US President-elect Barack Obama will have a "strong message" for bankers once he becomes president, his senior adviser David Axelrod said on Sunday on ABC's "This Week" news program. "I think he is going to have a strong message for the bankers. We want to see credit flowing again. We don't want them to sit on any money that they get from taxpayers," Axelrod said.
He said Obama's team will be discussing administration of the Troubled Asset Relief Program (TARP) in the days after Tuesday's inauguration of Obama. "First of all, the point is to get credit flowing to businesses and to families across the country. That hasn't happened with the expenditure of the first $350 billion," of the TARP financial bailout fund, Axelrod said.
In addition, the administration of the program needs to be changed to make sure the use of the money is more transparent. "No one can really tell you where the money went how it was spent. ... We have to deal with that."
"We have to make sure the money doesn't go to excessive CEO pay and dividends when it should be going to lending," Axelrod told ABC. The incoming Obama administration is considering setting up a government-run bank to acquire bad assets clogging the financial system, a person familiar with the Obama team's thinking said on Saturday.
The US Federal Reserve, Treasury and Federal Deposit Insurance Corp have been in talks about ways to ease a banking crisis that is once again deepening - and a government-run "aggregator bank" is among the options.
In outlining the idea of an aggregator bank on Friday, outgoing Treasury Secretary Henry Paulson and FDIC Chairman Sheila Bair said the government could use money from the Treasury-administered $700 billion financial rescue fund to capitalise a new institution that would be able to absorb toxic assets now weighing down bank balance sheets. The hope would be that taking these bad assets off the hands of banks would allow the banks to attract badly needed private capital and renew lending, the original intention of TARP.
A surge in US mortgage defaults led to a global credit crisis that has raged since the summer of 2007. Last week, Goldman Sachs estimated that losses world-wide could mount to $2 trillion, about double what has been realised so far.
In addition to steps to bolster banks, Obama officials want to aggressively attack the underlying causes of the credit crisis: the sharp downturn in the US housing market and the related deterioration in mortgage-related assets. "There are a range of things we're going to have to do to stabilise the financial community and part of it is going to involve housing, and part of it is going to involve how we approach this issue generally," Axelrod told Reuters on Saturday.
On Thursday, the Senate voted to give Obama authority to spend the $350 billion remaining in the $700 billion TARP fund created in October.
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