Obama team looks for ways around TARP restrictions

Washington Post:

The Obama administration is engineering its new bailout initiatives in a way that it believes will allow firms benefiting from the programs to avoid restrictions imposed by Congress, including limits on lavish executive pay, according to government officials.

Administration officials have concluded that this approach is vital for persuading firms to participate in programs funded by the $700 billion financial rescue package.

The administration believes it can sidestep the rules because, in many cases, it has decided not to provide federal aid directly to financial companies, the sources said. Instead, the government has set up special entities that act as middlemen, channeling the bailout funds to the firms and, via this two-step process, stripping away the requirement that the restrictions be imposed, according to officials.

Although some experts are questioning the legality of this strategy, the officials said it gives them latitude to determine whether firms should be subject to the congressional restrictions, which would require recipients to turn over ownership stakes to the government, as well as curb executive pay.

The administration has decided that the conditions should not apply in at least three of the five initiatives funded by the rescue package.

This strategy has so far attracted little scrutiny on Capitol Hill, and even some senior congressional aides dealing with the financial crisis said they were unaware of the administration's efforts. Just two weeks ago, Congress erupted in outrage over bonuses being paid at American International Group, with some lawmakers faulting the administration for failing to do more to safeguard taxpayers' interests.

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I think they had to do this to get people to accept the funds. Already banks that accepted the TARP funds reluctantly at the insistence of the government, regret it and are trying to give them back as quickly as possible to avoid the control freak tendencies of the Democrats.