Republicans accused President Obama on Tuesday of taking a step toward using the $700 billion Wall Street bailout as a slush fund, a possibility many worried about when the Troubled Asset Relief Program was first created during the economic panic of 2008.
“Our TARP should not be a piggy bank. It was intended to stabilize the financial system. It has stabilized the financial system. As it is paid back with interest it should go to reduce the debt,” Sen. Judd Gregg, New Hampshire Republican and ranking member on the Senate Budget Committee, said in a brief interview.
Obama traveled to New Hampshire to promote his idea, a proposal to move $30 billion out of TARP and loan it to community banks, in order to spur lending to small businesses. Obama only touched on the idea during the town hall, but it drew fire from Republican lawmakers in Washington as well as some Democrats.
The president’s idea, which requires legislative action by Congress, would remove the $30 billion from the pot of money that is scheduled to be paid back to the $12. 4 trillion national debt this fall, when TARP is scheduled to expire. A White House official confirmed to The Daily Caller that the money would no longer go toward paying down the debt if the president’s idea became law.
“They can do that?” asked Sen. Mark Pryor, Arkansas Democrat.
A White House release said that the reason for moving the money out of TARP would be to “encourage broader participation by banks, as they would not face TARP restrictions.” Many of the largest recipients of TARP funds have paid back their loans with interest, seeking to avoid government dictates on executive pay or other matters.
Pryor said that using TARP money for such a purpose likely went outside the bounds of “truth in budgeting.”
“If we’re going to spend more money let’s be more transparent about that,” he said. “I think the American people want us to be clearer and more transparent about what we’re doing with their taxpayer dollars.”
The idea had some defenders among the Democratic caucus, however.
“I’ve always said that it’s like Wall Street got a cold and Main Street got pneumonia,” said Sen. Amy Klobuchar, Minnesota Democrat. “So I think taking a portion of the money that’s been returned and putting it out on the street for small business is a good idea.”
Others, like Sen. Evan Bayh, Indiana Democrat, said he supports using any profits from the TARP — which is currently about $4 billion in interest payments and is projected to reach $7 billion — for the president’s program, but not any of the original TARP money.
“I would start with the profits, and if they were insufficient then look elsewhere for money. Take the TARP money, repay the Treasury, and if you still need more to make the $30 billion then look for another source of funds other than TARP,” Bayh said.
About $375 billion of the original $700 billion in TARP has been paid out to large and medium-sized financial institutions, as well as the U.S. auto manufacturing companies that required a government bailout last year. Another $170 billion has been committed as guarantees.
Roughly $165 billion has been repaid so far from the $370 billion that has gone out (roughly $117 billion that went to U.S. automakers, AIG and a home mortgage program is not expected to come back unless the president’s bank tax passes into law).
So that leaves about $320 billion currently unobligated, meaning it has been paid back or never was committed, and could go toward paying down the debt immediately. The remaining $380 billion would have to be paid toward the debt in the future.
Sen. John Thune, South Dakota Republican, has introduced legislation to end TARP and put the $320 billion toward immediate debt reduction. The bill attracted 13 Democratic votes in January, but Thune could not get his support past the 60-vote threshold, which was a condition for the bill’s appearance as an amendment.
Thune spokesman Kyle Downey hammered the president’s proposal on Tuesday.
“This is straight-up money laundering,” Downey said, calling it “Chicago politics on a $30 billion scale.”
The White House did not respond when asked to respond to this charge.
Gregg, at a committee hearing, pointedly rebuked Obama’s budget director, Peter Orszag, for supporting the measure.
TARP money, Gregg said, is “not for a piggy bank because you’re concerned about lending to small businesses and you want to get a political event, when you go out and make a speech in Nashua, New Hampshire. That’s not what this money is for,” Gregg said, according to ABC News.
Sen. Robert Bennett, Utah Republican, agreed.
“If the president was serious about being fiscally responsible, he would end TARP and pay down the national debt,” Bennett said in a statement e-mailed to The Daily Caller.
Tony Fratto, a former Bush administration deputy press secretary who worked closely on the passage of TARP in 2008, said that the Obama proposal would be “making liars” of the Bush administration.
“We said this was not going to happen,” Fratto said. “Everything we said and Congress said when we created the TARP was this would be temporary, that this would not go on forever. That was one of the main selling points.”