WASHINGTON (AP) - businessminute
Treasury Secretary Henry Paulson on Sunday defended the Federal Reserve's
decision to help rescue Bear Stearns Cos., the teetering Wall Street investment
bank. He sidestepped questions about whether other firms are on shaky ground and
the Bush administration might intervene.
"The government is prepared to do what it takes" to stabilize the financial
system and work with market participants to minimize any damage to the economy,
he said during a series of broadcast interviews. The Fed's intervention "was not
a difficult decision. It was the right decision."
The Fed, using a Depression-era procedure, raced to Bear Stearns' aid Friday
along with JPMorgan Chase & Co. Bear. Bear Stearns had made a fortune in
mortgage-backed securities but faced a possible collapse after those investments
soured. Wall Street nose-dived as fears spread about whether other big firms
were in jeopardy.
"When you go through a period like this," Paulson said, "policymakers need
to balance various consequences."
Some critics contend that the Fed's move was akin to a government bailout --
something the Bush administration has repeatedly said it is against.
"Well, every situation is different. We have to respond to the circumstances
we're facing today," Paulson said. "And my concern is to minimize the impact on
the broader economy as we work our way through this situation, and again, the
stability of our financial situation."
Asked whether other financial companies may be in a situation similar to
Bear Stearns', Paulson did not directly answer. He did seek to strike a
confident tone.
"Well, our financial institutions, our banks and investments banks are very
strong," he said. "And I'm convinced that they're going to come out of this
situation very strong."
Economists increasingly believe the spreading fallout from a severe credit
crisis has pushed the country into its first recession since 2001. The situation
has led to record-high home foreclosures, forced financial companies to take
multibillion losses from bad mortgage-linked investments and rocked Wall Street.
"No one is debating the fact that this economy has slowed way down," Paulson
said. "We feel it, we know it, the American people know it."
Consultations about the Bear Stearns situation continued through the weekend
among representatives from the Fed, Treasury Department, financial institutions
and others.
President Bush planned to meet on Monday with his advisory panel on
financial markets, whose members include Fed Chairman Ben Bernanke and Paulson.
The panel on Thursday recommended stricter regulation of mortgage lenders as
part of a broad effort to prevent a repeat of a credit crisis threatening to
drive the country into recession.
With the value of the dollar plunging, Paulson stuck to the position of past
treasury chiefs when he said a strong dollar is in the national interest. The
dollar has dropped to a new low against the euro and a fallen sharply against
the Japanese yen. That helps sales of U.S. exports to foreign buyers because it
makes U.S. goods less expensive. But the drooping dollar increases inflationary
pressures.
Paulson appeared on "Fox News Sunday" and "This Week" on ABC.
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