by Frank James
Treasury Secretary Henry Paulson Jr. is likely to feel pretty beat up by the time the just-convened House Financial Services Committee meeting ends today.
Some lawmakers are upset that the Paulson changed the thrust of the $700 billion bailout program from what he told Congress he wanted the money for. Instead of buying toxic assets from financial institutions, last week Paulson said that idea was dead and that he favored injecting money into financial institutions directly.
Many lawmakers are also frustrated with Paulson because they feel the Treasury Department isn't doing enough to end the nation's home-foreclosure epidemic.
So it's no coincidence that Paulson is mounting something of a public-relations campaign. The Washington Post has the first part of a story based on an interview with Paulson whose essential theme is that he came to Washington believing that free-markets were self-correcting only to come to believe in the importance of regulators.
The message he appears to be sending the Democratic-controlled Congress is "I'm on your side."
An excerpt:
When he arrived in Washington as one of Wall Street's most successful bankers, he was skeptical of government meddling. But as a regulator facing the worst financial crisis in nearly a century, he engineered a series of massive federal intrusions into the markets while persuading reluctant bank executives and influential politicians to fall in behind him.
His evolution in thinking has extended even beyond these government programs to a set of new beliefs that he has yet to trumpet publicly or, in most cases, even share privately with colleagues on Wall Street and in the White House. While they, too, have changed some of their views on regulation, Paulson disclosed that he has traveled an even greater distance.
"My thinking has evolved a lot to the point where I've seen regulation up close and personal," he said in a series of interviews. It wasn't just the crisis that changed him. It was every bit as much sitting behind the desk where he fashioned new regulation. "I've realized how flawed it is and how imperfect, but how necessary it is," he added.
Even though President Bush has been warning the next administration in speeches not to over-regulate the markets, Paulson said he will unveil proposals in coming weeks urging President-elect Barack Obama and the new Congress to endow the federal government with broad new authorities to take over any failing financial institution, not just banks.
Paulson also makes an appearance on the New York Times op-ed page today to explain, as he did in a press conference last week, why he shifted the Troubled Asset relief Program or TARP towards investing directly in banks and away from buying the bad assets. It essentially hits the main points of his testimony today:
Recently I've been asked two questions. First, Congress gave you the authority you requested, and the economy has only become worse. What went wrong? Second, if housing and mortgages are at the root of our economic difficulties, why aren't you addressing those problems?
The answer to the first question is that the purpose of the financial rescue legislation was to stabilize our financial system and to strengthen it. It is not a panacea for all our economic difficulties. The crisis in our financial system had already spilled over into the overall economy. But recovery will happen much, much faster than it would have had we not used TARP to stabilize our system. If Congress had not given us the authority for TARP and the capital purchase program and our financial system had continued to shut down, our economic situation would be far worse today.
The answer to the second question is that more access to lower-cost mortgage lending is the No. 1 thing we can do to slow the decline in the housing market and reduce the number of foreclosures. Together with our bank capital program, the moves we have made to stabilize and strengthen Fannie Mae and Freddie Mac, and through them to increase the flow of mortgage credit, will promote mortgage lending. We are also working with the Department of Housing and Urban Development, the F.D.I.C. and others to reduce preventable foreclosures.
All of this won't stop Paulson from getting grilled today but he's been taking a lot of criticism lately and has felt the need to respond. Also, it's important for him and other federal officials to send the message that they know what they're doing to financial markets since a complete loss of confidence in those managing the nation's economy could cause a dire situation to get even worse.
Comments
I have about had it with this current administration playing stupid. The “housing” crisis we are in (a fraction of the economic crisis we are in), is a two part problem: First, many homeowners are stuck in ARM loans and such. Those need to be addressed and changed. But the 800 lb gorilla in the room is that the homeowners’ incomes have either declined or ceased to exist anymore, due to the American Job Crisis that is being heavily ignored by the media and the right. You can play with the mortgages all you want, but if the owners do not have a job with receivables to pay for them, then it is all for naught. SWAMP, you need to report about the 11.8%+ displaced worker crisis in this country right now. We are not even to the precipice edge to see what is at the bottom in this economy yet. I think when 4th quarter numbers come in, we will at least be able to see the scope and depth of this canyon, however far away down it may be.
Posted by: Xcellentform | November 18, 2008 10:42 AM
paulson like his folks that run manyhedge funds are crooks to me
Posted by: All Mi T | November 18, 2008 10:44 AM