Washington - Treasury Secretary Henry Paulson on Wednesday
warned that more banks would fail as the US financial system goes
through a tough period of restructuring, and promised to use all
powers at his disposal to ease the economic fallout.
Meanwhile, the US Federal Reserve late Wednesday announced it will
add another 38 billion dollars in financing to American International
Group, which was already presumed rescued last month, when the
government issued the insurance giant an 85-billion-dollar loan.
Paulson asked for 'patience' from the public and said it would
take 'several weeks' before the US Treasury began buying up troubled
mortgage assets at the heart of the credit crisis.
Legislation passed by Congress last week allows the Treasury to
buy up to 700 billion dollars in mortgage-backed securities and boost
the capital positions of struggling financial institutions, in an
effort to keep credit flowing through the US economy.
Congress passed the measure after a wave of bankruptcies, bail-
outs and takeovers of banks and mortgage lenders through September in
the United States. Paulson warned that there were more collapses to
come.
'One thing we must recognize: even with the new Treasury
authorities, some financial institutions will fail,' he told
reporters in Washington.
The rescue package 'doesn't exist to save every financial
institution for its own sake,' Paulson said.
The Federal Reserve, the rate-setting central bank, gave AIG the
additional infusion of cash to 'replenish liquidity' in the insurance
company and protect the government's loan, which was secured by an
80-per-cent stake in the firm.
The company has been trying to sell off profitable subsidiaries to
raise money to repay the original government loan.
Paulson suggested that more measures to ease the credit crunch
were still in the pipeline. He warned that the ongoing financial
turmoil 'will not end quickly' but said he was confident in the
resilience of the US economy.
'We are a strong and wealthy nation, with the resources to address
the needs we face,' Paulson said.
Later this week in Washington, he will host finance ministers and
central bank heads from the Group of Seven (G7) industrial nations to
discuss the international response to the credit crisis.
Paulson announced a 'special meeting' of the Group of 20, which
includes emerging economies, on the sidelines of annual gathering of
the International Monetary Fund and World Bank over the weekend.
Members of the G20 'will discuss how we might coordinate to lessen
the effects of global market turmoil and the economic slowdown on all
of our countries,' he said.
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