In part one of this series, I explained why I think the Obama Administration will soon run out of TARP money and need to ask Congress for more.
Several weeks ago the Obama team began to lay the groundwork for such a request. Here are four signs.
1. In his February 24th Address to the Nation, the President said:
Third, we will act with the full force of the federal government to ensure that the major banks that Americans depend on have enough confidence and enough money to lend even in more difficult times. … Still, this plan will require significant resources from the federal government and yes, probably more than we’ve already set aside.
2. The President’s budget submission includes a $250 B “placeholder for potential additional financial stabilization effort.” See Table S-6, page 125, the Treasury section in the President’s budget submission. Importantly, the budget puts this $250 B placeholder in federal Fiscal Year 2009, which ends September 30 of this year. So they have a placeholder in the President’s budget for another $250 B request some time in the next six months.
3. In his written testimony before the Senate Budget Committee on March 12th, Secretary Geithner wrote:
It acknowledges that, as expensive as it already has been, our effort to stabilize the financial system might cost more. It establishes a placeholder to help ensure we can cover any additional financial stability costs.
I should note here that the existence of the $250 billion placeholder for financial stability in the President’s Budget does not represent a specific request. Rather, as events warrant, the President will work with Congress to determine the appropriate size and shape of such efforts, and as more information becomes available the Administration will estimate potential cost.
4. Budget Director Peter Orszag has similar language, both in his written testimony, and on his blog. Here’s a quote from page two of his written testimony:
Because of problems in financial markets, the costs of stabilization may amount to $650 billion or more – including the placeholder should additional efforts prove necessary to address the crisis we have inherited.
And here’s his blog:
Requiring $650 billion or more to stabilize financial markets (including placeholder):
- $171 billion for stock purchases in Fannie Mae and Freddie Mac
- $247 billion in federal costs for TARP
- $250 billion placeholder in case additional actions are necessary
These are not small signals. This is a coordinated, Administration-wide message: “Hey, Congress, we may need to ask you for more TARP funds. Assume $250 B for now, and we’ll come back to you with a real number when we know it.” If they do make this request, it will dominate the legislative agenda.
Congress: you have been warned. Are you listening?
In part three of this series (coming soon), I will provide my views and recommendations.