| |
| |
![]() |
| |
|
| |
|
| |
|
WASHINGTON: Treasury Secretary Henry Paulson on Tuesday defended a massive financial rescue in the face of criticism from lawmakers and a top US official wanting to use it to shore up the battered economy.
The 700 billion dollar Troubled Asset Relief Programme (TARP) "is not a panacea for all our economic difficulties," Paulson told a hearing of the House of Representatives 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 stabilising 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.
Paulson, the architect of the financial bailout, faced a grilling over how TARP has been implemented since the Democratic-controlled Congress approved a rescue bill on October 3 to battle the worst financial crisis since the Great Depression.
Lawmakers are pressuring President George W. Bush's Republican administration to use some of the funds to aid the faltering economy amid spiking home foreclosures and the near-collapse of the US auto industry.
The heads of General Motors, Ford and Chrysler were on Capitol Hill on Tuesday pleading for a rescue at a Senate hearing.
The TARP initially was focused on buying up toxic mortgage-related assets from the financial sector to get frozen credit flowing again and targeted help for homeowners at risk of foreclosure.
But a week ago Paulson shocked markets with the announcement that the strategy had been switched to a focus on continued capital injections to struggling banks in exchange for equity stakes.
On Monday, Paulson revealed the government, which has offered so far has offered 250 billion dollars to banks and 40 billion to insurer American International Group, would likely reserve the remainder of the TARP funds for the incoming administration of president-elect Barack Obama, who takes office on January 20.
The rapid changes in tack have raised questions about the policy and management of the vast programme.
Barney Frank, the chairman of the House panel, sharply criticised the Treasury secretary Tuesday for ignoring the plight of distressed homeowners.
"The fundamental policy issue is our disappointment that funds were not being used out of the 700 billion dollars to supplement mortgage foreclosure production," Frank said
"There is an overwhelmingly powerful set of reasons why some of the TARP money must be used for mortgage foreclosures. They continue from the standpoint of the economy," the Massachusetts Democrat said, referring to "the casket of foreclosures."
"At this point, public confidence in what we have done so far is lower than anybody would have wanted it to be," he said, calling it "an obstacle to further steps."
Sheila Bair, chairman of the Federal Deposit Insurance Corp., told lawmakers the haemorrhage of foreclosures must be stopped and recalled her 24.4 billion dollar plan to restructure mortgage, a plan that Paulson has shrugged off.
The emergency legislation creating the TARP "specifically" provides the Treasury secretary with the authority to ease mortgage payments to prevent avoidable foreclosures, she said.
"We believe that it is essential to utilise this authority to accelerate the pace of loan modifications in order to halt and reverse the rising tide of foreclosures that is imperilling the economy."
"We need a fast-track federal programme that has the potential to reach all homeowners regardless of who owns their mortgages," Bair said. "The stakes are too high and the time is too short to rely exclusively on voluntary efforts."
Federal Reserve chairman Ben Bernanke, also testifying at the hearing, said the US government's massive efforts were beginning to pay off.
"These actions, together with similar measures in many other countries, appeared to stabilise the situation and to improve investor confidence in financial firms," Bernanke said. - AFP/de
|
