Transcripts

Half of the TARP is Gone

SUSIE GHARIB: The government expanded its rescue of the U.S. auto industry overnight, loaning an additional billion dollars to General Motors and taking a $5 billion stake in its GMAC financing arm. The moves come during an intermission of sorts for TARP, the Treasury's Troubled Assets Relief Program. Half of the $750 billion has been pledged. The question now is what will happen to the rest of that money as a new Congress and administration take the field. Darren Gersh has the half-time update.

DARREN GERSH, NIGHTLY BUSINESS REPORT CORRESPONDENT: Up to now, the TARP game plan was all about helping companies like Citigroup, AIG and GM. In the second half, expect TARP to focus on helping Smith, Jones and Gonzalez, the millions of families now at risk of foreclosure. At the Financial Services Roundtable, Scott Talbot expects TARP aid will be combined with new programs funded by the Obama economic recovery plan. All together, Talbot expects the Obama team may put up to $100 billion to work helping homeowners.

SCOTT TALBOT, SR. VP, FINANCIAL SERVICES ROUNDTABLE: I think you'll probably see one of two angles if not both. One will be a direct assistance program to borrowers. The other will be programs aimed at lowering the interest rate or providing tax incentives broadly for the entire housing sector and the economy.

GERSH: As of this week, Treasury Secretary Henry Paulson has pumped more than $172 billion into banks, but many financial institutions are still carrying too many toxic assets on their books. Political economist Tom Gallagher says the Obama team might return to the original purpose of the TARP and mount a large scale effort to clear out those toxic loans.

TOM GALLAGHER, POLITICAL ECONOMIST, INTERNATIONAL STRATEGY AND INVESTMENT: What policy makers want to see is for banks to lend again. And right now, as long as bank management is worried about future losses, they are more likely to horde capital rather than to make loans and for the same reason private investors will be leery about investing in banks.

GERSH: But Congress is also leery of sinking more taxpayer money into the TARP. At a minimum, TARP 2 will come with tougher disclosure and lending requirements. Budget expert Chris Edwards thinks it's also possible Congress will scrap the TARP altogether in favor of more targeted spending programs.

CHRIS EDWARDS, TAX DIRECTOR, CATO INSTITUTE: I mean, they are talking about a $850 billion spending stimulus package that is going through Congress right now. Congress will have more direct control over where that money goes and that's what they want. Congress wants to be able to control the purse strings more directly.

GERSH: A technical note, the Bush administration could still ask for the remaining $350 billion in the TARP. Congress would then have 15 days to act, so unless the Bush administration requests their money by Tuesday, this decision will be President Obama's. Darren Gersh, NIGHTLY BUSINESS REPORT, Washington.