/ 9 January 2009

Obama team working on overhaul of financial rescue

President-elect Barack Obama’s economic team is working on an overhaul of the $700-billion financial rescue programme, with the aim of doing more to spur the flow of credit to the struggling United States economy, an Obama aide said on Friday.

The Washington Post reported earlier that Treasury Secretary nominee Timothy Geithner was working with top Obama economic adviser Larry Summers and other aides to hammer out a new approach to managing the Troubled Asset Relief Programme, also known as Tarp.

The transition official, who spoke on condition of anonymity, confirmed that such an effort was under way and that part of it would likely include using some money to help homeowners avoid foreclosures. The Obama team is also looking at ways to expand the programme to help generate loans to municipalities, small businesses and consumers.

Departing Treasury Secretary Henry Paulson said on Wednesday that Obama, who takes office on January 20, will decide how to spend the remaining half of the bailout cash.

The Obama team has not decided when Congress should be asked for the balance of the rescue funds, the Post said.

The Obama team’s view that the bailout effort needs to be revamped is shared by many key lawmakers in the Democratic-led Congress, whose approval would be needed to release the second $350-billion of the programme’s funds.

Many Democratic senators agree with Obama that some of the money should be used to stem foreclosures and a number of them were upset that Wall Street firms receiving help continued to pay big bonuses to executives and dividends to shareholders.

Under a plan the Obama team is considering, the government would take more stakes in financial firms but companies receiving money would face greater restrictions on executive compensation.

Geithner is considering creating a new bureau within Treasury to oversee the Tarp, the Obama aide said.

The work on overhauling the Tarp comes as Geithner is preparing for a Senate confirmation hearing expected to take place next week, probably on January 15.

Senators will be eager to question Geithner on his plans for the Tarp, among other subjects.

The transition official said the overhaul of the bailout programme will be a work in progress as the inauguration approaches. – Reuters