Watchdogs Say Bank Bailout Funds Cannot Pay for Obama's Jobs Program

By Matt Cover | December 10, 2009 | 6:27 PM EST

( – Two members of the special oversight panel put together by Congress to monitor the Troubled Asset Relief Program (TARP)--which bailed out U.S. banks--said yesterday that leftover funds from that bailout cannot be directly used to fund new job stimulus programs planned by President Obama. New legislation will need to be approved by Congress and signed by the president for that purpose.
Elizabeth Warren, chairwoman of the Congressional Oversight Panel for the Troubled Asset Relief Program, told that funds for President Obama’s job creation programs “don’t come from TARP.”
Warren, whose panel oversees the government’s handling of the $700 billion bank bailout program, said the Obama administration could not use money intended to save failing banks to fund its job creation programs.
“Direct jobs programs, other kinds of investments, are decisions to be made by Congress and the administration,” Warren told Thursday. “They don’t come out of the TARP fund [because] they’re not part of TARP.”
Warren was referring to the restrictions Congress originally placed on how the Treasury Department could spend the money when it passed the bailout program in October 2008. Congress mandated that Treasury could give the money only to “financial institutions” and could spend returned money only on debt reduction.
Congress defined “financial institution” as an organization such as a bank, investment firm, or saving and loan.
“The Secretary is authorized to establish the Troubled Asset Relief Program (or ‘TARP’) to purchase, and to make and fund commitments to purchase, troubled assets from any financial institution, on such terms and conditions as are determined by the Secretary, and in accordance with this Act and the policies and procedures developed and published by the Secretary,” the law states.
“The term ‘financial institution’ means any institution, including, but not limited to, any bank, savings association, credit union, security broker or dealer, or insurance company, established and regulated under the laws of the United States or any State…”
If or when a financial institution repays the government, Treasury must use the money to pay down the national debt.
“Revenues of, and proceeds from the sale of troubled assets purchased under this Act, or from the sale, exercise, or surrender of warrants or senior debt instruments acquired under section 113 shall be paid into the general fund of the Treasury for reduction of the public debt.”
In a speech at the Brooking Institution Tuesday, Obama said that he would direct Treasury to use remaining and returning TARP funds to help fund several job creation proposals, including small-business loans, an elimination of the capital gains tax for small businesses, more infrastructure spending, and a program for incentivizing people to make their homes more energy efficient.
“Given the challenge of accelerating the pace of hiring in the private sector, these targeted initiatives are right and they are needed,” Obama said.
“But with a fiscal crisis to match our economic crisis, we also must be prudent about how we fund it. So to help support these efforts, we're going to wind down the Troubled Asset Relief Program, or TARP - the fund created to stabilize the financial system so banks would lend again,” he added.
Before that happens however, Obama said he plans to use some of the unspent TARP funds for small business lending.
“[W]e're proposing to waive fees and increase the guarantees for SBA [Small Business Administration]-backed loans. And I am asking my Treasury Secretary to continue mobilizing the remaining TARP funds to facilitate lending to small businesses.”
Obama also said that because TARP is not entirely expended and banks are beginning to repay the government, his administration would use this spare money to begin financing a second round of stimulus spending.
“In fact, because of our stewardship of this program, and the transparency and accountability we put in place, TARP is expected to cost the taxpayer at least $200 billion less than what was anticipated just this summer. And the assistance to banks, once thought to cost the taxpayers untold billions, is on track to actually reap billions in profit for the taxpaying public.
“This gives us a chance to pay down the deficit faster than we thought possible and to shift funds that would have gone to help the banks on Wall Street to help create jobs on Main Street,” Obama announced.
Panel member Paul Atkins, a former chairman of the Securities and Exchange Commission, told that Obama could not use TARP funds for job creation. Atkins said that the questionable legality of Obama’s plans prompted him to ask Treasury Secretary Timothy Geithner for a full legal opinion.
“I don’t think it is permissible under the statute,” Atkins said. “So I think that part, that’s why I asked [Geithner] for the legal opinion, [because] I’m skeptical.”
Atkins said that he “really questions” Obama’s plans for TARP, calling the administration’s plans “bad form” and that Obama should ask Congress to rewrite the law.
“This is why TARP should not have been extended, and if the government wants to do it they should go back to Congress and get a reauthorization. That would be the proper way of doing it, rather than relying on a poorly-drafted statute that was passed in the midst of a crisis and an election – and all this stuff, everyone wanting to get out of town – it’s really bad form,” he added.