The Bank Bailout Just Shrunk By $150 Billion

By Daniel Indiviglio

The TARP (Troubled Asset Relief Fund) is shrinking. On Tuesday, the Senate passed another amendment to financial reform that would shrink its size by $150 billion from $700 billion to $550 billion. The measure, sponsored by Sen. Michael Bennet (D-CO), would also require any funds paid back to the government from TARP recipients are used to pay down the deficit.

At this time, it looks like the bailout won't end up costing taxpayers anywhere near the $700 billion allocated, so the Senators likely felt like there wasn't much risk in shrinking the size of the funds the Treasury maintains discretion over to stabilize the financial markets. The measure will limit the government's ability to utilize the TARP. If adopted by Congress, only unallocated funds could be spent, since anything paid back has to be used for deficit reduction. That doesn't leave the Treasury with a lot of flexibility.  

Of course, the amendment's fate ultimately depends on the conference process the bill will go through with the House, after it passes in the Senate. There isn't a similar provision in the House bill, so that chamber's members would also have to approve. Since the measure was so uncontroversial that it passed by voice vote, however, it doesn't seem plausible that this amendment would be dropped.

This article available online at:

http://www.theatlantic.com/business/archive/2010/05/the-bank-bailout-just-shrunk-by-150-billion/56575/