TARP II ? This is Huge!!!!

DJIA 8657 -84.74 VIX 42.12 Gold

Democrats Recasting TARP As Their Own Stimulus Plan
TARP as we know it is dead. Now get ready for TARP 2.

Congressional Democrats have been busy drafting new legislation for the $700 billion Wall Street bailout fund—redirecting its bounty to Main Street, not Wall Street—even though President-elect Obama has outlined a sweeping $800 billion stimulus package that covers some of the same needs.
CNBC.com
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House Financial Services Chairman Barney Frank (D. Mass) Friday outlined his plans for new legislation, making public some of what was contained in a memo to House members earlier this week, a copy of which was obtained by CNBC.com.

Frank made clear Congress's disapproval of Treasury Secretary Henry Paulson's conception and execution of the emergency funding plan, its determined opposition to a new Paulson request for funds and, most importantly, six “new conditions that would govern the spending of the remaining $350 billion and that we bring forward a bill….”

In a news conference, Frank said there has been "such unhappiness" over how the original plan was handled but that there was a "need" for a second round. He said legislation would be introduced later today and hoped for a vote on it next week.

Though it is arguably open to interpretation as to whether the Frank plan is intended to be complimentary and supplemental to the Obama plan or essentially a stand-alone component of it, it still raises a number of critical questions.

Are Democrats over-doing it, in essence suggesting $1.35 trillion, not $800 billion, in new government spending be thrown at the economy? Should the TARP fund be dropped altogether given the change in economic conditions and its intended focus? And are there significant differences in strategy already emerging between Congress and the President-elect?

Though Frank did not tick through all the of the plan's components in his news conference, the six measures include “substantial efforts to reduce mortgage foreclosures”, funding for “mortgages at low or affordable rates”, assistance to municipalities and other tax-exempt issuers, as well as help for auto dealers. TARP 2 also sets tougher new terms on banks receiving money from the fund, from lending requirements to executive compensation to disclosure.
President-elect Obama’s economic plan announced Thursday includes some of those economic aid issues, as well as conventional fiscal stimulus measures and broader economic initiatives. His economic team is now working on an overhaul of the TARP as well.

“If this is the direction the new Treasury wants to go, then it makes more sense to cancel the remaining $350 billion and have the debate as part of the stimulus bill,” says Robert Glauber, who oversaw the Treasury’s handling of the savings-and-loan crisis for the first Bush administration.

“Everyone is expecting the money to be spent. They’re certainly going to do it,” says a disapproving Tom Schatz, president of Citizens Against Government Waste. who predicts TARP 2 will become law before the stimulus package, partly because it contains previously approved money for the auto makers. “The question is how they do it? Will they eliminate some duplication? That should have some effect on what should happen in the stimulus.” Schatz and others may disapprove of the strategy, but they are resigned to its inevitability. Others, however, are not so accepting.

“The TARP was a bad idea and I don’t there’s any reason to expand it or extend it, “ says former FDIC Chairman Bill Isaac, who is among those who strongly disapproved of using the funds for auto aid. “It’s irrelevant going forward. It creates a slush fund. I think that’s really dangerous.”

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Some also see it as early sign of an emerging battle between Congress and the President-elect, who appear to have very different ideas about what is best for the crisis.

“It is a contest for power between the president and congress," says William A. Niskanen of the Cato Institute, a former economic advisor to President Reagan. “If there was a choice, I would much prefer what’s happening with TARP. It is much more smaller and direct. Frank’s plan seems to address the basic problem the economy is facing. The Obama plan doesn’t address the housing problem.”

Niskanen notes that while Obama and his rivals were on the campaign trail, other members of Congress were back in Washington, confronting the crisis, including a seemingly do-or-die vote on the original TARP, amid serious voter skepticism.

“I think the congressional leadership believes it has every bit as much power as the president to decide these issues,” says Isaac. “I don’t think it is going to be easy sledding.”

That’s apparent in the somewhat mixed reaction to Obama’s ambitious, yet sprawling economic plan, which quickly drew criticism from both Democrats and Republicans alike, on subjects as diverse as tax cuts and job creation. Some analysts say because it is much more than a fiscal stimulus plan it will be difficult to pass quickly and in one piece.

On the other hand, Frank’s plan seems to have broad support, including that of House Speaker Nancy Pelosi of California.

Late in the last Congress, Rep. Maxine Waters (D.Calif), for instance, introduced legislation to cover foreclosure prevention, with the intention it would paid for with TARP funding.

Several members of Congress contacted for this story either failed to respond or declined comment on the subjects.

Strategic and political party battles aside, there’s still the matter of money. The federal government has already thrown trillions of dollars at the economy and the credit crunch with limited success.

There’s a growing sense that taxpayers want to see results, knowing that money isn’t unlimited and it's needed in so many places.

“The numbers are so astonishing that it is finally giving everybody pause,” says Schatz

Mikey Says
The credit markets are thawing in a hurry and the stimulus package is MASSIVE. Jobs numbers are history they are going to throw everything at this economy. If the numbers get worse they will be on your doorstep handing out $100 bills. I remain very bullish the question at this point is will they run the stops before they launch this thing. I think the clue to this is in this article where it says that friday's close is critical. My wish is that we give it up on the close so the new baby bulls will give up. If we get hit I want to buy that hit. Right now they are playing their cards close to the vest.

With this new revelation ABK, MTG and MBI are looking more interesting to me. The muni markets have just had a huge rally I would expect that at some point someone would put 2 and 2 together and say that mortgage insurers are going to be OK. The balance sheets for th financials have got to be