Wachovia Corp. Chief Executive Officer Bob Steel said the U.S. government's financial-rescue program will need more than $700 billion to revive the economy and the Treasury should return to buying illiquid assets.
The Troubled Asset Relief Program will “have to grow in size to be effective,” Steel, who was a Treasury undersecretary before joining Wachovia in July, said Tuesday at a conference in Washington. “These are assets that need to get moving. Government making an effort to do this would both free up capital and also allow people to begin making loans.”
Treasury Secretary Henry Paulson, Steel's former boss, said last week that he was abandoning plans to buy devalued mortgage assets and would use government money to make direct investments in companies. Treasury changed course because “illiquidity” was making it difficult for consumers to get loans, he said.
Steel was among executives who convened in Washington this week at the Wall Street Journal's CEO Council conference to offer President-elect Barack Obama recommendations on reviving the U.S. economy.
Steel said there was consensus in his group, which included Goldman Sachs Group Inc. CEO Lloyd Blankfein, that the TARP program needs more money and that Treasury should stick to buying mortgage assets. Wachovia was on the verge of collapse before Wells Fargo & Co. agreed last month to buy the Charlotte-based bank for $15 billion.
Paulson told lawmakers on Tuesday that he has no plans to use the second half of the $700billion program, leaving it to the Obama administration to resolve how remaining funds should be spent. Members of Congress have argued the money should be used to help beleaguered homeowners by reducing foreclosures.
At that committee hearing, Rep. Mel Watt, a Charlotte Democrat, questioned the Treasury Department's handling of Wells Fargo's purchase of Wachovia. Treasury has done a poor job explaining why Wachovia needed to be sold, Watt said.
Last week, Sen. Charles Grassley, R-Iowa, said a tax ruling that helped Wells Fargo buy Wachovia raises concerns about “preferential treatment” for Wachovia, noting Steel's treasury ties. In a letter sent to Treasury Inspector General Eric Thorson, Grassley asked for an investigation into the Internal Revenue Service ruling because it would let Wells Fargo shelter about $74 billion from U.S. taxes and ensure top Wachovia executives collect golden-parachute severance payments.
Spokespersons for Treasury and Wells Fargo declined to comment. Steel doesn't have an employment agreement and won't get severance pay related to the acquisition, Wachovia spokeswoman Christy Phillips-Brown said.
In addition, “Wachovia had nothing to do with the IRS rule change about the treatment of deductions under section 382 of the Internal Revenue Code,” Phillips-Brown said. “Neither Mr. Steel nor anyone working under his direction or on behalf of Wachovia had any communications with Treasury on this matter or otherwise communicated a point of view to anyone on this provision before the ruling was released.”