Paulson: Government won't buy troubled bank assets

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DavidS2

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WASHINGTON – The government has abandoned the original centerpiece of its $700 billion rescue effort for the financial system and will not use the money to purchase troubled bank assets.

Treasury Secretary Henry Paulson said Wednesday that the administration will continue to use $250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending. He also announced that the administration was looking at a major expansion of the program into the markets that provide support for credit card debt, auto loans and student loans.

Paulson said 40 percent of U.S. consumer credit is provided through selling securities that are backed by pools of auto loans and other such debt. He said these markets need support.

"This market, which is vital for lending and growth, has for all practical purposes ground to a halt," Paulson said.

On the issue of using the $700 billion bailout package to provide help to ailing auto companies, Paulson said the administration preferred an approach that would accelerate support to that industry from other legislation Congress passed this fall.

Paulson said the administration is exploring other options, including expanding the program beyond banks to nonbank financial institutions which provide essential credit to both businesses and consumers. He suggested that capital could be provided to institutions on a matching basis in which the government would supply money to those able to raise money on their own.

Providing an update on the largest government bailout in U.S. history, Paulson said that the effort was showing results but that more efforts were needed given the most severe downturn being faced in housing.

"Our financial system remains fragile in the face of an economic downturn here and abroad," Paulson said. "Market turmoil will not abate until the biggest part of the housing correction is behind us. Our primary focus must be recovery and repair."

The administration decided that using billions of dollars to buy troubled assets of financial institutions at the current time was "not the most effective way" to use the $700 billion bailout package, he said.

The announcement marked a major shift for the administration which had talked only about purchasing troubled assets as it lobbied Congress to pass the massive bailout bill.

The bailout money also should be used to support efforts to keep mortgage borrowers from losing their homes because of soaring default levels, he said.

A proposal to have part of the bailout funds used to guarantee mortgages that have been reworked to reduce monthly payments for borrowers is an approach the administration continues to discuss, Paulson said, although he indicated it would not be a part of the rescue program. He said it went beyond the intent of the legislation Congress passed on Oct. 3.

Asked about what he had in mind to expand the rescue effort to support credit card and other types of consumer debt that is backed by selling securities, Paulson said it would probably take weeks to design the new program and then more time to get it implemented, a possible sign that any such proposal would have to be implemented by the incoming administration of President-elect Barack Obama.

Speaking of the first-ever summit of leaders of the Group of 20 major industrial and developing countries, Paulson said this weekend's meeting needs to focus first on how to repair the financial system as a way to bolster the global economy.

Elsewhere, Paulson praised a new set of guidelines issued Wednesday by the Federal Reserve and other bank regulators, saying that they addressed a crucial issue of making sure that banks continue to lend at adequate levels.

The guidelines urge institutions to continue lending to credit worthy borrowers and to work with mortgage borrowers to avoid defaults. In addition, the guidelines encourage the banks to set dividend payments for shareholders and compensation for executives with the current crisis in mind.

The guidelines address criticism that banks obtaining funds from the $700 billion rescue plan could simply use the money for their own purposes rather than helping struggling homeowners and the overall economy.

Critics are concerned that banks, which are getting $250 billion through government purchases of their stock, are not using the money to boost lending to customers, one of the main reasons why the economy is in a crisis.

"If underwriting standards tighten excessively or banking organizations retreat from making sound credit decisions, the current market conditions may be exacerbated, leading to slower growth and potential damage to the economy," according to the regulators' guidance.

The Fed, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, and Office of Thrift Supervision said all financial institutions were expected to follow the new guidelines, even those not receiving federal assistance.

The Bush administration already has committed $250 billion of the $700 billion rescue fund for the purchase of bank stock, giving financial institutions an infusion of cash the government hopes they will use to resume more normal lending operations and address the most severe credit crisis in decades. On Monday, the administration announced that it was allocating another $40 billion as an investment in troubled insurance giant American International Group.

Those decisions leave only $60 billion of the initial $350 billion left to allocate. To access the second $350 billion, this administration or the next will have to make a request to Congress for the money.
 
gobbledee gook---they don't know what the hell they are doing or whose doing it. I think I'll let my bird balance my checkbook.
 
So we needed $750 billion and now we don't need it?? I'm so confused. If banks are just re-negotiating with consumers - why didn't we do this a year ago before Wachovia and Washington Mutual collapsed??? 12 banks have collapsed this year and no one ever thought to re-negotiate with them?? Am I reading this right?
 
great, in the guise of the falling home market, they gave them 2 trillion so far, that won't even help the home market.

I am not suppose to hate, (love thy enemy and all...) but so help me God, i really feel hatred towards these people! :(

we've been played like a violin.

care
 
btw, BEWARE!!!

My husband and i both have great credit ratings...we wanted to buy a flat panel tv...expected a cash refund check to pay for it due here soon, but in the mean time, thought we would charge it, if there was a good sale price that couldn't be beat, and pay it off when we get the check....

we had paid all of our credit cards off but maybe $300 or so on an american express card...

so, with all the warnings from suzie orman regarding this credit crunch and what banks can do to us at their free will....

my husband calls each one of our credit cards to see what interest rate they were charging us....

ALL THREE CARDS had us at 26.5% interest rate....ALL THREE!!!!!!!!! US? With excellent FICO scores!!!!!!!!!!!!!!!! so, matt negotiates with all of them and they all brought us down to 9.9% or 10%.....which is still outrageous, when we were getting our credit for ZERO %, or 5.6% on the one card charging us an interest rate, before we paid them off.

AT ONE TIME, we had usery laws in this country that prevented banks from robbing us blind, which was anything above 10%....but those laws were deregulated. It was considered LOAN SHARKING to charge a 20%+ rate.... now banks can change your interest rate at any time for no reason at all....to any amount of interest they wish.

PLEASE BE CAREFUL....call and ask what your banks are charging you in interest!

care
 
btw, BEWARE!!!

My husband and i both have great credit ratings...we wanted to buy a flat panel tv...expected a cash refund check to pay for it due here soon, but in the mean time, thought we would charge it, if there was a good sale price that couldn't be beat, and pay it off when we get the check....

we had paid all of our credit cards off but maybe $300 or so on an american express card...

so, with all the warnings from suzie orman regarding this credit crunch and what banks can do to us at their free will....

my husband calls each one of our credit cards to see what interest rate they were charging us....

ALL THREE CARDS had us at 26.5% interest rate....ALL THREE!!!!!!!!! US? With excellent FICO scores!!!!!!!!!!!!!!!! so, matt negotiates with all of them and they all brought us down to 9.9% or 10%.....which is still outrageous, when we were getting our credit for ZERO %, or 5.6% on the one card charging us an interest rate, before we paid them off.

AT ONE TIME, we had usery laws in this country that prevented banks from robbing us blind, which was anything above 10%....but those laws were deregulated. It was considered LOAN SHARKING to charge a 20%+ rate.... now banks can change your interest rate at any time for no reason at all....to any amount of interest they wish.

PLEASE BE CAREFUL....call and ask what your banks are charging you in interest!

care

Are your beacon scores below 680? Some CC's use Equifax which gives beacon scores, not FICO scores.
 
These problems may be too much for one government agency to handle. I think we should make Barack Obama temporary Emperor. What do you think?
Solidify the power of many agencies and bestow that power on Obama. Again, it would only be temporary.

Just 30 years or so...
 
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These problems may be too much for one government agency to handle. I think we should make Barack Obama temporary Emperor. What do you think?
Solidify the power of many agencies and bestow that power on Obama. Again, it would only be temporary.

Just 30 years or so...

I appreciate your sarcasm, but I don't think anyone can handle this. I think this problem is too big to handle and the market should work itself out. Let the government create jobs to curb unemployment and let companies fall like dominos. When the bleeding has stopped, close it up and re-build.
 
Thank GOD Congress voted for the bail out bill.

THANK YOU BARACK OBAMA!

Thank you John McCain! Thanks George Bush, who's actually the sitting president. WHo's actually the guy who got us in this mess. Who actually got on tv and said either give him the money or he will take the economy down with him.

Along with the GOP we voted out in 2006 and 2008, because they did this. Good riddens. Thanks for fucking us royally.

Oh, and the President of France yesterday said that America's dangerous deregulations got us in this mess. He didn't say anything about poor people getting loans or freddy/fanny.

I can't wait for Obama's guy to replace Paulson. Can't wait!!!
 
I appreciate your sarcasm, but I don't think anyone can handle this. I think this problem is too big to handle and the market should work itself out. Let the government create jobs to curb unemployment and let companies fall like dominos. When the bleeding has stopped, close it up and re-build.

Do you know how many pensions the government/you would have to cover if the Big 3 go bankrupt? We can't afford it.

It'd be better to kick Toyota and Mitzubishi and Honda out of the country and we all start buying American cars again.

And Ford in Mexico, bring your ass back home. If you aren't building in America, then you aren't an American car company.

And Honda may have plants here, but their engineers are overseas and the profits go home too.

Try to start a car company in Japan and see how many obstacles they'll throw in your way.
 

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