Sect. of Treasury Paulson on Financial Markets

CQ Transcripts
Monday, March 17, 2008; 3:09 PM


We had a good meeting of the President's Working Group on Financial Markets with the president. We gave him an update on what's happening in the markets this morning. He was well aware of the actions that took place over the weekend because I had a couple conversations with him and (inaudible) as we went along here.

We talked about the markets, emphasized the priority of the orderly function of our capital markets, talked about the strength of our financial institutions. And he was, I think, generally quite pleased with the actions that were taken, as are we, given the way the markets are preforming today.

So I will take your -- take a couple of comments or questions.

QUESTION: Mr. Secretary, can I ask you to just respond to the idea that what was done over the weekend in behalf of Bear Stearns and the general financial community there is considerably more aggressive than action taken on behalf of homeowners facing foreclosure?

PAULSON: Which is the -- is your response that Bear Stearns was treated better than homeowners facing foreclosure?

QUESTION: No, my question is, for people out there wondering about the little guy...


QUESTION: ... and the help available to them from the government, they're looking at this...


PAULSON: Oh, I got your point.

What I would say is, if you would ask the Bear Stearns shareholder in terms of what has happened to their value, that I don't think any of them would think that this has been a good outcome for them.

And when we talk about moral hazard, I would say look at the Bear Stearns shareholder.

This was -- this is what happens when there is a liquidity problem. And there was a liquidity problem. This outcome was much better than a filing by them; that, again, when we -- when policy- makers think through these issues, there's the moral hazard on the one hand, and on the other there is the importance of orderly markets, stability in our financial system.

PAULSON: And this was an easy decision. This has the right outcome.

And, again, in terms of the moral hazard, what happened to the Bear Stearns shareholders.

QUESTION: Can you talk about whether or not you're rethinking the idea of helping out the housing industry? I'm thinking of Dodd's legislation or Barney Frank's legislation.

And also a second, would you consider or would you rule out intervening in the foreign exchange markets to stop the slide of the dollar?

QUESTION: Would you address the cameras, sir?

PAULSON: Yes, I'm sorry.

Let me address both of those questions. First of all, what's going on in the housing market.

One of the things I did today was spent 45 minutes with members of the Hope Now Alliance, again, talking about initiatives there to avoid preventable foreclosures.

But to get more specifically to the question, what I'm really focused on are things that can be done quickly that make a difference. And so, although there's some interesting ideas up on the Hill, we still don't have FHA modernization.

We sent the legislation up there a long time ago. It's been passed by the House and by the Senate. We still don't have legislation on the president's desk which would help 300,000 homeowners. And that's a big number of the subprime homeowners facing foreclosure -- a big percentage, number one.

The next thing I would emphasize are Fannie Mae and Freddie Mac.

PAULSON: These organizations are very, very important to what's going on in mortgage finance in this country. And they've played a vital role. And it's important that they continue to play a vital role and continue to raise capital.

And I would say the same thing about a number of financial institutions.

So, again, the idea of getting legislation where there's strong oversight is very important. And that's been up there for a long time.

And these are two tangible, very specific things, that will make a difference, that haven't been done.

Now, I had a question about -- what was it?

QUESTION: Foreign exchange, intervening?

PAULSON: Oh, intervening.

Listen, I'm not going to speculate on hypotheticals on intervention. I will just, again, say to you what you've heard me say before.

We have a strong dollar policy. It's very much in our nation's interests.

Our economy has ups and downs. The long-term fundamentals -- and I'm very confident about this. When we look at our long-term fundamentals compared with other major countries around the world, we have strong long-term fundamentals. That will be reflected in our currency markets.

And so our whole focus here is on policies that are going to -- going to increase the confidence in our economy. And this is open trade, open investment, working through this capital market's turmoil in a way so that we minimize the impact on our economy.

I've got time for one more.

QUESTION: Mr. Secretary, I wonder if you can help us understand how it is that, on Friday the Fed was prepared to make a multibillion dollar line of credit available to Bear Stearns, and a day and a half later forced the sale of the company for a quarter billion dollars.

PAULSON: Well, this, again, when you look at this -- and again, I very much support the Fed's action. I was working there right beside them, helping them execute this strategy.

Again, to step back, we place a high priority on the orderliness of our financial markets -- this is very, very important -- and the stability in our financial markets.

Bear Stearns had a liquidity crisis. And so, we felt it was very important that this be resolved as a way to minimize impact on our economy.

And so, these actions were all consistent. And it was important that this be resolved before the markets opened in Asia on Sunday afternoon.

Now, to say something even a little bit more broadly, to me the fact that has not got the attention it deserves to get is the second action that the Fed has taken. There's been a lot of focus on Bear Stearns, but the Fed took, I believe, dramatic and very important, powerful action, to make liquidity available to the broker-dealers, to the investment banks.

And the banks have long had that source of liquidity, but to be able to make that liquidity available for a broad range of investment- grade products -- asset-backed securities, mortgage-backed securities, corporate debt agencies -- and to make that available and make that available for six months or longer, if market conditions warrant it, I think was very important.

And so, the liquidity that's there for our financial institutions is very important.

And the thing that I am emphasizing as I talk in the markets is that we have capital markets that are the envy of the world, that they're competitive, that they're efficient, that they -- that we move quickly when we need to address issues, and we have financial institutions that are strong financial institutions, recognized as such around the world, that will be strong institutions for a long time to come.

And it's the job of regulators to come together during times of stress and address situations that help us protect our capital markets.



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