Huffington Post’s new congressional correspondent Ryan Grim had a good scoop yesterday. Joe Lieberman told him that in the off-the-record meeting with Democratic Senators, Obama told them he would veto any bill passed by congress that held up the funds. Since there’s no way there are two-thirds majorities in both houses to over-ride that veto, this means that the money’s basically guaranteed. (Let me take this occasion to note that if Congress had been serious about oversight, they would have designed the disbursal the other way around: make it so that the default, if congress does nothing, is that the money isn’t disbursed, but allow for some fast-tracked resolution to disburse the second half. But, of course, that wouldn’t have soother the markets, so instead we’ve gotten this kabuki.)
Now that we know the money’s coming, how do we make sure it’s used well ? Barney Frank’s original idea was to pass legislation that would put statutory constraints on how the money was used (requiring a certain amount to go towards foreclosure mitigation, for example). But by the time that legislation would wind itself through the legislative process, the money would have already been authorized. So, instead, congressional Democrats have decided to more or less just trust the new president.
In other words, the Obama administration is going to have a check for $350 billion to do with more or less as they please on the first day they take office. I can’t blame them for pushing for this. If someone knocked on your door and asked you to choose between having $350 billion to spend as you see fit, or not have $350 bn, you wouldn’t have to think long and hard about it.
But here’s the thing: it’s unclear to me what technical problem this money is supposed to solve. Remember, when TARP was passed, Lehmann had failed, which had forced two money market funds to break the buck, which had caused full-out panic in financial markets. The commercial paper market ceased to function, inter-bank lending dried up. The TED Spread (which is a rough proxy how scared banks are) rocketed up to unprecedented levels.
$350 billion later, the TED is back down to elevated but not crisis levels. So what exactly is this money for? If it’s for foreclosure mitigation, great, but does it require that much money? And couldn’t Congress pass a foreclosure bill that appropriated funds for that purpose, along with bankruptcy cram-down. But in terms of the financial system, what’s the game plan?
I’m not asking snarkily. I’m genuinely curious.