Congressional Democrats were notified Friday afternoon by the White House that they could get a request soon for the second half of the allocated bailout funds. Once Congress receives the request for the money, both chambers can try to block the release of the money if they do so within an expedited time frame.
According to the Democratic source, who did not want to be named because no decisions have been made, Democratic leaders are not sure if the votes would be there to block President Bush from accessing the funds. If President-elect Obama signs onto the Bush request, it may make it easier for Democrats to vote yes, the source said.
Lawmakers on both sides of the aisle have expressed unhappiness with the way Treasury used the first $350 billion to capitalize banks. Specifically, they object to how Treasury made investments with few strings attached and no process for tracking how the banks are using the money.
They also are unhappy that none of the $350 billion allocated to date has been used to prevent foreclosures. And while credit markets have eased since the passage of TARP, the program has hardly been a panacea.
Consequently, leading Democratic lawmakers told Treasury officials that Congress would only release the remaining $350 billion if Treasury guaranteed that some of the money would go toward helping those at risk of foreclosure and consumers in search of loans for cars and homes, among other things.
Treasury Secretary nominee Timothy Geithner is working on plans to revamp the way TARP is used to make foreclosure prevention. That could include programs to help cash-strapped municipalities, small businesses and consumers, two transition aides told CNN.
On Friday, House Financial Services Chairman Barney Frank introduced a bill that would place several restrictions on how Treasury may use the remaining TARP funds.
Frank said in a statement that his legislation "will strengthen accountability, close loopholes, increase transparency and require Treasury to take significant steps on foreclosure mitigation."
Under the bailout legislation approved by Congress in October, the administration must formally notify Congress that it wants to access the second installment of $350 billion. Unless Congress passes a resolution rejecting the request within 15 days, the Treasury department can begin tapping the funds.
If Congress rejects the request, the president could veto the resolution, allowing Treasury to proceed. If the president vetoed the resolution, Congress would have to override the veto to stop the administration from accessing the money. A veto override requires a two-thirds majority in both the House and Senate.
As congressional Democrats assess the situation and prepare for a possible vote as early as next week, the Bush administration is sending a public warning down Pennsylvania Avenue.
"If the President does decide to notify Congress of the intention to access the second $350 billion on behalf of President-elect Obama, our shared goal [of both administrations] will be to defeat a resolution of disapproval if Congress goes that route," an administration official told CNN on Saturday.
White House press secretary Dana Perino said Friday that the administration has had discussions with the Obama transition team on how to proceed, "should the President-elect determine that he would like President Bush to notify Congress on his behalf of the intent to use the remaining $350 billion."
But, she added, "No final decisions have been made."
- CNN senior congressional correspondent Dana Bash and Fortune senior writer Colin Barrcontributed to this report
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