Obama wants TARP funds to reduce foreclosures

President-elect Obama will use the rest of the $700 billion in financial rescue funds to support the credit markets for business and families and to help reduce home foreclosures, his top economic adviser wrote on Monday.

In a letter to top congressional leaders, Lawrence Summers, Obama’s pick for head of the National Economic Council, said it is necessary that Obama have quick access to the bailout funds to support the skittish financial markets and make sure that credit continues to flow through the economy.

“Today he is asking for the authority to implement the rest of the financial rescue package because the American people need to know that going forward our government has the resources to do whatever is necessary to stabilize our financial system and protect our economy from a potential catastrophe,” Summers wrote.

The Bush administration said earlier on Monday that the president would seek access to the rest of the rescue package money before Obama takes office. Lawmakers from both parties have been highly critical of how the bailout has been administered, and particularly over the Treasury Department’s shifting aims. The bailout money was intended originally to buy up troubled assets, but Treasury moved quickly to purchase bank equity instead.

Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, has drafted legislation that would introduce new restrictions on how money from the Troubled Asset Relief Program may be used. Congress would have to grant the president access to the remaining $350 billion or it could choose to add limitations on how the money may be spent.

“[Obama] believes the American people are right to be angry with the way this plan has been implemented,” Summers wrote.

Summers said that the fiscal stimulus package being crafted by the transition team and Congress must be complemented by access to the rest of the financial bailout funds.

“It alone will not solve all the problems that led us into this crisis,” Summers wrote, referring to the stimulus package.

Summers indicated that firms receiving money under the rescue package would face additional restrictions on executive compensation and dividend payments. The rest of the money would also be directed in part to community banks that have been lobbying for help under the program, as well as to support the markets for student and auto loans, and municipal debt.

“Obama believes there has been too little transparency and accountability; too much upside for financial institutions and executives who acted irresponsibly without providing enough help for small business owners, families who are struggling to keep their jobs and make ends meet, and innocent homeowners,” Summers wrote.

Summers said there were plans under discussion to better monitor whether firms receiving financial help are using the money to spur lending. Critics have argued that the program has no mechanism for ensuring that banks aren’t simply hoarding cash.