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Paulson rules out using US financial aid to help economy
2008-11-18
WASHINGTON (AFP) - US Treasury Secretary Henry Paulson Tuesday ruled out using the 700-billion dollar financial bailout to shore up the battered economy, amid distress calls for help from the ailing auto industry. The Troubled Asset Relief Program (TARP) authorized by Congress on October 3 "is not a panacea for all our economic difficulties," Paulson told a hearing of the House Financial Services Committee. "The rescue package was not intended to be an economic stimulus or an economic recovery package; it was intended to shore up the foundation of our economy by stabilizing the financial system, and it is unrealistic to expect it to reverse the damage that had already been inflicted by the severity of the crisis," he said. The Democratic-controlled Congress is pressuring President George W. Bush's Republican administration to use some of the funds to aid the faltering economy, particularly the embattled auto sector. "The crisis in our financial system had already spilled over into our economy and hurt it. It will take a while to get lending going and repair our financial system, which is essential to an economic recovery," Paulson told lawmakers. An economic recovery "won't happen as fast as any of us would like, but it will happen much, much faster than it would have had we not used the TARP to stabilize our system," Paulson said. The chiefs of the "Big Three" US automakers were to plead for help from skeptical lawmakers in Senate Tuesday. Ford's president Alan Mulally told CNBC earlier that a failure at even one automaker would have widespread consequences. "The industry is so interdependent," Mulally said. "We're nearly 10 percent of the US GDP, and if one of the automobile manufacturers gets into serious trouble, it has just tremendous implications for the entire industry." But Paulson confirmed his comments in an interview Monday with The Wall Street Journal saying he preferred to leave the TARP funds for the incoming administration of president-elect Barack Obama, who takes office on January 20. "If we have learned anything throughout this year we have learned that this financial crisis is unpredictable and difficult to counteract. So early last week, we concluded it was only prudent to reserve our TARP capacity, maintaining not only our flexibility, but that of the next administration," the Treasury chief said. Of the 700 billion dollar TARP funds authorized by Congress, 290 billion dollars have so far been disbursed: 250 billion to banks and a 40 billion dollar loan to insurer American International Group. Of the 250 billion allocated to equities purchases, the Treasury already has already invested 148 billion in about 30 banks, and the investments are to continue. The Bush administration's preference to keep some money in reserve means many of the big decisions about how to use the fund, such as helping to stem a tide of foreclosures, will be delayed until Obama takes office. Federal Reserve chairman Ben Bernanke told the House panel that the US government's massive efforts were beginning to pay off. "These actions, together with similar measures in many other countries, appeared to stabilize the situation and to improve investor confidence in financial firms," Bernanke said. "There are some signs that credit markets, while still quite strained, are improving," he said, reiterating a November 12 appeal to banks that have received government funds to use them for lending to get credit flowing. "Overall, credit conditions are still far from normal, with risk spreads remaining very elevated and banks reporting that they continued to tighten lending standards through October. There has been little or no bond issuance by lower-rated corporations or securitization of consumer loans in recent weeks," he said. "It is imperative that all banking organizations and their regulators work together to ensure that the needs of creditworthy borrowers are met in a manner consistent with safety and soundness."
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