Economic Recovery's Future: Obama, Congress, and TARP

Capitol Hill's plans for economic recovery are still uncertain, as Obama's economic team lobbies Congress for the remaining TARP funds, and then some.

Distinguished math and science professor James Yorke once said, "The most successful people are those who are good at plan B." Considering that, President Obama and Congress have a distinct opportunity to prove their own success, as they collectively decide what to do with the money sitting under the infamous TARP.

Prior to his inauguration, Barack Obama sent word to Congress that he intended to tap the $350 billion of undisbursed TARP funds. The first $350 billion was deployed under the direction of former U.S. Treasury Secretary Henry Paulson, who scrapped the original idea of purchasing mortgage-related assets and decided to give the banks capital injections instead. The banks weren't required to use the money in any certain way. Paulson has since been criticized for assuming that the recipient banks would respond by making more loans.   

TARP has been unpopular with the public since it was passed in October. Even so, Obama made it clear to lawmakers that he was serious about using the money, stating that he'd veto any attempt to block the funds.  Congress complied, trusting that the new President wouldn't repeat the mistakes made by the former U.S. Treasury leader.

So far...more of the same

House Speaker Nancy Pelosi recently told ABC News that Congress might be willing to add to the TARP funds should the second $350 billion prove to be insufficient. Pelosi also said that taxpayers could benefit from the eventual recovery of the affected banks if the U.S. Treasury took equity in return for the money. The Treasury did obtain preferred shares from banks that received the initial TARP injections under Paulson.

Beyond mortgage crisis into economic recovery

Obama and his economic advisors have communicated their intention to overhaul the TARP by incorporating more transparency and accountability. Part of the vision involves squashing the mortgage crisis by offering more direct help to homeowners. Other types of consumer credit, such as credit cards, and auto and student loans, will likely be addressed, as well. Lawrence Summers, director of the White House National Economic Council, has said, "It's going to be very different than what you've seen so far," noting that a key objective would be to "getting credit flowing again."

A separate economic recovery package is also making its way through Congress. That spending plan carries an $820 billion price tag, on top of the $700 billion allocated to the TARP. Obama has primed the public for this second package by warning that American households will feel the pain directly should the government fail to act decisively.

Technically, lawmakers appear to be well past plan B, both with TARP and other economic recovery packages. The hope is that they're giving themselves more opportunities for success.