Paulson says goal of $700 billion rescue program has changed

Wednesday, November 12, 2008 | 4:03 p.m. CST

WASHINGTON — Treasury Secretary Henry Paulson said Wednesday the $700 billion government rescue program will not be used to purchase troubled assets as originally planned.

Paulson said the administration will continue to use $250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending.

He announced a new goal for the program to support financial markets, which supply consumer credit in such areas as credit card debt, auto loans and student loans.

Paulson said that 40 percent of U.S. consumer credit is provided through selling securities that are backed by pools of auto loans and other such debt. He said these markets need support.

"This market, which is vital for lending and growth, has for all practical purposes ground to a halt," Paulson said.

The administration decided that using billions of dollars to buy troubled assets of financial institutions at the current time was "not the most effective way" to use the $700 billion bailout package, he said.

The announcement marked a major shift for the administration, which had talked only about purchasing troubled assets as it lobbied Congress to pass the massive bailout bill.

Paulson said the administration is exploring other options, including possibly injecting more capital into banks on a matching basis, in which government funds would be supplied to banks that were able to raise money on their own.

The bailout money also should be used to support efforts to keep mortgage borrowers from losing their homes because of soaring default levels, he said.

A proposal to have part of the bailout funds used to guarantee mortgages that have been reworked to reduce monthly payments for borrowers is an approach the administration continues to discuss, but Paulson did not announce that it would be adopted. Federal Deposit Insurance Corp. Chairman Sheila Bair has pushed for that approach.

Speaking of the first-ever summit of leaders of the Group of 20 major industrial and developing countries, Paulson said this weekend's meeting needs to focus first on how to repair the financial system as a way to bolster the global economy.

Paulson praised a new set of guidelines issued Wednesday by the Federal Reserve and other bank regulators, saying that they addressed a crucial issue of making sure that banks continue to lend at adequate levels.

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Charles Dudley Jr November 12, 2008 | 5:15 p.m.

Paulson needs to be tried on coruption charges and tossed behind bars IMHO.

He ranted and raved that he needed all of that $700 billion dollars that was a number not representing anything is particular at all but it would be used to bail out those companies failing and closing.

Paulson is the sneaky wolf in all of this and those that were duped into passing that bill are no better than "chicken little". Truly you cannot fix stupid.

I knew from day one that deal smelled badly and they should never ever have passed that bill!

(Report Comment)
Ray Shapiro November 12, 2008 | 6:52 p.m.

So let me get this straight. Paulson sold a "bill of goods" packaged as a 700 billion dollar "rescue program," it gets approved by the politicians, in spite of the enormous negative response from average citizens, and then the earmarked usage changes, after the fact. Gee, Paulson must be one very powerful man. Who does he work for, some lame duck?

(Report Comment)
John Schultz November 13, 2008 | 11:31 a.m.

Don't blame only Paulson, don't forget that McCain and Obama both voted for this sorry excuse for a bill.

(Report Comment)
Charles Dudley Jr November 13, 2008 | 11:41 a.m.

Only because Paulson and Bush were crying wolf.

(Report Comment)
Ayn Rand November 13, 2008 | 11:46 a.m.

Chuck, not only did Obama vote for this, as John notes, but he's also arguing for a bailout of automakers, too. Where does it stop?

(Report Comment)
John Schultz November 13, 2008 | 12:33 p.m.

Not that it makes much of a matter to me since I didn't vote for him, but I wonder how McCain's campaign might have ended if he had actually stood up against the bailout?

(Report Comment)
Charles Dudley Jr November 13, 2008 | 1:11 p.m.

Problem is everybody believed the crying of wolf and yet abuses still go on by A.I.G. and other companies wasting millions on luxury retreats for their people.

I think Obama is sincere about his wanting to help auto makers but since Paulson's speech we have not heard what Obama thinks now.

Reason might guess he is quite shocked and possibly preparing to answer. Only he knows.

(Report Comment)

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