Source: Paulson Tells Congress Obama Will Control Half of Bailout Funds

WASHINGTON – The outgoing Bush administration has told top lawmakers it does not plan to use at least half of the $700 billion bailout fund that Congress approved this fall to aid the financial industry, congressional officials said Monday.

The Treasury Department denied the claim, but stopped short of saying the funds would be tapped.

The congressional officials said Treasury Secretary Henry Paulson passed the word over the weekend that he intends to leave $350 billion untouched when the administration leaves office on Jan. 20. That would mean the incoming Obama administration would decide whether and how the funds should be spent.

Within a few hours, Michele Davis, assistant secretary for public affairs, said congressional leaders had been told the administration would not seek the additional funds over the next few days. She said no decision had been made for the balance of the Bush administration's term, which ends on Jan. 20.

The controversy flared at a delicate moment, with the economy likely in a recession, the credit markets not yet recovered from this fall's meltdown and the White House and Democratic-controlled Congress at odds over proposals to bail out the auto industry.

The White House appears reluctant to dip further into the $700 billion bailout fund that Congress approved, yet a public disclosure of its intent could further damage the credit markets and the broader economy As a result, it was unclear whether the administration was deliberately trying to pull back on its weekend message — or whether congressional officials in both parties had misunderstood what they were told.

The congressional officials spoke on condition of anonymity, saying they were not authorized to disclose the developments.

But Davis, in an e-mail, said, "We informed the Congress that there would be no notification this week. We did not go beyond that. The Secretary has no timeline for accessing the second $350 billion."

At the White House, spokesman Tony Fratto said any decision about the use of the remaining $350 billion was up to Paulson.

"He said he's working to continue to design and develop programs, and when it's the right time to use them Treasury will announce it. And if it then makes sense to go to Congress, he'll recommend we request to drawdown the second $350 billion," Fratto said.

Under the bailout legislation that cleared Congress, $250 billion was available immediately, and another $100 billion could be spent without congressional acquiescence.

The remaining $350 billion can be spent only if Congress doesn't disapprove. One official said the administration wanted to avoid a situation in which Republican lawmakers voted against tapping the remaining money that ultimately was cleared for use.

Ironically, when the administration initially sought the bailout measure, Paulson argued for a $700 billion package to be made available at once.

It marked the second reversal on the part of the administration. President George W. Bush, Federal Reserve Chairman Ben Bernanke and Paulson initially told lawmakers the $700 billion was needed to buy troubled assets that banks were carrying on their books.

But last week, Paulson made it official: the government wouldn't use any of the $700 billion to buy the toxic assets.

So far, the Treasury Department has pledged $250 billion for banks in return for partial ownership, a measure designed to encourage the institutions to boost lending and stabilize credit markets.

In addition, the administration has agreed to devote $40 billion to troubled insurer American International Group, leaving $60 billion available for additional bailout efforts through Jan. 20.