Harry Moroz

More TARP: How Can the Frank Foreclosure Plan Provision Work?

In response to a post I wrote last night on OpenLeft on behalf of DMI, Kagro X questioned how (and whether) one of the provisions of the Barney Frank TARP reform bill that I championed would work:

The provision in question: Perhaps most importantly, the Frank bill (H.R.384) prevents any funds from being made available unless between $40 billion and $100 billion are committed to a foreclosure prevention plan.

Kagro X: How do we square that with the news that funds from the second tranche have already been obligated to Bank of America and committed to the auto bailout? Suppose the Senate were to pass H.R. 384, but by the time they did, the vast majority (or even all) of the second $350 billion had been disbursed?

Kagro X’s concern is well placed, but too pessimistic. Funds from the second tranche have indeed been promised. However, in requesting the second $350 billion tranche, former Treasury Secretary Paulson noted that $354 billion in funds had been “allocated” or, in Treasury parlance, “announced but not obligated”, while only $251 billion have actually been funded via TARP I. Presumably, then, funding promises for TARP II could be withdrawn.

While rescinding announcements of TARP commitments would do serious damage to financial stability, there is still room for the Frank provision to function. True, it is difficult to imagine Congress rescinding a loan commitment made by Treasury to a failing bank and still more difficult to imagine Congress rescinding a loan already made. But by including such an accountability provision – a sanction for lack of action – Frank is in fact seeking to stimulate action on the front side, that is, agitating for a foreclosure plan to avoid the imbroglio of committed TARP II funds without a housing plan.

The main point remains: even if the Frank provision is somewhat implausible, it still provides more legislative accountability than the Senate’s carte blanche release of funds.

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Posted at 11:35 AM, Jan 22, 2009 in
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