WASHINGTON — The second half of the $700 billion in bailout funding is expected to be released — whether Congress likes it or not.
There is a chance lawmakers could vote "no" now that the incoming Obama administration has asked the Bush administration to formally request the rest of the funding. But even if Congress does, with a veto, the president can gain access to the money.
"I have a hard time finding a scenario in which they don't get the funding," said Jaret Seiberg, an analyst at Stanford Group Co. "The only question is whether Congress simply lets the measure clear … or if we are going to go through the whole veto process."
Under the law, Congress has 15 days to block access to the funds. Though Democrats control both chambers of Congress, a fight over the issue remains likely — and a vote to block the funds could ultimately succeed. Many are furious over how the first $350 billion has been spent.
Still, lawmakers lack enough votes to override a veto, which requires a two-thirds majority in each chamber.
"I think there's a lot of confidence in the market that the final tranche was going to be released," said Brian Gardner, a political analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc. "But the more this lingers, the more you could wreak havoc in the markets.
To avoid a political confrontation just as it takes office, however, the Obama administration pledged Monday to improve the Troubled Asset Relief Program's implementation.
In a letter to congressional leaders, Lawrence Summers, President-elect Obama's director-designate of the National Economic Council, said the incoming administration would direct that the money be used to prevent foreclosures, institute tighter restrictions on companies that receive money, and work to thaw credit markets.
"The president-elect has directed his White House and Cabinet to work with Congress immediately to implement smart, aggressive policies to reduce the number of preventable foreclosures by helping to reduce mortgage payments for economically stressed but responsible homeowners while also reforming our bankruptcy laws and strengthening existing housing initiatives like Hope for Homeowners," Mr. Summers wrote.
Addressing rising foreclosures is "an absolute imperative if we are to restore the health of our housing sector and the financial system as a whole," he said.
Democrats have insisted that they would not release the remaining Tarp money without a foreclosure-mitigation plan.
The Obama team also said it intends to place conditions on executive compensation and dividend payments at companies that get government assistance. Mr. Summers said those receiving "exceptional" assistance will be subject to "tough but sensible" executive compensation limits, dividend payment limitations, and limits on stock buybacks and acquisitions of financially healthy companies.
He said the incoming administration plans to direct more Tarp funds to community banks and is committed to working with regulators to restart lending for small businesses, auto purchases, and municipalities.
Taxpayer money would only be invested "when sufficient private capital cannot be attracted," he said, and he pledged to "replace investments made by the U.S. government with private investment as quickly as possible."
The letter also said regulatory restructuring would be a high priority.
The general concepts echoed demands by House Financial Services Committee Chairman Barney Frank, who introduced a bill Friday to set conditions for release of the rest of the Tarp money. This bill — designed as an alternative to legislation rejecting distribution of the money — is set for a vote this week.
Though lawmakers may not have the power to stop Mr. Obama from getting the money, most observers said they expect the incoming administration to agree to conditions in order to satisfy congressional critics who objected to the Bush administration's execution of the program.
"This is going to be one of those votes that comes down to the wire," Mr. Seiberg said. "There's going to be all the last-minute arm twisting you get to any important vote, and I suspect we'll hear a lot more talk about conditions and details on the mortgage modification efforts [that] stem from this release."
Rep. Frank and the Obama administration already appear to be working on fleshing out a foreclosure-prevention plan.
Advisers to the incoming Obama administration spent the weekend planning how to use the remaining Tarp money. A source said the advisers will roughly follow the priorities outlined in Rep. Frank's bill, which called for spending about $50 billion on foreclosure mitigation.
The source, speaking on the condition of anonymity, said the funds could be used for a variety of projects, including a proposal advanced by Federal Deposit Insurance Corp. Chairman Sheila Bair to offer loan guarantees to lenders that engage in systematic loan modifications. The funds could also support mortgage bankruptcy reform.
Rep. Frank warned members Monday not to vote based on how President Bush has managed Tarp and said he was confident the Obama economic team would do better.
"We should not allow our disappointment at the Bush administration's poor handling of the Tarp program to prevent the Obama administration from using the funds in more appropriate ways," he said.
"It seems clear the Obama administration agrees with what we are setting forward, and I believe this creates a framework so that the release of these funds can go forward."
Larry Platt, a partner at K&L Gates, said Rep. Frank's bill will probably not be enacted because it lacks Senate support. Still, it could serve as a roadmap for the Obama team.
"There will be an understanding between the incoming administration and Congress," he said. "There's a shared set of values between Congress and the incoming administration on the uses of the money."