Despite the Treasury Department's decision Friday to spend the balance of its bailout funds to shore up the automobile makers, the Bush administration is not expected to go back to Congress and request the remaining $350 billion authorized for the Troubled Asset Relief Program.
Though Treasury Secretary Henry Paulson was vague on Friday, most observers said limited time, political backlash, and a stash of still-unspent money would probably persuade the administration to sit tight for the month remaining in President Bush's term.
"I don't see there is a will in Congress to get this done," said an industry lobbyist. "It's a timing issue as well as a more political issue, where people are getting a lot pressure for approving the Tarp and there doesn't seem to be the benefits that were promised and you also have a new administration coming into office in less than a month."
Mr. Paulson and President Bush announced Friday that the administration would allocate $13.4 billion from Tarp for General Motors Corp. and Chrysler and another $4 billion in February when the second half of the Tarp funds is available. This would leave $1.6 billion unallocated from the first Tarp tranche and $82.2 billion not yet spent.
Mr. Paulson left the door open when discussing further funding.
"It is clear, however, that Congress will need to release the remainder of the Tarp to support financial market stability," Mr. Paulson said. "I will discuss that process with the congressional leadership and the President-elect's transition team in the near future."
He emphasized that, though most of the funds in the first tranche have been allocated, not all has been spent.
"In the very short term, the allocated but not yet disbursed Tarp balances, in conjunction with the powers of the Federal Reserve and the FDIC, give me confidence that we have the necessary resources to address a significant financial market event," Mr. Paulson said.
White House Deputy Chief of Staff Joel Kaplan added: "It's not necessarily true that this administration, in the remaining 31 days, I believe, will go back to Congress."
Sen. John Sununu, R-N.H., recently appointed to the five-person congressional oversight panel for Tarp, said he expects the Treasury to leave this decision to the Obama administration.
Mr. Paulson has "indicated that the additional funds will be required and that's he's going to work with the incoming administration and designated Treasury officials to put together a proposal for requesting access to those funds, but the funds themselves, I think it's clear, would be allocated, disbursed by the incoming administration," Sen. Sununu said in an interview Friday.
Lou Crandall, the chief economist at Wrightson ICAP, agreed and said he did not view Mr. Paulson's remarks as a formal request.
"The message that Paulson sent was more of a warning than a formal request … . He's really acknowledging this is an issue for others to resolve — Obama and Congress — if they want to anticipate matters, but he's simply giving notice that, while they are not out of money, they are close enough so that the transition and Congress should be thinking about whether it's appropriate, whether to act before Inauguration Day if events require."
William Longbrake, a director of the Seattle Home Loan Bank and a member of the board of directors of First Financial Northwest in Renton, Wash., said the Treasury has roughly $82 billion in funds it could redirect.
"It would be entirely possible they can reallocate … ," he said. "My guess is, they are going to avoid triggering the 15-day notice period but also because of the awkwardness and time."
Under the Oct. 3 law authorizing Tarp, the Treasury must report to Congress its intention to use the second $350 billion of funding. If Congress does not disapprove within 15 days, the Treasury would be able to use the money.
Congress is out of session for the holidays, but under the law, if the Treasury requests the funds, House and Senate leaders must reconvene Congress within two days of receiving the request.
With just about a month left in the Bush administration, observers said the clock is working against Treasury.
"It just doesn't have time to address everything," said Kip Weissman, a partner at Luse Gorman. "To get the last tranche of Tarp, [Mr. Paulson] needs to address what has happened with Tarp and what will happen in the future, and he will face a lot of people with their hands out, and I don't think he has the bandwidth to do it."
Also, if Mr. Paulson went to the Hill to request the funds, Congress would probably put conditions on its approval.
House Speaker Nancy Pelosi and House Financial Services Committee Chairman Barney Frank have said they would not release the funds unless the Treasury agrees to use part of them for a loan modification plan, which so far the department has resisted.
"Obviously, some dissatisfaction has already been expressed about how the funds directly have been used, and they haven't been directed toward foreclosures," said James Barth, the Lowder Eminent Scholar in finance at Auburn University and a senior fellow at the Milken Institute. "I don't necessarily think the administration wants to pick a fight and be turned down just before they turn the administration over to Obama."
If an emergency arises, requiring something like the assistance package the Treasury pulled together for Citigroup Inc. on the Nov. 23 weekend, the allocated-but-unspent funds could be tapped.
"What if something else happens? What if another AIG or Citi happens? Will the markets panic because they perceive Treasury is not able to act quickly?" asked Ed Gainor, a partner at McKee Nelson. "They can always use, in the short term, funds they have allocated for another purpose but not yet spent."
