Obama seeks remaining $350 billion in bailout funds

By Jeremy Pelofsky and Jeff Mason

WASHINGTON (Reuters) - President-elect Barack Obama on Monday sought the remaining $350 billion of federal financial bailout funds from Congress, pledging a major overhaul that would distribute the money more widely and impose tougher restrictions on recipient companies.

Obama said he asked President George W. Bush to make the request on his behalf so he could take office next week with the funds at the ready to deal with a "still fragile" financial system.

"I felt that it would be irresponsible for me, with the first $350 billion already spent, to enter into the administration without any potential ammunition should there be some sort of emergency or a weakening of the financial system," Obama told reporters.

Obama and his economic team agreed to new restrictions and changes to the program to address concerns by fellow Democrats, who control both houses in Congress and have been critical of the Bush administration's handling of the funds so far.

The $700 billion rescue program was approved last October to bolster the financial industry as it reeled under the stress of bad mortgage debts and several major institutions were threatened with collapse.

Treasury Secretary Henry Paulson initially sold the program as necessary to buy up troubled assets to free banks to resume lending. But he quickly shifted focus and the first $350 billion was used primarily to make direct investments in financial institutions to buttress their capital.

Many lawmakers have complained that some recipients of the funds continue to pay big executive bonuses and shareholder dividends while loans are still difficult to get.

"Many of us have been disappointed with the absence of clarity, the lack of transparency, the failure to track how the money's been spent and the failure to take bold action with respect to areas like housing," Obama said.

"My commitment is that we are going to fundamentally change some of the practices in using this next phase of the program. We're going to focus on housing foreclosures, we're going to focus on small businesses, we're going to focus on what's required to make sure that credit is flowing to consumers and businesses," the president-elect added.

Bush submitted the request to Congress Monday evening, which under the law for the bailout starts a 15-day clock for lawmakers to decide whether to block access to the remaining $350 billion.

A spokesman for Senate Majority Leader Harry Reid said the Senate could vote on the issue as early as Thursday. Democrats have not said when the House of Representatives would vote.

The 18-page request to Congress said the remaining funds would be used partly to help homeowners facing mortgage foreclosures as well as expand existing programs. But it did not offer specific details about how.

Top Senate and House Republicans quickly raised questions about the program.

"I would be hard-pressed to support additional funding for the TARP without sufficient assurances this money will not be wasted, misspent or simply used for more industry-specific bailouts," Senate Republican Leader Mitch McConnell said.

The Treasury has allocated in excess of the first $350 billion in funds from the Troubled Asset Relief Program, but it said on Monday it has disbursed only $265.3 billion so far.