Lawmakers Looking to Use Excess TARP Funds for a Second Stimulus

With the unemployment rate still lingering above 10%, House Democrats are suggesting some of the excess funds from the government's Troubled Asset Relief Program (TARP) be used to promote job creation in what would essentially be a second stimulus.

The Obama administration said in August that TARP – which Congress funded with $700 billion of taxpayer money – would only cost the $341 billion once banks repay government loans, injections and other investments. Now, the U.S. Treasury can take another $200 billion off of that, Reuters reported, citing an anonymous Treasury official.

"We're going to explain that we're going to have substantial savings, that we're going to have very substantial resources we can make available to support not just the immediate priorities the country faces in spurring investment in job creation, but also to meet our long term fiscal challenges," Treasury Secretary Timothy Geithner said in an interview with Bloomberg.

U.S. President Barack Obama is likely to discuss a plan tomorrow (Tuesday) that would address one of the darkest areas that threaten the country's nascent recovery: joblessness. Should TARP money be used for job creation, it could also boost public confidence –particularly since last week's surprise report that showed only 11,000 jobs were lost in November.

Banks have needed less TARP funding that originally anticipated and many are now racing to pay the government back to avoid federal restrictions on executive pay. Bank of America Corp. (NYSE: BAC) last week reached an agreement to repay $45 billion of TARP money and now Citigroup Inc. (NYSE: C) is racing to pay back some $20 billion in bailout money, the Financial Times reported.

Since TARP became law last year, banks have repaid about $71 billion, netting the United States roughly $15 billion in profit via dividends and interest payments, a Treasury official told The Washington Post.

"The fact that they are spending less TARP money means that recovery is better and stronger than expected, and that's all positive for growth," Mitul Kotecha, head of global foreign-exchange strategy at Calyon told Bloomberg News. "It shows that things are progressing in the right direction."

However, some Republican lawmakers say any excess TARP funds should be used to trim the expected $1.5 trillion federal budget deficit, rather than job creation.

"The money went out to financial institutions," House Minority Leader John Boehner, R-OH told Bloomberg last week. "Now it's coming back, and as it comes back, what we ought to do with that money is use it to reduce the budget deficit. Nobody ever had any idea that when this money came back that we'd go ahead and spend it on something else."

Despite last week's job news, government officials – particularly U.S. Federal Reserve Chairman Ben Bernanke – remain cautious. The jobs market, "though no longer contracting at the pace we saw in 2008 and earlier this year, remains weak," Bernanke said in a speech at the Economic Club of Washington D.C.

Bernanke's comments reinforced the Fed's plan to keep interest rates at record lows for an "extended period" of time, squelching some expectations that last week's jobs report would amount to a raising of interest rates sooner than later.

News and Related Story Links:

• Reuters:
  U.S. Bank Bailout Estimate Cut by $200 Billion
  
• Bloomberg News:
  Geithner Dismisses Tax on Financial Transactions as Unworkable
  
• Money Morning:
  Low November Job Losses Shock, but The Jobless Recovery Continues
  
• Money Morning:
  Bank of America Hopes to Lure Top Shelf Talent by Paying Back TARP Loans
  
• Financial Times:
  Citigroup in Race to Repay Bail-Out Funds
  
• Bloomberg News:
  U.S. Treasury Says TARP to Cost $200 Billion Less
  
• The Washington Post:
  Administration Slashes Bailout Loss Estimate by $200 Billion
  
• U.S. Federal Reserve:
  Ben Bernanke Speech