Bank bailout funds could be used for Detroit
Sources: White House warning GOP senators that Wall Street bailout funds might be used for automakers now that Detroit loan package has failed.
WASHINGTON (CNN) -- The proposal to loan $14 billion to Detroit's struggling automakers collapsed late Thursday night but the Big Three may get some money anyway.
Bush officials warned wavering GOP senators earlier Thursday that if they didn't support the legislation, the White House will likely be forced to tap the Wall Street bailout to lend them money, two Republican congressional officials told CNN earlier.
The White House on Friday confirmed that bank bailout funds may now be tapped to aid Detroit.
"Given the current weakened state of the U.S. economy, we will consider other options if necessary - including use of the TARP program - to prevent a collapse of troubled automakers," said White House Press Secretary Dana Perino in a statement released Friday. "A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time."
This is a noteworthy change since the White House and Treasury Secretary Henry Paulson have previously refused to use bank bailout funds to help General Motors (GM, Fortune 500), Ford Motor (F, Fortune 500) and Chrysler LLC.
The sources asked not to be named because of the sensitivities of private conversations.
The White House negotiated a deal with Democrats to give Detroit a short-term $14 billion loan with strings attached, including a so-called "car czar" charged with helping the companies draw up restructuring plans.
Most Senate Republicans opposed the plan as too weak in terms of focusing long-term viability for the U.S. auto industry.
As part of their full-court press to urge skeptical Republicans to back it, White House officials warned that if Congress didn't act, the Bush administration would have to step in to save Detroit from collapse with funds from the $700 billion Troubled Asset Relief Program (TARP), according to the sources familiar with the conversations.
"I would only hope that the president, who has worked so well with us for the past several weeks, would now use consider using the TARP money," said Senate Majority Leader Harry Reid, D-Nev., after the vote.
One of the sources said a White House official made clear to a GOP senator that that would be the worst option, because the loan could go to the auto companies with few or no requirements attached.