123068292824744097.html?

WASHINGTON -- The Treasury Department has committed nearly $10 billion more than the $350 billion Congress has authorized to date for the financial-sector rescue package, which could constrain how the incoming Obama administration deploys the rest of the fund.

Treasury's announcement Monday that it is directing $6 billion to auto-finance company GMAC LLC brought to $358.4 billion the total funds from the Troubled Asset Relief Program that have been pledged to a variety of programs and guarantees. That suggests Treasury is tapping into the second half of the $700 billion set aside in October before it has been released by Congress.

"They are pushing the envelope here," said Sen. Bernie Sanders (I., Vt.), a critic of the bailout. "What they are trying to do is create a situation to put pressure on [President-elect Barack] Obama and the Congress to provide the next $350 billion."

Under the legislation that approved the bailout funds, Treasury received $350 billion and was required to request access to the rest by providing a detailed plan of how the money would be spent. The goal was to provide a check for lawmakers wary about Treasury's broad authority under the legislation.

Treasury, for its part, says the agency has complied with the rescue legislation. A Treasury official briefing reporters Monday said that "from a short-term cash-flow basis," the department hasn't come close to the $350 billion limit because not all its commitments have been fulfilled. As of Tuesday, roughly $207 billion had been disbursed.

Treasury's actual commitments include $250 billion for capital injections into banks, $40 billion for insurer American International Group Inc., $20 billion for a Federal Reserve consumer-finance program, $25 billion for Citigroup Inc. and $23.4 billion in aid to the auto industry.

A Treasury spokeswoman declined to comment Tuesday on whether the newest commitments were based on the assumption that Congress would release the second installment, or would require reallocating money that had been promised to others.

A spokeswoman for Mr. Obama's transition team declined to comment.

Treasury Secretary Henry Paulson, in announcing the auto-rescue plan Dec. 19, said "it is clear" that Congress will have to release the second $350 billion tranche to maintain financial-market stability. But a growing number of lawmakers, irked by the multiple twists in the bailout plan, have made clear they don't want to provide the money to Mr. Paulson, preferring instead to give the Obama administration the money or delay releasing the funds altogether.

Treasury's decision to make commitments in excess of its authority is "presumptuous" said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. "This is not normal practice," he said, calling it "problematic" if it were a practice the department were to broaden beyond the implementation of the TARP.

Mr. Baker said the responsibility lies with lawmakers for not doing more to require Treasury to use TARP funds in ways they intended, such as providing help for struggling homeowners facing foreclosure. Plus, he added, the Obama administration will have the ability to adjust the program and guarantees as it sees fit, though the new administration is likely to be wary of roiling the financial markets.

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