Obama vows better control of $350 billion bailout cash

By Kevin Drawbaugh and John Poirier

WASHINGTON (Reuters) - U.S. President-elect Barack Obama promised on Tuesday stricter control over a financial rescue package, winning over some skeptical lawmakers who had threatened to block release of $350 billion that regulators said the economy urgently needed.

In the first big test of how he will work with Congress and tackle dissent from within his own Democratic party, Obama told Democrats that he shared their concerns about lax oversight of the bailout fund that was approved last year.

"He made a strong economic case and he answered every element of frustration that senators have about how" the first half of the $700 billion fund was spent, Sen. Joe Lieberman said after attending a lunch meeting with Obama.

"He deserves to get what he wants here," said Lieberman, a Connecticut independent who works with Democrats.

Senate Majority Leader Harry Reid said he thought he could muster the necessary votes in the Senate to approve the measure, but many lawmakers from both parties have called for tougher regulations on how the government doles out the money and what companies receiving the cash must do.

Obama -- who takes over from President George W. Bush on January 20 -- promised Democrats that there would be greater accountability under his administration, but it was not clear whether he had quelled all the opposition.

If enough lawmakers vote against releasing the funds, Obama may face the awkward situation of having to quickly wield his veto power to push through an unpopular policy. A vote could come as early as Thursday.

Many members of Congress are unhappy with the handling of the first $350 billion of the bailout fund, which was hastily approved shortly after the financial crisis intensified following the failure in September of Lehman Brothers.

But top U.S. regulators argued that the still-ailing financial system urgently needed the second $350 billion, and without it the recession, now over a year old, may deepen.

Under the terms that Congress approved last year, half the money was released immediately and the government had to formally request the second half.

At Obama's request, Bush asked on Monday for the remaining $350 billion, starting a 15-day countdown for Congress to reject it or let the money flow.

OK, IF....

Rep. Barney Frank, the Massachusetts Democrat who chairs the House of Representatives Financial Services Committee, has proposed rules that would require banks receiving government money to give more detail on how they spend it, and to accept limits on executive compensation.

His proposal also requires that at least $50 billion of the money go toward helping homeowners facing foreclosure.

At a hearing with regulators on Tuesday, Frank said the remaining money should be released with the tougher conditions that he proposed because it was needed to help the housing market.