One on One with Robert Steel, Treasury Undersecretary For Domestic Finance
Monday, October 15, 2007
|
|
|
|
SUZANNE PRATT: Joining me now with more about the bank rescue fund that was set up at the urging of the Treasury Department is Robert Steel, Treasury undersecretary for domestic finance. Welcome to NIGHTLY BUSINESS REPORT. ROBERT STEEL, UNDER SECRETARY FOR DOMESTIC FINANCE, US TREASURY: Hi, Suzanne, thank you for having me.
PRATT: Mr. Undersecretary, you were Treasury's point man on this plan. Why did Treasury feel it was necessary to see this fund set up, particularly when we're hearing that conditions in the credit markets are improving.
STEEL: Well Suzanne, you're right that when the markets were acting poorly late this summer, different parts have started to improve at different rates of speed. And one of the areas that seemed to be returning to normal trading conditions more slowly was asset backed commercial paper. And the Treasury secretary, Secretary Paulson, is constantly monitoring the markets and also speaking to people involved in the markets. It became clear to us that the asset-backed commercial paper market was an area that we wanted to understand better and so we convened a group of people. This idea developed really from the market participants themselves as to a way to help the transition and maybe encourage the return to more normal conditions in asset-backed commercial paper.
PRATT: So without this plan, what do you think would have happened to U.S. financial markets and to the U.S. economy?
STEEL: Well, the financial markets have been improving in all kinds of ways. This was just one area, specific area of the credit market that was returning to a more normal trading conditions a bit more slowly. In terms of the economy itself, Secretary Paulson has said continually that there has been a penalty to growth from the challenges in the credit markets and in housing over the course of this year. But despite that penalty to growth, the economy we're comfortable is still growing. It's strong in lots of other ways and so hopefully the growth will continue later this year. And so that's our expectation.
PRATT: Can you explain for viewers what Treasury's role in all of this is actually?
STEEL: Perfect. Well, as I said Suzanne, our goal all along is to be in contact with the markets and be discussing conditions with the market participants. The area of asset-backed commercial paper seem to be recovering more slowly so we brought people together at Treasury, both bankers and also investors that invest in asset-backed commercial paper and brought them to Treasury to discuss what was going on in the market and what might be some of the ways that they could think about encouraging the market to return to more normal conditions. This is really a market- generated idea, managed by the market participants so as to help the market improve in a normal way.
PRATT: What do you say to critics who are already saying that it's inappropriate for Treasury to step in in this role and perhaps you're in a way rewarding bad behavior by some of the biggest banks, in particular Citigroup.
STEEL: I don't see how we're rewarding any behavior at all. This is a market organized effort. And basically the market participants have brought these ideas together. And the three banks that are involved, Bank America, Citibank, JPMorgan in the lead positions, have all come to this view that this would be helpful for the market. And also too it helps the securitized aspects of the market which will certainly have a positive effect on the mortgage market. And I think that's something that's good for all the markets and we want to be pulling for.
PRATT: So who do you see as likely investors into this fund? Who is going to be a buyer of this debt? Is it going to be professional investors, individuals?
STEEL: Well, I think it really affects the whole constituency of investors. So the new master conduit will be funded by banks, but then they'll issue securities that will be bought by money market funds and other investors, both institutions and individuals, directly and indirectly. So I think it has the potential to be helpful to all the marketplace and all the investors. But again, a market-organized effort to participate by participants to benefit the market overall.
PRATT: OK. Let's leave it there. Thank you for joining us.
STEEL: Thank you for having me Suzanne.
PRATT: My guest this evening, Robert Steel, undersecretary at the U.S. department of Treasury
