Obama Aides Clashed Over Bank Bailout Plan
The Obama administration’s new plan to bail out the nation’s banks was fashioned after a spirited internal debate that pitted the Treasury secretary, Timothy F. Geithner, against some of the president’s top political hands.
In the end, Geithner largely prevailed in opposing tougher conditions on financial institutions that were sought by presidential aides, including David Axelrod, a senior adviser to President Barack Obama, according to administration and congressional officials.
Geithner, who will announce the broad outlines of the plan on Tuesday, successfully pushed back against more severe limits on executive pay for companies receiving government aid. He resisted those who pushed to dictate how banks will spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives and wipe our shareholders at institutions receiving aid.
Because of the internal debate, some of the most contentious issues remain unresolved, even after the plan’s unveiling.
On Monday evening, new details emerged after lawmakers were briefed on the plan. It will call for the creation of a joint Treasury and Federal Reserve program, at an initial cost of $250 billion to $500 billion, to encourage investors to acquire soured mortgage-related assets from banks. The Fed will use its balance sheet to provide the financing, and the Federal Deposit Insurance Corp. may provide guarantees to investors who participate.
A second component of the plan will broadly expand, to between $500 billion and $1 trillion, an existing $200 billion program run by the Federal Reserve to try to unfreeze the market for commercial, student, auto and credit card loans.
A third component will involve a review of the capital levels of all banks, including projections of future losses, to determine how much additional capital each bank should receive. The capital injections would come out of the remaining $350 billion in the Troubled Asset Relief Program, or TARP.
A separate, $50 billion initiative to enable millions of homeowners facing imminent foreclosure to renegotiate the terms of their mortgages will be announced next week.
Some of Obama’s political advisers had advocated tighter restrictions on aid recipients, arguing that rising joblessness, populist outrage over Wall Street bonuses and expensive perks, and the poor management of last year’s bailouts could feed a potent political backlash if the administration does not demand enough sacrifices from the companies that receive federal money.
They also worry that any backlash could make it difficult to win congressional approval for more bank rescue money, which the administration could need in coming months.
For his part, Geithner, who makes his debut as Treasury secretary and as the public face of the historic bailout on Tuesday, will blame corporate executives for much of the economic crisis, according to officials.