Obama Concedes On Jobs Funding; Won't Use TARP Money

W.H. Won't Use Repaid Bank Funds For Jobs Plan


In his State of the Union address, President Barack Obama proposed using $30 billion in bailout funds for small-business lending. He later repeated the idea in Nashua, N.H.

Both times, Obama said he would use bailout funds that were “repaid” to the government by financial firms — conjuring up the politically appealing image of taking money from a chastened Wall Street and sending it straight to Main Street.

But Obama’s description didn’t give an accurate picture of how he plans to pay for the new program. And his comments sowed controversy and confusion on Capitol Hill.

In reality, the administration is proposing taking $30 billion from the unspent portion of the Troubled Asset Relief Program to seed the new initiative, not — as Obama’s language suggested — taking the funds from the approximately $170 billion that banks have returned to government coffers.

While that distinction might seems painfully technical, it carries significant political weight on Capitol Hill. The reason: The legislation creating TARP dictates that repaid funds must go to pay down the national debt.

The program as “originally outlined” was “totally inconsistent with the law,” Sen. Judd Gregg (R-N.H.) said in an interview with POLITICO.

Earlier this week, Gregg accused Obama of trying to create a “slush fund” from the repaid TARP cash. And he tore into White House budget chief Peter Orszag based on the description that repaid TARP dollars would be used to fund it.

“You don't appear to understand the law! The law is very clear!” Gregg told Orszag during a hearing on the administration’s budget. He went on to read the TARP law to Orszag: “ ‘The monies recouped from the TARP shall be paid into the general fund of the treasury for the reduction of the public debt.’ It's not for a piggy bank because you're concerned about lending to small businesses… This money is to reduce the debt of our children!”

But it wasn’t just Republicans who had concerns. Sen. Mark Warner (D-Va.), who has been working with the administration to create a small-business program, said he sought clarification on the issue from the administration on Thursday.

“This is a major difference, particularly for some of my Republican colleagues,” Warner said. “It makes, I think, a stronger case that it fits within the footprint of the original TARP,” shoring up financial system and sending credit where it’s needed.

“And clearly one of the areas where credit is not moving is to small businesses,” Warner said.

White House officials didn’t say why Obama specifically talked of using “repaid” funds in both settings —including the State of the Union address, in which every word is carefully vetted.

But they say Obama didn’t intend to suggest that the actual repaid TARP funds would be used.

“The policy was always to transfer $30 billion of existing unused TARP authority to a new small-business lending fund, not to use repayments,” said Gene Sperling, a top Treasury adviser. “The moment we realized that there was any confusion we took immediate steps to clarify. The point the President and others were making was that the combination of repayments and increased financial stability … allowed there to be TARP funds available to have a special reserve for small banks and small businesses.”

But Greggsays he sees politics at work and that he urged Treasury not to use TARP to fund the program because it would only tempt Congress to dip into TARP for other purposes as well.

“They were trying to set up a political juxtaposition here of having [bailout] money that was used to stabilize the big banks used to help the little banks. That’s the politics, and that’s all this is about, is politics,” he said.

Gregg said he had two extensive discussions with Treasury Secretary Timothy Geithner on Wednesday and Thursday in which Geithner explained that they were using unallocated TARP authority. Gregg still believes the program is bad policy and outside the intent of TARP.

And he thinks the officials who green-lighted the original rhetoric in the State of the Union speech didn’t understand what the words meant. “I think Treasury did understand what they were doing, but there was some miscommunication somewhere along the line, and the politics of the presentation caused them to make a statement that was totally unsupportable as a practical legal act.”

Administration officials have changed the way they describe the program. On Thursday, Geithner told the Senate Budget Committee that “we will support legislation that would take existing authority that we've reserved under the TARP,” to fund the new lending program.

Obama, too, has changed his rhetoric. Speaking to a group of small business owners Friday, the president described the initiative as a lending program “that would take $30 billion of the fund originally used to rescue big banks on Wall Street, and use it to provide lending capital to community banks on Main Street.”

Warner said he plans to introduce legislation along the lines of the administration’s proposal — though not necessarily exactly the same — as early as next week. And despite the confusion on funding, he’s optimistic he can get bipartisan support.


Sources: Politico, CNN, Zimbio