Washington - US Treasury Secretary Henry Paulson Wednesday
said he plans to shift some of the focus of the second half of the
government's massive financial rescue action to credit card and loan
companies and shelve original plans to buy up bad mortgage assets
from finance firms.
He also dismissed a proposal that the 700-billion-dollar rescue
plan should be used to bail out the ailing auto industry.
Paulson said that the first half of the rescue programme, or 350
billion dollars, had prevented 'broad systemic' damage to a financial
system that had been on the 'tipping point,' but warned the financial
system 'remains fragile' and needs broader help.
'Our system is stronger and more stable than just a few weeks
ago,' Paulson said. 'Market turmoil will not abate until the biggest
part of the housing correction is behind us.'
Paulson said that his department had scrapped the original idea of
directly buying up bad mortgage assets from financial firms because
market conditions had 'worsened considerably' by the time the rescue
plan passed Congress on October 3.
'We needed to act quickly and forcefully (and) purchasing troubled
assets ... would take time to implement,' Paulson said.
Instead, Paulson moved immediately to spend 250 billion dollars by
buying up preferred bank stock. He noted that earlier Wednesday,
banking regulators confirmed that such measures had helped all banks,
not just those participating in the purchase programme, to free up
lending.
He said some of the rest of the money would continue to be used
for banks.
Paulson dismissed a reporter's suggestion that scrapping the idea
of buying up mortgage assets betrayed the original concept sold by
Paulson to Congress.
'I will never apologize for changing a strategy or an approach if
the facts change,' Paulson quipped.
Paulson rejected the idea that the bail-out programme, known as
the Troubled Assets Relief Program (TARP), could also be used to help
ailing automakers as congressional Democrats have requested, although
he agreed the automakers were 'critical' to the US manufacturing
industry.
He said TARP was aimed at only helping the finance industry and
unblocking credit. But Congress must approve the next 350-billion-
dollar rescue tranche, and was already considering legislation that
could force Paulson's hand, the Wall Street Journal reported.
'I think the administration needs a solution, but it's got to be
one that leads to viability' of the auto industry, Paulson said.
With 19 world leaders converging on Washington Friday and Saturday
in an emergency summit of the G20 to address the global finance
crisis, Paulson also extended a conditional 'mea culpa' to the world.
'We in the US are well aware and humbled by our own failings and
recognize our special responsibility to the global economy,' Paulson
said. 'The US housing correction exposed gaping shortcomings in the
outdated US regulatory system, shortcomings in other regulatory
regimes and excesses in US and European financial institutions.'
But he insisted that the fundamental issue at the heart of the
global crisis was 'persistent and growing global imbalances' which
have fueled low interest rates, excessive risk-taking and 'a global
search for return.'
'Those excesses cannot be attributed to any single nation,' he
said.
For the second half of the bail-out programme, Paulson proposes to
add non-banks to the list of firms being helped. The move would put
more money into consumer credit sources, which provide 40 per cent of
US consumer credit for car loans, student loans and credit cards.
'This market, which is vital for lending and growth, has for all
practical purposes ground to a halt,' Paulson said.
One approach would be to set up a 'liquidity facility' for high-
rated credit securities that would bring private investors 'back to
this troubled market,' Paulson said. He was discussing the option
with the Federal Reserve.
Paulson also said his department would continue to explore ways to
reduce the risk of mortgage foreclosures that were the imminent root
of the crisis. Since late 2006, there have been more than 3 million
foreclosures, according to industry estimates. A government programme
is currently helping 200,000 homeowners a month avoid foreclosure,
Paulson said.
USA
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