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Paulson Shifts Economic Rescue Plan to Focus on Boosting Credit

Economists discuss Treasury Secretary Henry Paulson's announcement Wednesday that the government will shift its focus from buying troubled assets to shoring up institutions that manage credit cards, auto loans and other types of borrowing.

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  • RAY SUAREZ:

    Next, the government shifts the focus of its bailout plan, again. Jeffrey Brown has the story.

  • JEFFREY BROWN:

    At his news conference this morning, Treasury Secretary Henry Paulson acknowledged what had grown increasingly clear to observers: that the original plans for the $700 billion rescue package had been scrapped.

  • HENRY PAULSON, U.S. Treasury Secretary:

    It was clear to me, by the time the bill was signed on October 3rd, that we needed to act quickly and forcefully, and that purchasing troubled assets — our initial focus — would take time to implement and would not be sufficient given the severity of the problem.

    In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks.

  • JEFFREY BROWN:

    The plan — known as the Troubled Asset Relief Program, or TARP — allowed Paulson to use half the money at his discretion immediately. Of that initial $350 billion, $290 billion has already been committed as capital for banks and other financial institutions.

    Paulson said that part of the remaining funds would now be used to help troubled companies that are providing consumer credit.

  • HENRY PAULSON:

    Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans, and student loans, and similar products. This market, which is vital for lending and growths, has for all practical purposes ground to a halt.

  • JEFFREY BROWN:

    Paulson also said he was considering an approach by which some firms seeking future government aid would need to raise matching capital from private sources.

    A reporter asked the treasury secretary when he would request the remainder of the bailout money from Congress and if he thought the $700 billion was enough.

  • HENRY PAULSON:

    Well, first of all, I have no timeline for going to Congress to ask for the drawdown of the second $350 billion. We're working to continue to design, develop programs that could be used. And when it's the right time to use them, we will roll them out.

    And if it then makes sense to go to Congress, we will go to Congress and ask for the drawdown of the second $350 billion. And, as you know, that's the process that Congress laid out for us.

    In terms of the $700 billion size, I still am comfortable that with $700 billion we have what we need.

  • JEFFREY BROWN:

    Paulson was also pressed on the shifting focus of the plan and asked whether he had misled Congress.

  • HENRY PAULSON:

    What we said to Congress was we needed a financial rescue package because the credit markets were stopped up. And we were focused on the problem.

    And when we went to Congress, the illiquid assets looked like the way to go. As the situation worsened, the facts changed.

    The thing I'm grateful for is we were prescient enough and Congress was that we got a wide array of authorities and tools under this legislation. And I will never apologize for changing an approach or a strategy when the facts change.

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