Treasury's Paulson Seeks More Bailout Funds, Obama Team Joins in Talks

Treasury Department officials are laying the groundwork for seeking the second half of the $700 billion financial rescue package from Congress and have approached President-elect Barack Obama's transition team in an effort to gain access to the funds, sources familiar with the matter said.

With lawmakers on both sides of the aisle expressing heated opposition to such a request, Treasury officials have come to realize that they need the president-elect's help to obtain the rescue money, the sources said.

The Treasury aired the possibility of seeking the second half of the funds with transition team officials, who said they would attend a meeting with lawmakers and the Bush administration if the department pulled one together.

Of the first $350 billion in rescue money provided by Congress, the Treasury has only $15 billion left, which may not be enough to save a major financial institution if it collapses. Just weeks ago, the Treasury committed to spending $25 billion in rescue money to prop up Citigroup; it had already provided the firm with a $25 billion infusion.

Treasury employees are working on several proposals to unfreeze the troubled credit markets, the sources said. But some of these initiatives may depend on the next installment of the rescue package.

Treasury Secretary Henry M. Paulson Jr. has been cautious about asking Congress for the next installment given the risk that his request would be denied, sources said. Such an event could wreak havoc on the financial markets.

Treasury spokeswoman Brookly McLaughlin said no decision has been made on requesting additional rescue funds.

Obama has not yet stated whether the Treasury should receive the rest of the funds. But in agreeing to allow his aides to meet with administration officials and lawmakers on the issue, Obama appears to be demonstrating his willingness to engage on the issue, two of the sources said.
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In a meeting with Treasury officials, Obama's transition team pressed them to use the second installment, if forthcoming, to help struggling homeowners.

Several congressional Democrats said the administration's case for the remaining rescue money would be vastly improved if the Treasury offered this assistance. But Paulson so far has been resistant to using the rescue funds to help homeowners.

Some congressional aides cautioned that even if the Treasury offers help for homeowners, rank-and-file lawmakers might not go along.

Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee, has said he is opposed to approving any more bailout money during the Bush administration because he thinks the funds have been misused. And House Financial Services Committee Chairman Barney Frank (D-Mass.) said yesterday that he has told Paulson and Obama that they won't get the money unless a substantial part of it goes toward reducing residential foreclosures, which continue to skyrocket.

"I have said to both parties that the key here is to get some money into foreclosure diminution and if they don't get that done, then they can forget about the second $350" billion, Frank said in an interview.

Frank has been critical of the Treasury for failing to use the money to help distressed homeowners, whose defaulting mortgages have helped spark a global recession. But Frank said he is also critical "a little bit of the Obama campaign for not being more forthcoming on this."

Frank said the financial bailout was sold to lawmakers in part as a way to help homeowners, and that Obama was helpful in making that point. But now, Frank said, "I think they are underestimating the importance of" following through on that pledge.

"Not just economically, which is very important, but politically," he said. "If they want to keep the confidence of the Congress in terms of these kinds of politically risky things, then they can't have people feel that they were misled."

Obama's transition team has been closely reviewing what the Treasury has done so far to rescue the financial system. The team assigned Lee Sachs, a former assistant Treasury secretary in the Clinton administration, to work out of a large office that faces the White House on the second-floor of the Treasury building. Sachs and a handful of others have been reviewing the Treasury's initiatives and have been in continual contact with senior officials on the rescue program.

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[Source: The Economist: News analysis

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[Source: The Economist: News analysis -