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by Zachary A.
Goldfarb
Washington Post
Staff Writer
Sunday, September 21, 2008; 1:05 PM
Treasury Secretary
Henry M. Paulson Jr. today defended the escalating price tag of his plan
to rescue the financial markets, saying it is unlikely that taxpayers
will end up paying the full $700 billion the Bush administration is
requesting to buy the troubled mortgage assets of crippled financial
firms.
Paulson appeared on
four Sunday news talk shows to urge Congress to pass legislation
immediately authorizing the Treasury to act on its plan. He rejected
comparisons of the plan to government spending on the Iraq war or
massive programs such as Social Security and Medicare.
"This is not
traditional spending. This is money to purchase illiquid assets. Those
assets will be held and will be sold" so the government will recoup some
of the costs, Paulson said.
"The cost won't be
anything like what is put out to buy these investments," he said.
But Paulson
acknowledged he does not know what the cost ultimately will be. "We
can't determine what the cost is today," he conceded.
Paulson delivered
his plan to Congress yesterday with a price tag $200 billion higher than
he had estimated on Friday. Democrats have responded well to the plan,
although they said they would propose several provisions that could
generate opposition from the Bush administration, such as efforts to
help homeowners struggling to pay off their mortgages or limits on
executive compensation.
Some Republicans,
meanwhile, have raised concerns about the sweeping nature of the
government intervention to bail out the private markets.
Paulson urged
Congress not to load up the legislation with controversial provisions.
"We need this to be clean and quick," he said.
Rep. Barney Frank
(D-Mass.), also speaking on the Sunday shows, reiterated concerns that
corporate executives not profit from the rescue plan. "We have a
difference on what's clean . . . ," he said. "It would be a grave
mistake to say that we're going to buy up a bad debt that resulted from
the bad decisions of these people and then allow them to get millions of
dollars on the way out."
But Sen. Charles
Schumer (D-N.Y) acknowledged that time was of the essence and Congress
could not pack the this bill with other benefits. "We will not
'Christmas tree' this bill," he said. "The times are too urgent.
Everyone has their own desires and needs. It's going to have to wait."
Paulson said without
action on the plan this week, the credit crisis could quickly affect
average Americans.
Last week, "the
capital markets were frozen, we had a situation where American companies
weren't able to borrow money," Paulson said. "This could ultimately
affect small banks, loans to businesses, loans to farmers, jobs,
people's retirement."
Paulson said he has
"every confidence that Congress will go along with" the plan.
The plan would also
make foreign financial firms eligible to sell their bad assets to the
Treasury.
"If a financial
institution has business operations in the United States, hires people
in the United States, if they are clogged with illiquid assets," Paulson
said, "they have the same impact on the American people as any other
institution."
Sen. Richard Shelby
(R-Ala.), a member of the Senate Banking Committee who has been
skeptical of the rescue plan, said the cost of the plan is likely to be
$1 trillion.
"We don't know the
end game in this," Shelby said. The Treasury and Federal Reserve have
"been staggering from crisis to crisis, and they haven't even said today
that this will end the crisis."
Paulson said the
intervention was "not something we wanted to do." He said that
"excesses" in lending and borrowing had built up over much of this
decade, starting a "chain reaction" that spread to financial
institutions and now is "playing out in the broader economy."
"This is a humbling
experience to see so much fragility in our capital markets," he said.
Paulson said the
ultimate cost of the plan would depend on the economy.
"The price you will
get for those assets will be based upon how the economy does, the pace
at which the housing markets recover," he said.
Paulson also
defended the administration's decision to bail out Fannie Mae, Freddie
Mac and insurance giant American International Group, but not Lehman
Brothers.
In the case of AIG,
he said, "This is a situation where there are 50 different insurance
regulators, very little oversight at the holding company, a hedge fund
on top of insurance companies."
Paulson, who is
expected to leave office with the Bush administration in January, said a
new administration will have the flexibility to change the program.
"What I'm doing is
reacting to deal with the situation we see in front of us today and to
do so in a way that protects the American people," he said.
"We very much need
regulations, new policies. That is going to take some time," he said.
Paulson said the
United States is pressing other countries to take similar steps to bail
out their troubled financial institutions.
"We are talking very
aggressively with other countries around the world and encouraging them
to do similar, and I believe a number of them will," he said.
The Treasury would
hire professional asset managers to run the program, he explained. He
said, as of now, hedge funds wouldn't be eligible to sell their troubled
mortgage assets to the government.
Paulson rejected the
idea that the administration could have acted sooner.
"I'm not sure what
we could have done sooner," he said. It's been a "once-in-a-50-year kind
of a situation here. And there is no way that we could have gone to
Congress and got the authority to inject capital into the banking system
by buying illiquid assets unless there was the clear and urgent and
obvious need."
Paulson spoke on
NBC's "Meet the Press," ABC's "This Week," "Fox News Sunday" and CBS
"Face the Nation."
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