Paulson does not expect any more major financial institutions to fail during current crisis
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WASHINGTON: Treasury Secretary Henry Paulson said Tuesday that he did not expect any more major financial institutions to fail during the current credit crisis.
Paulson also said he had no plans to ask Congress to make the second half of the $700 billion financial rescue fund available before the administration of President George W. Bush leaves office on Jan. 20.
In an interview on CNBC, Paulson said he believed the actions taken by financial authorities in the United States. and other countries would allow all the systemically important institutions to remain viable.
The administration has obligated almost all of the first $350 billion in the financial rescue package approved by Congress on Oct. 3. There had been speculation that the Bush administration would ask for approval to begin using the second $350 billion in the bailout bill before leaving office.
But Paulson said Tuesday he believed the government had a "lot of firepower" at its disposal currently, including the rescue program and multibillion-dollar loan programs being used by the Federal Reserve and other banking authorities. For that reason, he said he did not see a need to request authorization from Congress to tap the second half of the rescue package.
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The Fed on Tuesday said it had reduced the federal funds rate, the interest that banks charge each other, to a range of zero to 0.25 percent. That is down from the 1 percent target rate in effect since the last meeting in October. The aggressive move was greeted enthusiastically by Wall Street, and the Dow Jones industrial average closed more than 4 percent higher.
Separately, the Treasury Department announced that it had provided an additional $2.45 billion in direct purchases of bank stock involving 28 more banks.
The new group of banks brings to 116 those that have received government support through stock purchases. The administration announced in mid-October that the stock purchases would be the major way it planned to use $250 billion of the rescue program. The amount distributed to the banks so far totals $167.76 billion, Treasury said.
In his interview, Paulson said a top priority for his remaining weeks in office was making sure the transition to the incoming administration of President-elect Barack Obama flows smoothing during what has turned out to be the country's most serious financial crisis since the 1930s.
The Bush administration is continuing to look at ways to deal with the mortgage crisis, Paulson said, but had not yet decided to implement a proposal to try to boost housing activity by buying bonds and lowering mortgage rates to 4.5 percent.
Paulson said he was spending a lot of time on the effort to fashion a government lifeline for the Detroit auto companies.
The companies that need government loans to avoid bankruptcy "will get the money as quickly as we can prudently do it," Paulson said. "We need to do it, but we need to do it right."
Paulson refused to speculate exactly when the support from the government's $700 billion rescue program might be awarded to General Motors, Chrysler or Ford Motor, but said the administration was working to make sure the taxpayer was protected and that the companies presented a credible plan to achieve long-term viability.
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