12 Jan 2009

Plan to overhaul US financial rescue fund

6:11 pm on 12 January 2009

United States resident-elect Barack Obama and a key Democratic lawmaker have revealed plans overhaul the government's $US700 billion financial rescue fund as a way to help struggling homeowners and speed the flow of credit.

An Obama transition official on Friday confirmed that the new administration planned a broader approach for the second $US350 billion of the US Treasury's Troubled Asset Relief Programne.

Some money would be aimed at stemming record foreclosures and helping cash-strapped local governments, which have been forced to cut staff and services.

US Republican Barney Frank, chairman of the House Financial Services Committee, said he was planning to require money to be devoted to housing.

Aides said Mr Frank's legislation, which would also tighten restrictions on the use of the funds by recipients, would demand about $US40 billion for foreclosure relief.

The efforts underscore growing dissatisfaction in Washington over the handling of the bailout fund by departing Treasury Secretary Henry Paulson.

Lawmakers have complained that his approach to devote the first half of the fund's money largely to recapitalise banks as a way to lessen the worst credit crisis in a generation has failed to slow soaring foreclosures.

A report from the panel on Friday also sharply criticised the Treasury's lack of oversight, saying there were "significant gaps in Treasury's monitoring of the use of taxpayer money," including failure to ask financial institutions to account for what they have done with the funds.

Congress must give its blessing before the Treasury can dole out the remaining rescue funds and senior Democrats are talking with the Bush administration about making a request as soon as this weekend, Reuters reports sources saying.

If that request is approved in the next few days, the rescue cash could be available soon after Mr Obama takes office on 20 January.