More money for troubled banks

President-elect Barack Obama this week asked Congress to release another $350 billion in financial-rescue funds, but he met resistance from lawmakers highly critical of how the entire $700 billion rescue program has been managed. “People feel they got burned,” said Democratic Sen. Kent Conrad of North Dakota, who complained that banks were allowed to “hoard” the funds rather than lend them to businesses and consumers. Democratic lawmakers demanded details on where the first $350 billion installment wound up, and also said they wanted a significant portion of the remaining money to be used to prevent home foreclosures. Republicans complained that billions of the first installment were used to bail out Detroit automakers.

Obama said he shares concerns over the Bush administration’s management of the bailout, known formally as the Troubled Assets Relief Program. But he said that given the fragility of the financial system, the Treasury Department needed the “potential ammunition” to fight off another financial panic. Despite law­makers’ complaints, the Democratic-controlled Congress is likely to approve the request.

Congress is right to be skeptical, said Investor’s Business Daily in an editorial. If taxpayers must rescue financial firms, “shouldn’t they at least know where their money is going?” It’s encouraging that Obama has promised to be more forthcoming about who’s getting the money and how it is to be used. But Congress shouldn’t take his word for it. Give him the funds—with plenty of strings attached.

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The strings should be tied to the banks, not the White House, said David Smick in The Washington Post. “Our banks are sitting on mountains of capital,” with $800 billion in total excess cash reserves; in normal times, those reserves rarely exceed $7 billion. “These are hardly noble institutions,” despite Treasury Secretary Hank Paulson’s kid-glove treatment of them. Obama can signal a major change in tone by using his “bully pulpit” to browbeat the banks into actually lending out their bailout bucks.

The last thing our troubled economy needs is to have the government micromanaging the private sector, said Dick Morris in Realclearpolitics.com. Before releasing the remaining $350 billion, Congress should ensure that the government will not use its “leverage” to turn banks into wards of the state. Congress does need to approve the bailout money to help stave off a depression. But by placing strict limits on government muscle-flexing, Congress “has a historic opportunity to demonstrate its preference for the free-enterprise system over socialism.”