WASHINGTON (Reuters) - U.S. President-elect Barack Obama scored an early political victory on Thursday when the Senate cleared the way to release the remaining $350 billion from the $700 billion financial bailout aimed at stabilizing the sinking economy.
After intense lobbying by Obama and his advisers, the 52-42 vote defeated a resolution to block access to the money and ensured it will be available should the new Democratic president need it after he takes office on Tuesday.
To win approval, Obama and his team made extensive promises to Democrats and Republicans that the funds would be used to better address the deepening mortgage foreclosure crisis and that tighter accounting standards would be enforced.
“My pledge is to change the way this plan is implemented and keep faith with the American taxpayer by placing strict conditions on CEO pay and providing more loans to small businesses,” Obama said in a statement, adding there would be more transparency and “more sensible regulations.”
There has been widespread discontent in Congress that the first $350 billion requested by outgoing Republican President George W. Bush to help fix the country’s economic ills did not combat foreclosures and was squandered by pumping money into distressed automakers and banks that still are not lending.
Facing those concerns, Lawrence Summers, a senior Obama economic adviser, sent two letters to Capitol Hill this week outlining how the money would be spent and said major investments would only be made if Obama approved them.
“If the president-elect concludes that a substantial new commitment of funds is necessary to forestall a serious economic dislocation, he will certify that decision to Congress before any final action is taken,” Summers, a former treasury secretary, said in a letter on Thursday.
The Senate’s rejection of the resolution killed the bid to block disbursement of the second tranche of the bailout funds. Both the Senate and the House of Representatives would have had to pass resolutions halting its release.
Obama had told Democratic senators this week that, as president, he would veto the measure if they passed it.
To further help struggling Americans, Democrats in the House unveiled an $825 billion stimulus bill that would twin tax cuts with spending projects to try to jolt the economy out of a year-long recession that appears to be deepening.
In October, Congress passed legislation for $700 billion in bailout aid, as the financial sector teetered on the verge of collapse. Many Republicans were angered last month when some bailout funds were provided to U.S. automakers.
“We are in uncharted waters because of these issues but to sit back and ... to do nothing to me would be an indictment and a failure of responsibility,” said Sen. Christopher Dodd, a Connecticut Democrat, said before the vote.
To address concerns, the money will be used only to help struggling companies in the financial industry — and potentially the automakers again under certain conditions.
For companies that receive government aid, limits would be put on executive compensation and they could pay dividends to shareholders only if regulators approve.
Up to $100 billion of the money will be concentrated on helping homeowners avoid mortgage foreclosures, with companies that receive the government aid required to have programs for mortgage foreclosure mitigation.
The additional details of Obama’s plan emerged hours after a report showed a big jump in mortgage foreclosure activity, giving a further sign of economic weakness.
U.S. stock markets have been battered in recent days by worries about deteriorating balance sheets of banks.
Bank of America Corp may receive a $15 billion government infusion to help it absorb Merrill Lynch & Co, a deal completed on December 1, but shares of the bank and Citigroup Inc plummeted on Thursday on worries about their ability to handle soaring credit losses.
Still, many Republicans were not convinced that the deteriorating economy was a reason to hand over the second part of the bailout money without stronger conditions.
The dim outlook “does not justify an open checkbook, unfettered discretion and mere acceptance of promises and pleas to ‘trust us,’” said Sen. David Vitter, a Louisiana Republican who authored the resolution to block the $350 billion.
Additional reporting by Richard Cowan and Susan Cornwell; Editing by John O'Callaghan