SCOTT SIMON, host:
Amid mounting losses at the nation's banks, President-elect Obama succeeded in prying another $350 billion in Troubled Asset Relief Program funds from the Congress to fight the financial crisis. Meanwhile, Democrats in the House outlined their ideas for a stimulus package totaling $825 billion. Speculation mounted that that package will ultimately hit a trillion dollars. NPR economics correspondent John Ydstie joins us. John, thanks very much for being with us.
JOHN YDSTIE: Hi, Scott. Glad to be here.
SIMON: And first of all, Congress was very angry about the way they thought the Bush administration had used that first $350 billion in TARP funds, and they threatened not to release the second half of the package. What convinced them?
YDSTIE: Two things, I think: Lyndon Johnson-style lobbying effort by Mr. Obama - without the profanity, we hope - and more huge losses at the nation's banks. Citigroup posted a loss of $8.3 billion in the fourth quarter. Bank of America, the nation's biggest bank, posted a $1.8 billion loss for the quarter, and it told the government it needed more money to absorb Merrill Lynch, which it took over back in September. Luckily, the Congress paved the way for the second $350 billion of rescue funds on Thursday afternoon because on Friday morning, the Treasury did inject $20 billion of TARP funds into Bank Of America. Plus, the Fed promised $118 billion in backing for some dodgy Merrill Lynch assets the Bank of America has inherited.
SIMON: So there's more money to bail out Wall Street, but President-elect Obama said that he wants to use TARP money to help homeowners facing foreclosure.
YDSTIE: Yes, he has said that, and you know, he made his priorities clear to members of Congress this week in face-to-face meetings, in phone calls, and in a letter released by Mr. Obama's people just before the Senate vote on TARP. The letter contained a commitment of 50 to $100 billion to reduce foreclosures, also a promise of tougher restrictions on executive compensation and dividend payments by companies that get the bailout money. And it said that banks that get TARP funds have to increase lending.
SIMON: Because there have been a lot of criticism that banks haven't increased lending even after getting the money.
YDSTIE: Absolutely, lots of criticism. But some data out this week suggest indeed, bank lending did increase in the last quarter of the year, and it suggested that the real problems in lending are in loans that get securitized, bundled together and sold to investors, like mortgages and auto loans. And they've been making the headlines in terms of the credit freeze.
SIMON: So why, after so many billions of dollars in bank loans that were supposed to stop the slide, are we still seeing banks getting into trouble again?
YDSTIE: Well, one reason is the deep problems in the real economy. They're causing more people to default on loans that once seemed like solid loans, and that's causing the banks to have greater losses. Another reason is the banks are acknowledging further losses on so-called toxic assets, mostly related to risky mortgages that are still on their books.
Interestingly, both Fed Chairman Bernanke and outgoing Treasury Secretary Henry Paulson revived the original idea of the TARP this week - you know, the Troubled Asset Relief Program - suggesting that some of the bailout money should, indeed, be used to help banks unload these investments.
SIMON: And finally, House Democrats unveiled their draft of the stimulus package. It's $825 billion over two years, larger than what the president-elect had proposed. Is he going to go along with it?
YDSTIE: I think in principle, the House and Mr. Obama see things together, at least House Democrats and Mr. Obama. But there are fewer tax cuts in the House proposal. That doesn't make the Republicans very happy. On Thursday, their leader, John Boehner of Ohio, said he was shocked at the size and the makeup of the package.
SIMON: John Ydstie, thanks so much.
YDSTIE: You're welcome, Scott.