Franks Wants TARP Money for Preventing Foreclosures

The chairperson of the House Financial Services Committee, Barney Frank, wants $50 billion from the TARP money to be spent for preventing foreclosures.

For a week efforts were made by lawmakers and business lobbies to chip into the Troubled Asset Relief Program. At the end of it proposals were made for initiating a stimulus package. Frank wants restrictions to be placed on the use of the balance amount of $350 billion. The house will vote on the related bill soon.

An industrial group is clamouring in the meantime for a tax break that will enable them to modify debts without inviting corporate income taxes. This will be a windfall for many firms.

Frank said that his measures would stop banks from utilizing public funds to buy off healthy banks. Also it would impose strict rules about compensation packages for executives. Thirdly he is planning to permanently increase the insurance limit of FDIC up to $250,000.

Regarding foreclosures Frank suggested many options including loan guarantees to egg on modifications. He said that the Democrats wanted to allow flexibility to the Obama team to go ahead with their own plans.

The same sentiments were echoed by Rep Earl Blumenauer (D-Ore.) who is a member of House Ways and Means Committee. He said that the legislators would use strong language to stop firms who are receiving bailout money from getting tax breaks.

The Democrats are flexing their muscles against a background of growing criticism of the implementation of the first half of the TARP funds. The money mainly targeted flow of money into the banks rather than on preventing foreclosures.

Some days earlier Senator John Ensign(R. Nev.) who is a member of the Senate Finance Committee placed a bill that would put a stop to tax rules related to “cancellation of indebtedness”. Supporters are hoping that this will ultimately be part of the stimulus package and help the corporations to “strengthen their balance sheets and be better positioned to withstand the effects of an economic downturn.” The Democratic mood of the Congress is not likely to welcome this bill. As per the prevailing law any debt that is forgiven becomes liable to taxation. For example if a company exchanges a $1 billion debt for a new one valued at $600 million than the balance $400 million is considered to be taxable earning. But if Senator Ensign has his way then the company will keep the $400 million without paying taxes.