Senior Bush administration officials, consulting with the Obama transition team, have prepared a plan to ask lawmakers for the second half of the $700 billion financial rescue package despite intense opposition in Congress, sources familiar with the discussions said.
The initiative could create an unusual political scenario straddling the Bush and Obama administrations. If Congress were to vote down the measure, either President Bush or Obama would have to exercise a veto to get the money.
Obama officials would prefer that Bush exercise any veto rather than leave the new president with the unsavory task of rebuffing his fellow Democrats in Congress to advance a widely unpopular program, sources said. The White House has declined to say publicly whether Bush would be willing to issue the veto.
"There have been discussions between the administration and the transition team on how to proceed should the president-elect determine that he would like President Bush to notify Congress on his behalf of the intent to use the remaining $350 billion so that it will be available early in the new administration," White House press secretary Dana Perino said. "No final decisions have been made."
But Democratic Senate aides were notified in a meeting yesterday afternoon that the request could come as soon as this weekend and that a vote could be held as early as next week, said congressional sources, who spoke on the condition of anonymity because no decisions have been made.
Under the emergency rescue legislation approved by Congress in October, the administration must inform lawmakers that it wants access to the second installment of $350 billion. Unless Congress passes a resolution rejecting the request within 15 days, the Treasury can begin to tap the funds. If Congress turns down the request, the president could veto the resolution and then the Treasury could proceed. The money would be blocked only if Congress overrides the veto, which would require a two-thirds majority in both chambers.
A congressional source said advocates of the plan are exploring whether there are enough votes in the Senate to sustain a veto. The first $350 billion has already been committed.
"There have been discussions between the administration and the transition about how to proceed should the president-elect determine that he wants to have those funds available on January 20," said Robert Gibbs, spokesman for President-elect Barack Obama's transition team. "No final decisions have been made, but we want to be ready to act if needed."
Both Bush and Obama officials say gaining access to the balance of the rescue funds is crucial to turning the economy around. Without the money, it would be nearly impossible to offer significant help for homeowners facing foreclosure, stabilize the financial system or jump-start the credit markets so more consumers and companies can get loans. The latest sign of the economy's deep malaise was new jobless figures released yesterday showing that unemployment has soared to 7.2 percent, the highest rate in 15 years. (See story on page D1.)
Even as senior Bush and Obama officials consulted about how to access the rest of the money, Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, unveiled a bill on Capitol Hill aimed at forcing the Treasury to use the money in accordance with lawmakers' wishes.
Many of the measure's provisions are being coordinated with Treasury Secretary nominee Timothy F. Geithner, who is planning to expand the scope of the rescue program well beyond the financial system to help ordinary consumers and homeowners, as well small businesses and municipalities. Frank said in a news conference yesterday that his bill might not be needed if the Obama administration promised to abide by its principles.
"It doesn't have to be enacted. It would be helpful if it was," Frank said. "We have smart and cooperative people in this [incoming] administration, I'm willing to accept their word that they will act as if it were the law."
Limits on executive compensation
Frank's bill would mandate that the Treasury allocate at least $40 billion for foreclosure prevention. Banks and other institutions that receive funds from the Troubled Asset Relief Program, or TARP, would be required to account for the use of the money. Clear limits on executive compensation would be imposed on all firms that take federal aid, including those that already received money.
The House is expected to vote on Frank's measure on Wednesday, congressional sources said. If the measure is approved, Frank has said that some lawmakers who would otherwise vote against releasing the next round of TARP funds might be persuaded to reconsider. Without Frank's bill, House leaders are convinced that lawmakers would block release of additional funds to the Treasury, which is widely viewed by lawmakers as having rushed the bailout through Congress and then badly mismanaged the program.
For Obama, using a veto runs the risk of souring his relationship with rank-and-file lawmakers, especially if it is one of his first official acts in the White House. It carries less risk for Bush, who is leaving office in a matter of days.
But the threat of a veto could assure distressed financial markets that more help is on the way.
In September, when Treasury secretary Henry M. Paulson Jr. proposed the rescue to Congress, the House at first voted down the plan. Global stock markets plummeted immediately. The initiative eventually passed both chambers and was signed into law in October.
Bush officials committed nearly all of the first half of the rescue funds on aiding the financial system and bailing out individual firms. But their programs angered lawmakers on both sides of the aisle. Some were steamed that no help was forthcoming for struggling homeowners. Others said the effort failed to stimulate lending.
A majority of lawmakers in both parties are strongly resistant to giving more money to continue the program, Democratic leaders say, adding that a request from either administration is likely to be rejected, making a veto almost unavoidable.