Posted on 05/07/2008 6:58:20 PM PDT by Libloather
Paulson Says Worst Of Credit Crisis May Be Over
CBS News Interactive: Eye On The Economy
WASHINGTON (AP) - The worst of the nation's credit crisis may have passed, Treasury Secretary Henry Paulson said Wednesday, though he acknowledged rising gas prices will blunt the effect of 130 million economic stimulus checks.
He ruled out a second stimulus package for now.
In an interview with The Associated Press, Paulson said the turmoil that has gripped Wall Street and that took a turn for the worse again in March has eased somewhat. "There's progress," he said. "I think we're closer to the end of this" than to the beginning.
A prolonged housing slump, a severe credit crisis and soaring energy costs have pushed the economy to the edge of a recession. To help cushion the blow, the Bush administration and Congress speedily enacted a $168 billion stimulus package of tax rebates for people and tax breaks for businesses.
With oil costs surging to record levels and gasoline prices hovering around all-time highs above $3.60 a gallon, Paulson acknowledged that pain at the pump would diminish the impact of the stimulus payments that are designed to give the economy a jump-start.
"Obviously, the high price of gasoline is unwelcome and is a challenge and is a headwind," he said.
The first batch of rebate payments started hitting bank accounts last week through direct deposits. Paulson, Vice President Dick Cheney and other Bush administration officials will head to government check printing centers around the country on Thursday for events highlighting the fact that millions of rebate checks are in the mail.
"We will get some help from the stimulus," Paulson said in the interview. "Later this year, I expect growth will pick up." Still, he acknowledged that the country was facing "tough times" as people struggle with soaring gasoline prices, higher medical costs and a weak jobs market.
Paulson said the steep slump in housing, which has depressed home sales and prices, remained "the biggest risk to the economy." Although he said he didn't know when the worst of housing's problems will pass, he suggested there will still be strains in the months ahead.
"Even the optimists here believe that you're going to continue to see in the next several months" newspaper headlines that will say prices have declined even further and foreclosures have increased, he said. "That's what happens during a correction."
However, Paulson said he believes the turmoil that began last August in credit markets has calmed since mid-March when the crisis claimed its largest victim with the forced sale of Bear Stearns, the nation's fifth largest investment firm, to JP Morgan Chase & Co. "Again, I think we're on the right path," he said.
Even though the markets are "somewhat calmer now," Paulson said large portions of the credit markets -- ranging from mortgages to student loans to loans that banks make to each other -- still are not functioning in a normal way. "I wouldn't be surprised at all to see more bumps in the road," he said.
Paulson rejected for now the notion of a second stimulus bill, including such things as extending unemployment benefits, an idea pushed by Democrats in Congress. He said it would be unprecedented to extend unemployment benefits from the current 26 weeks with unemployment at the relatively low level of 5 percent.
He said the administration's focus at the moment is on getting the current 130 million stimulus payments into the people's hands. The administration believes the rebates will energize overall economic growth and will create an additional 500,000 jobs later this year.
"Some families will use them to help fill up their gas tank, for a family vacation, or to help (buy) back-to-school clothes and a lot of other things that people are going to like to get done," Paulson predicted.
The Treasury chief spoke on a day when President Bush threatened to veto a broad housing rescue package being considered by Congress. Paulson said the measure being pushed by House Financial Services Committee Chairman Barney Frank, D-Mass., was too broad in its effort to insure up to $300 billion in new mortgages for homeowners facing the threat of default.
Paulson said the administration would continue negotiating with Congress to come up with an acceptable bill, but he did not offer any details of what type of mortgage relief the administration would support.
"Housing is an important area and there are certain things that we need to get done there from Congress," he said. "I view my job as to work to get something that is acceptable and that the president can sign."
The administration favors a narrower legislative housing fix -- including strengthening oversight of mortgage giants Fannie Mae and Freddie Mac, which play a major role in financing mortgages, and modernizing the Federal Housing Administration, which insures mortgages.
In addition, the administration has been promoting a voluntary effort by the mortgage industry to modify current loans to keep distressed borrowers in their homes. Treasury officials met for six hours with industry executives on Tuesday, and Paulson said he was encouraged by the progress, although he did not give details.
On another subject, Paulson said it made sense to re-examine the government's mandate to boost production of ethanol in light of high food costs. However, he argued that the demand for ethanol was being pushed up because oil prices have risen sharply, not because of the government's order to increase ethanol production.
"I think it always makes sense to rethink everything as conditions change," Paulson said. "But I would just say to you that we looked at this and let's recognize that the ethanol mandate is not what is driving this right now."
Gee, that’s funny, Soros said something similar.
Floating rate funds (bank loans) investments, high yield bonds and municipal bond funds are all a great buy now. Bank stocks more risky as there will be further write-downs. Sector under recovery. That is all......
“However, he argued that the demand for ethanol was being pushed up because oil prices have risen sharply, not because of the government’s order to increase ethanol production.”
Paulson. Liar. Big time.
No slowdown in Las Vegas casinos.
Here comes sky high interest rates.
What 5%?
That is not even close to a true statement.
I guess that depends on your perspective, doesn’t it?
Las Vegas Sands goes into the red
LV Slowdown may pressure Wynn Q1
Etc, etc.
The Tropican sought protection from creditors, etc. etc.
But from my perspective, it isn’t slow at all.
Hmmm.
Makes me wonder if Paulson is reading the same information I am. Alt-A and option ARM deterioration, and the jump in Merrill’s level 3 assets leads me to think that this isn’t over just yet.
DirecTV growth is more a symptom of dissatisfaction with cable operators than a sign of a robust economy — Time Warner is hemorrhaging subscribers in the Milwaukee metro and likely other markets. AT&T and Directv are actively poaching customers from them. In my home, we made the shift from out of home entertainment to TV a few years back. Movies and rentals just suffered in quality while prices went up. Add the DVR and it just made a lot of sense. Add in a growth of HDTV adoption and there's no suprise that folks are staying home and opting for Directv.
tax free municipals?.....are there any drawbacks to them?
It may be over. It may not be over, also. The smart money will bet the latter.
In '79 to save the dollar, Volker had to raise them up to 17%.
Yep; no investment is right for everyone. Muni’s are a decent buy for a fairly low risk investor that is in a moderate or high tax bracket. Their price is a little depressed right now and the yield is attractive as a result. A good muni bond fund could be an alternative to CD’s or savings accounts. Drawbacks? For a younger, more risk tolerant investor stocks offer better potential return over the long run.
Unfortunately for you, opinions don’t matter—real macro-economic statistics do.
It’s all a matter of half empty/half full. Maybe the reason there’s a slow down is because the casinos were booming so much that it was inevitable.
Maybe...just maybe they’ll come back up a bit and hit an equilibrium level, or maybe I’m just an optimist. Anyone can read a paper and live the gloom and doom.
I’m overall an optimist too but LV was going up in RE value 15-20% a year for many years in a row as was a lot of the country. We have another year of housing correction and then a year lag in the greater economy before that happens. I wouldn’t expect a LV turnaround anytime soon.
The same has happened in Northern Nevada, which is why there’s a slow down at casinos. It’s not really a surprise, considering that the real estate boom created a much quicker economic boom than there normally would have been.
So, we wait it out and it will all correct itself, unless the legislature does something stupid.
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