Paulson Pressures Congress To Hand Over TARP Balance, He May Need It (C)(BAC)(WFC)

TreasuryHenry Paulson wants the $350 billion still left in the TARP funding from Congress. He says the last part of the first $350 billion is going to Detroit.

His logic seems to be that something terrible could happen in the next thirty days and that he needs the dry powder just in case.

Since most of Congress has not liked the way Paulson spent the first round of money, there may be some disagreement about him picking up the remainder.

According to The Wall Street Journal, “It is clear that Congress will need to release the remainder of the TARP to support financial market stability,” Mr. Paulson said

Paulson has not been using the money for its original purpose, which was to buy toxic assets from financial firms. He no longer needs to help The Big Three. He does not have enough time to use the capital to buy home mortgages or help homeowners refinance.

The head of the Treasury does have one very compelling argument for getting his hands on the cash. There could be another failure in confidence in one or more of the US banks. Just this morning S&P made ratings cuts on eleven banks, among them some of the largest financial firms in the world including Citigroup (C), Bank of America (BAC), and Well Fargo (WFC). The news pushed Citi down as low as $7, after closing yesterday at $7.43.

Paulson’s reasoning may be that the trouble that hit Citi two months ago and the problems which Bear Stearns, Lehman, Wachovia, and Washington Mutual experienced all happened in a matter of days.

It is not likely, but another American bank could need a large slug of cash sometime in the next few weeks.

Douglas A. McIntyre