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Congressional battles await Obama

PRESIDENT Barack Obama's struggle to push an economic stimulus bill through the United States Congress may seem easy compared to what he'll encounter when he returns to Capitol Hill for additional funds to rescue the banking system.

Obama will likely need to ask Congress for more money to recapitalize banks - as much as US$1 trillion on top of the roughly US$300 billion remaining in the current Troubled Asset Relief Program, according to an estimate by former US Federal Reserve economist Ward McCarthy. That will be an even tougher sell for the new president than the stimulus plan, which is headed for a Senate vote this week after passing the House with no Republican support.

That package, at least US$780 billion of spending and tax cuts aimed at boosting consumer demand and creating jobs, is just a part of what it will take to pull the economy out of the 14-month-old recession.

The stimulus will be effective only if credit markets, currently frozen by illiquid assets clogging banks' balance sheets, begin to function again.

"It will take an enormous effort to build broader public support" for another bank rescue plan, Thomas Mann, a congressional scholar at the Brookings Institution in Washington, told Bloomberg News. "Had the stimulus gone through swimmingly it would have made it easier."

Obama will take his case to the American people this week with his first prime-time news conference planned for today, after Treasury Secretary Timothy Geithner outlines new steps that include fresh capital injections into banks and ways to deal with toxic securities still on their balance sheets.

The Treasury will probably propose a combination of buying toxic bank assets, providing guarantees for other assets, and making additional capital infusions to banks, said McCarthy, now a principal at Stone & McCarthy Research Associates, an economic research firm.

"The remaining TARP funds are not going to be enough for the job," said McCarthy, who estimates that up to US$1.5 trillion in government aid will be needed to save the banking system. "If they want to get the job done, they will have to scrape up more cash."

New funding for banks will be all the harder to justify because the original TARP hasn't shown much in the way of tangible benefits.

"They continue to assume that if you do something and it hasn't worked, you have to continue to do more of it," said Darrell Issa, Republican Representative for the state of California. "That's the definition of insanity."


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