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November 12th, 2008

TARP Funds for the Big Three?



Congress announced plans yesterday to draft a bill that could pull funds from the TARP program, structured to only help financial institutions, to aid in the financial rescue of the American auto industry:

“It’s hard to see how TARP funds could be made available” under the current structure of the bailout fund, said White House spokesman Tony Fratto. But “if Congress wants to change the law, we’ll see how they intend to do it.”

“This can’t wait until Jan. 20,” said a senior Obama aide yesterday. That’s the growing sentiment sweeping through Washington regarding the rescue of the auto industry. President-elect Obama, who has stepped his efforts on saving the industry, and lawmakers have all expressed an urgent need to construct a bailout package for Detroit before it’s too late. As we said in a story we posted on Monday, if the Big Three doesn’t receive help soon, they could be bankrupt by year’s end.

Obama and his transition team are focusing on three possible avenues of funding for GM, Ford, and Chrysler — TARP funds from the Treasury Department, emergency funding from the Federal Reserve, and accelerating the implementation of the $25 billion given to the Big Three from the Department of Energy to develop a stronger line of fuel-efficient vehicles.

In Monday’s press briefing at the White House, Press Secretary Dana Perino responded to statements and questions regarding the White House’s reaction to House Speaker Pelosi and Senate Majority Leader Reid’s letter sent to Treasury Secretary Paulson regarding the usage of TARP funds. “The letter doesn’t specifically say that that was their congressional intent. It asked the Secretary of the Treasury to review the legislation and study the feasibility of using TARP funds for that purpose. So I think that it’s important that you recognize that distinction and let the Treasury Secretary review those discussions,” said Perino.

For once it seems Washington is being frugal with the little money that’s left. Republican lawmakers may be more willing to support the automaker rescue if Democratic lawmakers shelf the second stimulus. A spokesperson for House Financial Services Chairman Barney Frank said a preliminary proposal could be constructed as soon as the end of the week.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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