Posted on 03/16/2008 10:06:25 AM PDT by NormsRevenge
WASHINGTON - The Bush administration will "do what its takes" to stabilize chaotic markets and minimize the economic damage, Treasury Secretary Henry Paulson said Sunday after a tumultuous week capped by the government rescue of a teetering investment bank.
All eyes now are on Wall Street as leading financial advisers prepared for a Monday meeting with President Bush and the Federal Reserve weighs another deep interest rate cut Tuesday to stem even more deterioration.
Paulson, in a series of news show appearances, defended the Federal Reserve's extraordinary step Friday to provide emergency financing to one of Wall Street's most venerable firms, Bear Stearns Cos. The central bank's intervention was "the right decision," he said.
The treasury chief sidestepped questions about what would have happened if the Fed had not ridden to the rescue, whether other firms are on shaky ground and the possibility of additional bailouts similar to Bear Stearns'.
At the same time, however, Paulson sought to send a calming message that the administration is on top of the turbulent situation. "The government is prepared to do what it takes to maintain the stability of our financial system," he said. "That's our priority."
Bush planned to meet on Monday with his advisory panel on financial markets, whose members include Paulson and Fed Chairman Ben Bernanke. The panel on Thursday recommended stricter regulation of mortgage lenders as part of a broad effort to prevent a repeat of a credit crisis threatening to drive the country into the first recession since 2001.
Consultations about the Bear Stearns situation continued through the weekend and involved the Treasury Department, the Fed, financial institutions and others. "I've been very involved, you know, been on the phone for a couple days right now helping to work through this," Paulson said. He offered no details.
Economists increasingly believe the spreading fallout from a severe credit crisis has pushed the country into recession. The situation has led to record-high home foreclosures, forced financial companies to take multibillion losses from bad mortgage-linked investments and rocked Wall Street.
"No one is debating the fact that this economy has slowed way down," Paulson said. "We feel it, we know it, the American people know it."
To help shore things up, the Fed is poised to make a big cut to its key interest rate, now at 3 percent. Some economists are predicting a reduction of one-half a percentage point, while others are calling for a more hefty cut of three-quarters to a full percentage point.
The Fed used a Depression-era procedure to come to Bear Stearns' aid along with JPMorgan Chase & Co. Bear Stearns had made a fortune in mortgage-backed securities but faced a possible collapse after those investments soured. Wall Street nose-dived as fears spread about whether other big firms were in jeopardy.
"I really support the Fed's work here," Paulson said during one of his three broadcast appearances. "To me, this was not difficult because the priority in a time like this has got to be the stability of our financial system and minimizing the likelihood that this disruption spills over into the real economy.
Some critics contend the Fed's move was akin to a government bailout — something the administration has repeatedly said it is against.
"We're very aware of moral hazard," Paulson said. "But our primary concern right now — my primary concern — is the stability of our financial system, the orderliness of the markets. And that's where our focus is," he said.
The financial system, he said, is "more fragile than we would like right now."
Asked whether other financial companies may be in a situation similar to Bear Stearns', Paulson did not directly answer. He did seek to strike a confident tone. "Well, our financial institutions, our banks and investments banks are very strong," he said. "And I'm convinced that they're going to come out of this situation very strong."
The government will tackle any other problems that may arise, he said.
"From the beginning I have said, as we work through this period, if this was like other times in the past, there are going to be bumps in the road. There are going to be unpleasant surprises. You are going to find that an institution or so has problems. And when they do have problems, you work to deal with it," Paulson said.
On other matters, Paulson was cool to the need for additional economic stimulus, which congressional Democrats are promoting. A recently enacted aid plan includes tax rebates for people and tax breaks for businesses. Paulson said it should help bolster the economy and produce 500,000 to 600,000 jobs this year.
To Democrats, though, Bush is not doing enough to help.
"We're in the most serious economic problem we've been in in a very long time, much worse than 2001. The president's hands-off attitude is reminiscent of Herbert Hoover in 1929, in 1930," said Sen. Charles Schumer, D-N.Y. "There are lots of things that can be done, particularly on housing. Housing has been the bull's eye of this crisis."
House Speaker Nancy Pelosi, D-Calif., said, "Much of what the administration has done has been too late."
On the plunging value of the U.S. dollar, Paulson stuck to the position of past treasury chiefs when he said a strong dollar is in the national interest. The dollar has dropped to a new low against the euro and a fallen sharply against the Japanese yen. That helps sales of U.S. exports to foreign buyers because it makes U.S. goods less expensive. But the drooping dollar increases inflationary pressures.
Paulson appeared on ABC's "This Week," "Fox News Sunday" and "Late Edition" on CNN. Schumer was on Fox and Pelosi on ABC.
Bear Stearns had made a fortune in mortgage-backed securities but faced a possible collapse after those investments soured.
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and we all must now bail yet another “venerable” institution for living deliciously and recklessly.
Not even their economists could have predicted the perfect storm to come.. or did they and they already have their accounts moved to offshore banks?
“We’re in the most serious economic problem we’ve been in in a very long time, much worse than 2001. The president’s hands-off attitude is reminiscent of Herbert Hoover in 1929, in 1930,” said Sen. Charles Schumer, D-N.Y. “There are lots of things that can be done, particularly on housing. Housing has been the bull’s eye of this crisis.”
House Speaker Nancy Pelosi, D-Calif., said, “Much of what the administration has done has been too late.”
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lol..
No blood on the hands of the dems, eh, Chuckie and 2PAC?
Nothing like 75 years of socialism and building up entitlements and propping up a welfare state and continuing to spend like drunken sailors.
Nope, no fault of the dems at all.
This nation tetters on a financial self-induced bloddbath and the dems are still as blind as ever to their own families being as vulnerable as anyone to a collapse the likes never seen before..
“No one is debating the fact that this economy has slowed way down,” Paulson said. “We feel it, we know it, the American people know it.”
This guy, like 99% of people in Washington, doesn’t have the foggiest clue what the average American feels or is dealing with.
“The panel on Thursday recommended stricter regulation of mortgage lenders as part of a broad effort to prevent a repeat of a credit crisis threatening to drive the country into the first recession since 2001.”
This problem began surfacing LAST SUMMER. This is another example of the cat like reflexes of our totally worthless government.
I lived through the GREAT DEPRESSION. Anything that can be done to prevent a repeat is worth trying. If it is allowed to get started it can’t be stopped.
translation: we will privatize the profits, and socialize the losses
I see nothing that prevents the President, as executive, from making grand cuts to the federal government. What impact would it have on the economy if the President ordered several major government agencies, like the Department of Education, to stop spending money?
Then divert those funds to protecting the economy.
As long as he doesn’t fire the government workers, he can probably do it. Just suspend their operations.
Overnight, he could erase the budget deficit, meeting a large number of obligations on a much more solid financial footing.
Certainly, it would be opposed in Congress, and there would be a court fight, but the executive cannot be compelled to spend appropriated money.
More than anything else, it would be a huge confidence builder, that the President is committing to protecting the economy from collapse.
It’s disconcerting how these really smart guys (Bear -Stearns) got tripped up by the sub-prime people, who are, I guess, economically illiterate. It is almost as though it were another application of I Corinthians 1:27-29:
27But God hath chosen the foolish things of the world to confound the wise; and God hath chosen the weak things of the world to confound the things which are mighty;
28And base things of the world, and things which are despised, hath God chosen, yea, and things which are not, to bring to nought things that are:
29That no flesh should glory in his presence.
This is the fruit of outsourcing and the “global economy”, the loss of American jobs and American dollars overseas and the product of a failed and incredibly inept Presidency and Congress.
The lowering of interst rates will only further devaleu the dollar and raise prices on foreign inports.
Unless we bring productivity back to America and demand that Countires which trade with us do so in a fashion favorable to OUR best interests, we are doomed to third wolrd economic status - pecuniary peons to Red China, South America, and eastern Asia.
I hate to rant, but the problems run so much deeper than anything the current or most recent Fed have done, or what the administration is doing, or even what Congress is currently doing. I believe the problem is cultural. I don’t know where we ever got the idea that we ‘deserve’ to live a high level socioeconomic lifestyle just because we are American, but that appears to me to be a commonly held attitude.
Staying ‘on top’ in anything is a constant struggle, and if you’re not moving ahead you might just be moving backward. The only way to truly assure that America stays on top is to promote and support hard work and innovation by our populace. The government’s job is to make sure that the playing field is level, to protect our interests against foreign subterfuge (e.g. China not respecting US patents), and to not ‘punish; success with higher taxes and take aways. There should, in fact, be many more financial carrots (e.g. tax exemptions or reductions) to encourage innovation. The rest is up to us.
“. “The government is prepared to do what it takes to maintain the stability of our financial system,” he said. “That’s our priority.”
Well, fine, you and Bush go bail out your banker buddies, I’m tired of you raiding my savings and slashing interest rates and depending on the few of us who are reliable to do it. Let them fail or survive on their own, JUST like I must.
I believe the majority lived on farms then, which provided a measure of self-sufficiency. There are very few families that could be described as self-sufficient now. The whole mess is really starting to scare me.
The only way the government can help to aid the economy is to radically cut spending and assure infrastructure is maintained.
Along those same lines my confidence level is continuously refueled every time I hear Paulson talk about his support for a strong dollar policy.
I’m not sure why it’s not more like the savings and loan crisis of 20 years ago, which was not that catastrophic. also, the ‘30’s was the time of the dust-bowl on the farms.
The S & L situation was somewhat contained, and did not dwarf all other finance. This situation has become pervasive, and the numbers are verging on incomprehensible. That’s my topline take on it, at least.
I guess we’ll see, but some perspective might be helpful to maintain confidence, which is the bottom line always.
You are correct. Americans feel they deserve they a lifestyle they can't afford. People were not willing to save for a starter house that they put 20% down on. People buy too much crap that we don't need and can't afford without credit. We have allowed our government to do the same thing. We've earned this train wreck.
I look back at how many bond auctions have failed since the beginning of the year, and I look at the TAF liquidity injections being basically hoarded by the banks in a classic liquidity trap, and have difficulty maintaining confidence myself, since these two situations themselves indicate a broader lack of confidence. I would be thrilled to be tinfoiled as a doom & gloomer and proven utterly wrong on this, since the consequences are so difficult to contemplate. So, have at it ... shore up my battered confidence, lol.
you know more than I do, so I’ll just have to say “ignorance is bliss.”
Interest rate cuts - doing the same thing over and over and expecting different results.
Maybe he should look at the effects on the economy with year after year outlays of over a trillion dollar from trade deficits, creating democracies in the Near East and being Robocop for the world. No wonder money can’t be found to support legitimate home buying and business expansion.
Besides cutting the federal $0.20+ tax on gasoline, our government could switch from filling the Strategic Petroleum Reserve exclusively with crude oil over to filling the remaining SPR areas with alternative fuels such as coal oil or LNG or other liquids.
They should aid the economy by stopping deficit spending and paying down the national debt.
The way we got here was by the Fed/govt trying to stave off the natural recessionary part of the economic cycle. All govt intervention does is postpone the inevitable. That, and create perverse economic incentives. The financial system is totally #$%^ed, and the beauty of the system is the man in the street has no idea who to blame. They will blame whoever the puppet masters place on the sacrificial altar. Many people have seen this coming for years. When people say “in hindsight, we should have...”, read that as “we were making so much money, we decided to worry about it later.” The $500 trillion mountain of derivatives never really managed risk. It only served to disguise it and thereby let leverage get completely out of control. I’ve generally bit my tongue when people come on these economic threads and post “we’re doomed”. Those posts are a sort of double irony.
PS. This mini-rant is not directed at you personally.
Television. Most shows and commercials depict an upper-middle-class lifestyle as the norm - and there is incredible peer pressure to achieve it, no matter how much money you have to borrow.
Most powerful thing FedGov could do is repeal the 1967 UN Outer Space Treaty.
Hear! Hear! A grand idea. And while they’re at it, give approval for the construction of several more oil refineries.
Paulson could lead coordinated currency intervention, but that would lower oil prices, so there’s no way W would approve.
It’s not just subprime that’s the problem. It’s the leverage everywhere on falling asset values that was the trigger. The subprimes just went first. The rest are following.
Where did you see the tidbit about China ?
That’s silly!
In my area a “basic starter house” would be a townhouse. After saving close to $20,000, my wife and I started searching for our “basic starter house”. The best deal we could find, decent neighborhood and such being considered, had a sticker price of $220,000. Had we waited until we had accrued your $44,000, the price on the same house would have climbed to $320,000, 20% would have climbed to $64,000 for a couple who had good jobs, had saved, and had good credit. Your estimation is wrong for us, and for a large number of other honest hard working people.
Perhaps the people that need to be questioned are the people that put so much money out on the market that housing price expanded all out of proportion to the growth in wages. The price of housing in my area escalated over 200% in two years, care to guess how much wages increased?
Any time prices go up 200% in two years you should not be buying, you should have been renting.
No, I should have bought. I did mispeak, it went up 50% in one year. It went up over 200% in six years. Further, so far my house has held at the $320,000 mark for the last year at least, so I have only lost standard yearly inflation. The increases and the holding is not what has happened more broadly though.
I could not have rented and recieved any better a rate, and it may have been worse. Instead, following some scenarioes, my family would have been in a small apartment or house with no hope of ever owning a home.
We responsibly managed our credit, and bought a house within our means. We could have bought a huge house that was totally beyond our means by taking a sub-prime loan but we didn’t. Though I don’t blame people for taking a product that was being offered, I do blame people that were irresponsibly issueing those loans.
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