Paulson Shifts Focus of Rescue to Consumer Lending (Update2)
By John Brinsley and Robert Schmidt
Nov. 12 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.
``Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,'' Paulson said today in a speech at the Treasury in Washington. ``This is creating a heavy burden on the American people and reducing the number of jobs in our economy.''
Paulson's remarks are an acknowledgement that the centerpiece of the $700 billion bailout request to lawmakers was ill-conceived. Neel Kashkari, the Treasury official who heads the rescue program, told legislators last month that officials shifted to buying stakes in banks because it was a faster way to revive capital markets and the economy.
``I will never apologize for changing a strategy or an approach if the facts change,'' Paulson said.
Treasury and Federal Reserve officials are exploring a new ``facility'' to bolster the market for securities backed by assets, Paulson said, adding later that the program would be ``significant in size.'' Officials are considering using a portion of the bailout money to ``encourage private investors to come back to this troubled market,'' he said.
Private Investors
The Treasury chief said the department is also considering having companies that accept new taxpayer funding get matching private capital. Buying ``illiquid'' mortgage-related assets -- the reason the Troubled Asset Relief Program was established a month ago -- is no longer being considered, he said.
``Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role,'' he said.
Paulson has committed all but $60 billion of the initial $350 billion allocated by Congress to take equity stakes in banks and in insurer American International Group Inc. Lawmakers, who could reject Treasury requests for the remaining $350 billion, are pushing for aid to automakers including General Motors Corp. Paulson is resisting.
Automakers ``are a key part of our manufacturing industry and manufacturing is critical,'' Paulson said in response to a question after his prepared remarks. ``We need a solution, but the solution has got to be one that leads to viability.''
`What We Need'
Paulson said he has no timeline for notifying Congress of his intent to use the remaining TARP funds, and reiterated that he's ``comfortable'' that $700 billion is ``what we need'' to stabilize the financial system.
With less than three months left in the Bush administration, demands for assistance from foundering companies will likely escalate. The Treasury two days ago took a $40 billion stake in AIG. American Express Co. this week converted into a bank-holding company, making it eligible for funds.
Democrat Barack Obama assumes the U.S. presidency on Jan. 20. Obama said last week his economic team will ``review the implementation'' of the rescue plan, suggesting he may have different priorities for its use.
In his remarks today, Paulson said that the Bush administration ``has taken the necessary steps to prevent a broad systemic event.''
Still, the secretary said that conditions remain ``fragile'' and that the stability of the financial system continues to be his highest priority.
Paulson also said that the Treasury will continue to look for strategies to help homeowners avoid foreclosure.
To contact the reporter on this story: John Brinsley in Washington at [email protected]; Robert Schmidt in Washington at [email protected]
Last Updated: November 12, 2008 11:45 EST
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By John Brinsley and Robert Schmidt
Nov. 12 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.
``Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,'' Paulson said today in a speech at the Treasury in Washington. ``This is creating a heavy burden on the American people and reducing the number of jobs in our economy.''
Paulson's remarks are an acknowledgement that the centerpiece of the $700 billion bailout request to lawmakers was ill-conceived. Neel Kashkari, the Treasury official who heads the rescue program, told legislators last month that officials shifted to buying stakes in banks because it was a faster way to revive capital markets and the economy.
``I will never apologize for changing a strategy or an approach if the facts change,'' Paulson said.
Treasury and Federal Reserve officials are exploring a new ``facility'' to bolster the market for securities backed by assets, Paulson said, adding later that the program would be ``significant in size.'' Officials are considering using a portion of the bailout money to ``encourage private investors to come back to this troubled market,'' he said.
Private Investors
The Treasury chief said the department is also considering having companies that accept new taxpayer funding get matching private capital. Buying ``illiquid'' mortgage-related assets -- the reason the Troubled Asset Relief Program was established a month ago -- is no longer being considered, he said.
``Our assessment at this time is that this is not the most effective way to use TARP funds, but we will continue to examine whether targeted forms of asset purchase can play a useful role,'' he said.
Paulson has committed all but $60 billion of the initial $350 billion allocated by Congress to take equity stakes in banks and in insurer American International Group Inc. Lawmakers, who could reject Treasury requests for the remaining $350 billion, are pushing for aid to automakers including General Motors Corp. Paulson is resisting.
Automakers ``are a key part of our manufacturing industry and manufacturing is critical,'' Paulson said in response to a question after his prepared remarks. ``We need a solution, but the solution has got to be one that leads to viability.''
`What We Need'
Paulson said he has no timeline for notifying Congress of his intent to use the remaining TARP funds, and reiterated that he's ``comfortable'' that $700 billion is ``what we need'' to stabilize the financial system.
With less than three months left in the Bush administration, demands for assistance from foundering companies will likely escalate. The Treasury two days ago took a $40 billion stake in AIG. American Express Co. this week converted into a bank-holding company, making it eligible for funds.
Democrat Barack Obama assumes the U.S. presidency on Jan. 20. Obama said last week his economic team will ``review the implementation'' of the rescue plan, suggesting he may have different priorities for its use.
In his remarks today, Paulson said that the Bush administration ``has taken the necessary steps to prevent a broad systemic event.''
Still, the secretary said that conditions remain ``fragile'' and that the stability of the financial system continues to be his highest priority.
Paulson also said that the Treasury will continue to look for strategies to help homeowners avoid foreclosure.
To contact the reporter on this story: John Brinsley in Washington at [email protected]; Robert Schmidt in Washington at [email protected]
Last Updated: November 12, 2008 11:45 EST
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