Obama's first tests: Congress mulls bail-out, stimulus (Roundup)

Jan 16, 2009, 1:18 GMT

Washington - President-elect Barack Obama faced the first tests of his incoming administration Thursday as legislators considered two measures worth a combined 1.175 trillion dollars to help revive the struggling US economy.

Democratic leaders in the House of Representatives revealed details of an historic 825-billion-dollar stimulus package that Obama hopes will pull the US out of a year-long recession.

In the Senate, lawmakers voted to release the second half of a 700-billion-dollar bail-out package passed last year to keep the finance industry afloat. The House will take up the bill next week.

Some lawmakers have tried to block the second 350 billion dollars from being approved, which would put Congress on a collision course with Obama before he even enters the White House.

Obama, who takes office on Tuesday, has reportedly threatened lawmakers that he would use his first presidential veto if Congress fails to appropriate the funds.

Both Democrats - who hold a majority in both houses of Congress - and Republicans have expressed reluctance to release the remaining 350 billion dollars of the controversial programme.

Many legislators complained that the first half of the bail-out money was poorly invested by the Bush administration, shoring up struggling Wall Street banks without unblocking credit access or helping homeowners who have suffered a record number of foreclosures.

In the final vote Thursday, 42 senators voted to block the money while 52 supported issuing the extra money. The vote fell largely along partisan lines as most Democrats chose to back their incoming president.

Obama had argued it was crucial that he have the breathing room to address any further erosion of the financial sector. He promised Thursday to use the second half 'in a new and responsible way' and to take on board lawmakers' concerns.

'I know this wasn't an easy vote because of the frustration so many of us share about how the first half of this plan was implemented,' he said in a statement. 'My pledge is to change the way this plan is implemented and keep faith with the American taxpayer.'

Detailing its plans for the money in a letter to Congress Thursday, the incoming Obama administration said it would address both the housing and financial crises by committing as much as 100 billion dollars of the bail-out to help homeowners avoid foreclosure.

'Our actions will reflect the act's original purpose of preventing systemic consequences in the financial and housing markets,' Larry Summers, Obama's incoming chief economic adviser, wrote in the letter.

The damage inflicted on the finance industry, sparked by a sharp downturn in the housing market, has been largely blamed for the year- long recession inflicting the United States.

House Democrats meanwhile took their first steps toward approving an 825-billion-dollar economic stimulus plan, part of Obama's promise to save or create 3 million jobs and revive the world's largest economy.

The bill would provide for 550 billion dollars in spending over two years in infrastructure, energy, transport, technology and other sectors. Another 275 billion dollars will go to tax relief, according to summaries of the legislation released Thursday.

Obama in a statement called the plan 'a significant downpayment on our most urgent challenges' and promised transparency and oversight as the money is spent.

He had hoped for stimulus measures on his desk to sign on the day of his inauguration on Tuesday, but growing resistance in Congress could delay passage until February 13 - a deadline Obama has set and congressional leaders have promised to meet.