Treasury Secretary: Portions of Bailout Plan Being Examined

Treasury Secretary Henry Paulson updated the nation today on the government’s plans to implement the $700 billion financial rescue program, saying that the Treasury has put on hold a plan to purchase illiquid mortgage-related assets.

“We are carefully evaluating programs which would further leverage the impact of a TARP investment by attracting private capital, potentially through matching investments,” he said in a speech that addressed the Troubled Asset Relief Program, the credit crunch, and the government’s efforts to correct the financial meltdown.

He said that the government’s quick action in passing the bailout in October, along with coordination with colleagues around the world, helped stabilize the global financial system.
“As I assess where we are today, I believe we have taken the necessary steps to prevent a broad systemic event. Both at home and around the world we have already seen signs of improvement,” he said today at the Treasury Department. “Our system is stronger and more stable than just a few weeks ago. Although this is a major accomplishment, we have many challenges ahead of us. Our financial system remains fragile in the face of an economic downturn here and abroad, and financial institutions’ balance sheets still hold significant illiquid assets. Market turmoil will not abate until the biggest part of the housing correction is behind us. Our primary focus must be recovery and repair.”

The Dow Jones Industrial Average ended trading today with a third straight day of losses, down 411.30 points, or 4.7%, at 8282.66.

The Treasury Department has just $60 billion left in its rescue fund, and either the current or next administration will have to turn to Congress to request the second half of the promised $700 billion, according to the Wall Street Journal.

Paulson said the Bush administration will continue to use $250 billion of the program to purchase stock in banks in order to encourage them to resume more normal lending. He also announced that the administration was looking at a major expansion of the program into the markets that provide support for credit card debt, auto loans, and student loans.

With approximately 40% of U.S. consumer credit provided through securitization of credit cards, auto loans, and student loans, “this market, which is vital for lending and growth, has for all practical purposes ground to a halt.” Putting an emphasis on lending and growth will help strengthen “our financial institutions and the [increase the] availability of consumer credit, he said.

On the issue of using the $700 billion bailout package to help ailing auto companies, Paulson said the administration preferred an approach that would accelerate support to that industry from other legislation Congress passed this fall.

President-elect Barack Obama and other Democratic lawmakers are pushing the Bush administration to include the Big Three automakers — General Motors Corp., Ford Motor Co., and Chrysler L.L.C.