The Treasury official overseeing the $700 billion rescue fund Monday urged patience as his department begins allocating the money to stabilize financial markets -- even as Congress has ramped up criticism over the program's implementation.
Interim Assistant Treasury Secretary for Financial Stability Neel Kashkari said in a speech that although much progress has been made, capital markets remain "fragile and confidence is still shaky." Kashkari made his remarks the same day Treasury announced that it would purchase $40 billion in preferred stock from American International Group Inc., making the insurer the first nonbank to receive funding under the program.
"This action was necessary to maintain the stability of our financial system," Kashkari said of the AIG investment, which will total $150 billion in federal funding to the insurer.
Kashkari's remarks come as House Speaker Nancy Pelosi, D-Calif., and Senate Majority Leader Harry Reid, D-Nev., urged Treasury Secretary Henry Paulson Saturday to use the rescue program to help the domestic auto industry as General Motors Corp. teeters toward a bankruptcy filing. Senate Banking Chairman Christopher Dodd, D-Conn., said he believes the rescue fund could be available to the Big Three given the role that the industry plays in the economy and their respective financing units.
"We did extend the authority [in the law], but whether they want to provide that is another matter," Dodd said of Treasury.
The Bush administration has been reluctant to send funds through the rescue fund to companies not in the financial services field. One financial services lobbyist said he thought Treasury "could conceivably thread the needle" to invest in GMAC Financial Services and Ford Motor Credit but not to the automakers themselves. National Association of Manufacturers President John Engler said Monday that he did not think "any assistance can be unlimited" to the auto companies.
In remarks before the New America Foundation, Engler warned the cash burn rates of the Big Three automakers make a "pretty compelling case" that assistance may be necessary, but cautioned against the imposition of new regulations and taxes in return for a cash infusion. White House Press Secretary Dana Perino Monday signaled the Bush administration will be open to ideas from Congress on plans to accelerate $25 billion in Energy Department loans to auto companies. Expanding aid is also under consideration.
"If it wants to do anything in addition for the automakers, we'll certainly listen to ideas they have on how to accelerate the loans to viable companies, as laid out in the legislation," Perino said. She added Treasury officials are still reviewing the Pelosi-Reid letter. Rahm Emanuel, chief of staff to President-elect Obama, held off on Sunday on calling for Treasury to aid the Big Three.
Dodd and House Financial Services Chairman Barney Frank, D-Mass., also are concerned banks are not using federal aid to make loans, and instead in some cases are using it to help purchase other institutions. The Treasury has so far allocated $125 billion to nine major banks and is investing another $125 billion into smaller banks, thrifts and credit unions. Dodd's panel will hold a hearing Thursday on the program and Frank will hold one Nov. 18.
Darren Goode and Andy Leonatti contributed to this story.