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ARRP and TARP

Financial Reform Watch

The 111th Congress convenes tomorrow and repairing the damage left by the financial crisis of 2008 will be at the top of the agenda. The early talk and action will center on what President-elect Obama has dubbed the "American Recovery and Reinvestment Plan" (ARRP). Even the pronunciation of the acronym tends to draw a connection to "TARP"—the $700 billion package Congress passed and the Treasury reinvented in the fall and early winter of 2008.

The two packages are tied beyond just their rhyming acronyms. Discussions within the Obama transition team—and between the team and Congressional leaders—over the size of the recovery package are pivoting on the question: "Can the recovery plan for

Main Street
be smaller than the bailout plan for Wall Street?"

House Speaker Nancy Pelosi (D-CA) has indicated she is pointed at a $600 billion program, smaller than the TARP. However, the Obama transition team appears to be aiming at a target of $775 billion and the nation's Governors have been pushing for a number above the TARP number. Our sense is the ultimate proposal from the Obama team and Democratic Congressional leaders will be closer to the $775 billion number, so more for

Main Street
than for Wall Street...at least for now.

The TARP may also affect the timing of the economic recovery plan. Before the holidays, Congressional leaders pledged to have a stimulus bill ready for the president immediately after he took the oath of office on January 20; however, President-elect Obama has indicated that he wants strong bipartisan support for his economic package. This was evidenced over the weekend as he released the first details of his plan which included $300 billion worth of tax cuts likely aimed at attracting Republicans and moderate Democrats. Obama also wants to head out across the nation to sell his recovery plan directly to the American people which signals that the timing of the economic recovery bill is now more likely to be mid-February. One variable that may force a change in the schedule is the release of the remaining $350 billion in the TARP. Treasury Secretary Hank Paulson has said he plans to leave the remainder of the TARP funds for the new administration.

So all of this leaves us with a few questions. Will the Obama Administration and Congress be willing to release the remaining TARP money prior to passing an economic recovery package? How would doing so impact their ability to gain bipartisan support for the recovery program? Will the commitments made by the Bush Administration force the release of TARP funds prior to the mid-February timeframe? As our readers can see, while the TARP may not be at the forefront of the debate on economic recovery, it continues to play a major role behind the scenes.



 

Notice: The purpose of this newsletter is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This alert should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.