News that banks participating in the Troubled Asset Relief Program would be allowed to repay $68 billion in government funds has sparked a debate among political and financial types. Just where will the money go, for what purpose will it be used, and who, exactly, can use it?
Speaking about the matter at the White House on Tuesday, President Barack Obama said the money would be used simultaneously to "safeguard against continuing risks" and to lower the "national debt... by $68 billion." An official with the Treasury Department told the Huffington Post that, "Treasury Secretary Geithner has the authority to decide when and how these funds might be used to address threats to financial instability down the road."
"We hope that won't be necessary," said the official, who would only speak on background, "but we reserve the right to spend up to $700 billion...if it becomes so."
Not everyone interprets the law this way, however. The critics on Capitol Hill -- indeed, a strange group of bedfellows -- say the administration has vastly over interpreted its powers, arguing that Treasury is obligated to use that money solely for lessening the debt.
"It is very difficult to see how recycling the money is reducing the public debt," said Rep. Brad Sherman. The California Democrat was the first to question the administration's plan to recycle TARP money, but he has been joined by Republicans in the House and Senate, along with progressive economists, who say that the administration is acting in bad faith.
In a letter to Geithner written on May 15, Sen. David Vitter (R-La.) pointed to a section of the Emergency Economic Stability Act -- the law governing the bailout -- that says money coming back to the Treasury "shall be paid into the general fund of the Treasury for reduction of the public debt."
"It is clear the EESA was painstakingly written to ensure that as troubled financial institutions repaid their federal assistance that funds would go directly to debt reduction," wrote Vitter. "Your intention to recycle TARP money seems in direct violation of this provision of the law."
Geithner would respond a few days later by arguing that another part of the law held that the TARP could have up to $700 billion "outstanding at any one time."
The debate over how and where the government can use money paid back or earned from the government's investments in some of the nation's largest banks has been ongoing since the beginning. And it has been affected, quite clearly, by the diminished popularity of the program. At the White House press briefing on Tuesday, Press Secretary Robert Gibbs was pressed repeatedly on the matter. So too was Geithner during testimony on the Hill earlier in the morning.
"Do you anticipate the money that's going to be paid back will go into the general fund and not reinvest in other troubled banks?" asked Sen. Jon Tester, (D-Mont.).
"By law it goes into the general fund, but it also does, as the law is written," replied Geithner, "I think this was wise -- it does give us flexibility to use that again if we think there's a compelling case."
Part of the problem, as the debate suggests, is that the law is vague. Indeed, efforts to find a concrete answer -- as the Huffington Post has tried to do over the past several weeks -- have proven elusive. Even high-ranking officials in charge of TARP oversight profess to being unsure of exactly what the law means.
"Based on what Secretary Geithner has said, the money will be held at least to be available to be re-spent," said Professor Elizabeth Warren, chair of the TARP oversight panel, during hearing on Tuesday. "I think that the statute is at best ambiguous on whether this money can be recycled or whether this money must be returned to the Treasury, and given the ambiguity, the Treasury Department certainly has grounds for interpreting it the way they want to interpret it, so I think that's what they're going to do with the money unless Congress tells them differently."
Sherman disagrees. "There's tremendous political pressure to let treasury do what it wants on this issue," he said. "All of Wall Street and the entire establishment wants the $68 billion recycled and there will probably be more repayments and they'll want those recycled as well."