Bush poised to seek $350B for bailout

White House notifies congressional Democrats that it may ask soon for second half of $700 billion. Money would be ready for Obama team.

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By Jeanne Sahadi, CNNMoney.com senior writer

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NEW YORK (CNNMoney.com) -- The Bush administration may soon ask Congress for the remaining $350 billion from the $700 billion bailout program passed in October, a Democratic leadership source confirmed to CNN.

If President Bush submits a request in the next few days authorizing the release of the remaining funds from the Troubled Asset Relief Program, as leading Senate Democrats expect, the money wouldn't be available for 15 days at the earliest -- or a few days into the Obama administration.

According to the Democratic source, who did not want to be named because no decisions have been made, Democratic leaders are not sure if there would be enough votes to block President Bush from accessing the funds. If President-elect Barack Obama signs onto the Bush request, it may make it easier for Democrats to vote yes, the source said.

But on Sunday Senate Democrats met with members of Obama's economic team and emerged from the private meeting optimistic about plans to spend the remaining $350 billion in TARP funds and helping to shape the economic recovery package.

"The Obama administration wants to re-brand this process," said Sen Christopher Dodd, D-Conn., chairman of the Senate Banking Committee. "They realize that if we're going to be effective in assisting our credit markets, to get them unclogged and moving again, this program has to be far better run than it has been. But they also make the strong point that they need these resources to do that."

A better TARP?

Treasury Secretary nominee Timothy Geithner is working on plans to revamp TARP to include programs to prevent foreclosures and help cash-strapped municipalities, small businesses and consumers, two transition aides told CNN.

Lawmakers on both sides of the aisle have expressed unhappiness with the way Treasury used the first $350 billion to capitalize banks. They object to how Treasury made investments with few strings attached and no process for tracking how the banks are using the money.

They also are unhappy that none of the $350 billion allocated so far has been used to prevent foreclosures. And while problems facing credit markets have eased since the passage of TARP, the program has hardly been a panacea.

Consequently, leading Democratic lawmakers told Treasury officials that Congress would only release the remaining $350 billion if Treasury guaranteed that some of the money would go toward helping those at risk of foreclosure and consumers in search of loans for cars and homes, among other things

On Friday, House Financial Services Chairman Barney Frank, D-Mass., introduced a bill that would place several restrictions on how Treasury may use the remaining TARP funds.

Frank said in a statement that his legislation "will strengthen accountability, close loopholes, increase transparency and require Treasury to take significant steps on foreclosure mitigation."

The next step

Under the bailout legislation approved by Congress in October, the administration must formally notify Congress that it wants to access the second installment of $350 billion. Unless Congress passes a resolution rejecting the request within 15 days, Treasury can begin tapping the funds.

If Congress rejects the request, the president could veto the resolution, allowing Treasury to proceed. If the president vetoed the resolution, Congress would have to override the veto to stop the administration from accessing the money. A veto override requires a two-thirds majority in both the House and Senate.

As congressional Democrats assess the situation and prepare for a possible vote as early as this week, the Bush administration is sending a public warning down Pennsylvania Avenue.

"If the President does decide to notify Congress of the intention to access the second $350 billion on behalf of President-elect Obama, our shared goal [of both administrations] will be to defeat a resolution of disapproval if Congress goes that route," an administration official told CNN on Saturday.

White House press secretary Dana Perino said Friday that the administration has had discussions with the Obama transition team on how to proceed, "should the President-elect determine that he would like President Bush to notify Congress on his behalf of the intent to use the remaining $350 billion."

But, she added, "No final decisions have been made."

- CNN senior congressional correspondent Dana Bash, congressional producer Evan Glass and Fortune senior writer Colin Barr contributed to this report. To top of page

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