Paulson Comments on Financial Rescue Package and Economic Update - November 12, 2008

On November 12, 2008, Treasury Secretary Paulson spoke at a press conference regarding the financial rescue package and economic update. This update includes highlights of Paulson's prepared remarks and the question and answer period.

Highlights of Paulson Prepared Remarks:

Treasury Not to Use TARP Funds for Illiquid Mortgage-Related Asset Purchase. Secretary Paulson said that Treasury has made an assessment that purchasing illiquid mortgage-related assets "not the most effective way to use TARP funds." He said that Treasury will continue to examine whether targeted forms of asset purchase can play a useful role, relative to other potential uses of TARP resources, in helping to strengthen the financial system and support lending.
Treasury's Priorities for Remaining TARP Funds. Secretary Paulson discussed three priorities for remaining TARP funds: (1) Continued reinforcement of stability of the financial system so that banks and other institutions can continue to provide credit (2) Support for important markets for securitizing credit outside of the banking system - e.g. credit card receivables, auto loans and student loans and similar products (3) Ways to reduce the risk of foreclosure.
Potential Matching Program. Secretary Paulson spoke about further strategies for building capital in financial institutions. He noted that Treasury is evaluating programs to further leverage the impact of a TARP investment by attracting private capital, potentially through matching investments. In developing a potential matching program, he said that Treasury would consider capital needs of non-bank financial institutions not eligible for the current capital program; he spoke about broadening access in this way would bring both benefits and challenges.
Consumer Access to Credit Outside Banking System. Secretary Paulson spoke about further strategies to support consumer access to credit outside the banking system. He noted that Treasury and the Federal Reserve are exploring the development of a potential liquidity facility for highly-rated AAA asset-backed securities. He noted that Treasury is looking at ways to use the TARP to encourage private investors to come back to this troubled market, by providing them access to federal financing while protecting the taxpayers' investment. Paulson stated that the securitization effort would bet targeted at consumer financing, but could also be used to support new commercial and residential mortgage-backed securities lending.
Mortgage Foreclosure Mitigation. Secretary Paulson spoke about further strategies strategies to mitigate mortgage foreclosures. In crafting the financial rescue package, Paulson said that Treasury and the Congress agreed that Treasury would use its leverage as a major purchaser of troubled mortgages to work with servicers and achieve more aggressive mortgage modification standards. He stated that now that Treasury is not planning to purchase illiquid mortgage assets, Treasury must find another way to meet that commitment. Paulson noted that Treasury has worked with the FHFA, the GSEs, HUD and the Hope Now alliance on a streamlined industry-wide modification program that for the first time adopts an explicit affordability target.

Q+A Highlights:

Illiquid Asset Program & Why Scrapped By Treasury. Several questions were asked as to why the Treasury will not use the $700 billion to purchase troubled illiquid assets, as Secretary Paulson had originally told Congress that the program would be used. Secretary Paulson said that from the time we first focused on issue, this was about infusing capital to financial institutions. He noted that the bill gave Treasury broad authority and flexibility to use the $700 billion. Secretary Paulson said that the situation had worsened, facts changed, that Treasury needed to use more powerful solutions to leverage taxpayer money.
Auto Industry. Secretary Paulson was asked several questions about the auto industry. Paulson expressed support for auto industry and manufacturing industry and their importance to the U.S. Paulson said they are a key part of our manufacturing industry. Paulson said we need a solution but the solution has got to be one that leads to viability. He noted that the intent of the TARP was to deal with the financial industry. He stated that one idea would be to amend Section 136 of the energy bill, which was funded with $25 billion in loan guarantees to the auto industry in September 2008, to make more money available. Secretary Paulson did not directly respond to a question of whether he would support an auto industry bill in the lame duck.
Whether $700 Billion Enough. Secretary Paulson said he is comfortable that with the $700 billion we have what we need. He said that Treasury will eventually go to Congress for draw-down of second $350 Billion.
Lame Duck Stimulus Package. Secretary Paulson said his focus is on the financial sector getting credit going and lending going; he did not comment on whether he would support a stimulus package in the lame duck.
Opening Up Program to Non-Bank Institutions. Secretary Paulson said there are logistical issues in expanding program to non-bank institutions who do not have a federal regulator, but expressed in his comments openness to exploring this option.
Broad Authority & Whether Any Limits in the Bill What Assets Treasury May Purchase. Secretary Paulson said he asked for and received broad authority from Congress. He said there are limits including oversight board.