WASHINGTON - President Bush agreed yesterday, at the request of President-elect Barack Obama, to formally ask Congress for the second $350 billion tranche of the Troubled Assets Relief Program, a move that is expected to lead to long-sought, direct federal help for state and local governments.
"This morning, President-elect Obama asked President Bush to formally notify Congress, on his behalf, of his intent to exercise the authority under the Emergency Economic Stabilization Act to access the last tranche of $350 billion in funding for Treasury programs addressing the financial crisis," White House press secretary Dana Perino said in a statement. "President Bush agreed to the president-elect's request."
Meanwhile, Lawrence Summers, whom Obama has tapped to direct his National Economic Council, wrote to top lawmakers of both parties in the House and Senate urging them to authorize the second tranche of TARP.
Summers' three-page latter outlines a five-point plan for using the money that includes working "in close cooperation with the Congress, the Federal Reserve, and other agencies to strengthen financial institutions and restart lending for small businesses, auto purchases, and municipalities."
Though congressional approval is not a sure thing, House Financial Services Committee chairman Barney Frank, D-Mass., introduced legislation Friday that would require Treasury to use at least $40 billion of the TARP money on homeowner foreclosure mitigation efforts.
Among other things, Frank's legislation would also clarify that Treasury can use TARP funds to purchase municipal bonds or to provide credit enhancement for munis that could be purchased under a Fed program in return for a short-term, non-recourse loan. A hearing on the Frank bill is set for this afternoon.
Bond attorneys said yesterday that Treasury probably will have to issue guidance certifying that the use of TARP funds for muni credit enhancement would not constitute an unlawful federal guarantee. Section 149 of the Internal Revenue Code states that most bonds cannot receive a direct or indirect federal guarantee and still retain their tax-exempt status.
