US backs away from plan to buy bad assets

飞雪寒冰

The Bush administration on Wednesday largely abandoned its plan to buy up toxic mortgage assets and said it will focus its $700 billion financial bailout fund on making direct investments in financial institutions and shoring up consumer credit markets.

The US Treasury Department initially promoted the financial rescue package approved by Congress last month as a vehicle to buy illiquid mortgage assets from banks and other institutions to spur fresh lending.

飞雪寒冰

However, that plan never got off the ground and US Treasury Secretary Henry Paulson told a news conference asset purchases were not the most effective use of the funds.

"This is not going to be the focus," he said. Paulson added, however, that the Treasury would continue to examine the usefulness of "targeted" purchases.

The US Treasury has already tapped the fund to inject capital into banks and ailing insurer American International Group (AIG). Paulson said he was considering a second round of preferred share purchases in both banks and non-bank institutions which, in a fresh twist, would match privately raised funds.

He also said the Treasury was working with the Federal Reserve on a plan to help restore credit flows to US households by using financial rescue funds to lure investors back to markets for securitized debt, such as car loans, student loans and credit cards.

The administration's shifting focus disappointed Wall Street and US stock prices tumbled sharply. The Dow Jones industrial average .DJI closed down 408 points, or 4.7 percent.

"This hasn't done the Treasury's credibility a world of good," said Alan Ruskin, chief international strategist at RBS Global Banking and Markets in New York. "Basically, they found that the market would applaud direct capital injections more readily than understanding the complexities of reverse auctions to buy assets, so it's a pragmatic choice."

Paulson was unapologetic, saying that by the time the rescue bill was passed on October 3, it was clear the asset purchase plan would take too long and would not be sufficient to calm roiling markets.

"I will never apologize for changing a strategy or an approach if the facts change," he said

飞雪寒冰

Cool to Calls for Help

The $700 billion financial sector bailout is the United States' marquee effort to combat a credit crisis spawned by rising US mortgage defaults that is now wreaking economic damage worldwide.

To help ease the crisis, the US Treasury and bank regulators on Wednesday issued "guidance" for banks encouraging them to lend and to rein in any compensation plans that might lead executives to take excessive risks.

Earlier on Wednesday, Canada announced a plan to buy up another $41 billion in insured mortgages and other steps to try to free-up credit.


Paulson said the US Treasury was duty-bound to help prevent mortgage foreclosures, but he warned that further aid would likely mean a significant government subsidy, signaling a lack of support for a Federal Deposit Insurance Corp. proposal for more aggressive aid to borrowers.

Paulson sidestepped questions on whether the Treasury would use bailout funds to help struggling Detroit automakers, as the industry and some lawmakers have called for.

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While he said the industry was a "critical" one for the United States, he said the purpose of the program was to provide financial system stability.

He said one option would be to amend legislation to allow $25 billion already approved for efficient vehicle production to be made available more quickly.

So far, the Treasury has focused on providing capital to federally regulated banks and thrifts, but Paulson said it was looking to broaden the effort to cover financial institutions that do not have a federal bank or thrift charter.

"Although the financial system has stabilized, both banks and non-banks may well need more capital given their troubled asset holdings, projections for continued high rates of foreclosures and stagnant US and world economic conditions," he said.

飞雪寒冰

$700 Billion Still Enough?

The Treasury has allocated $250 billion of the bailout funds to direct capital injections into banks and thrifts and it has earmarked another $40 billion to shore up AIG, leaving just $60 billion to dole out before it would have to ask Congress to release the final $350 billion.

Paulson said he had no timeline for that request, which means the decision could be left to the incoming administration of President-elect Barack Obama, who takes office on January 20.

He also signaled he would not seek to increase the overall size of the bailout fund. "I still am comfortable that, with $700 billion, we have what we need," he said.

With an aim to restoring credit for households, Paulson said the Treasury and Fed were considering setting up a program to increase liquidity for top-rated asset-backed securities, but he provided few details.

"The initial shock of abandoning TARP is hitting stocks, but the support for consumer-level lending may be a silver lining as it goes to the root of what's ailing the economy, namely personal consumption," said Brian Dolan, chief currency strategist at FOREX.com in Bedminster, New Jersey.

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外交怪兽

Obama Plans Largest Building Program Since 1950s (Update1)


By Hans Nichols

Dec. 6 (Bloomberg) -- President-elect Barack Obama said he’ll make the “single largest new investment” in roads, bridges and public buildings since the Eisenhower Administration to lift the sagging economy and create jobs.

Obama, in his weekly radio speech today, said his plan to create or preserve 2.5 million jobs will also include making public buildings more energy efficient, repairing schools and modernizing health care with electronic medical records.

“We won’t just throw money at the problem,” he said. “We’ll measure progress by the reforms we make and the results we achieve -- by the jobs we create, by the energy we save, by whether America is more competitive in the world.”

Obama spoke a day after a government report showed employers in the U.S. slashed 533,000 jobs last month, the biggest decline in 34 years. The losses are “another painful reminder of the serious economic challenge our country is facing,” Obama said.

The speech offered the first details of Obama’s job- creation program. He said the investment in infrastructure will be the largest since President Dwight D. Eisenhower created the interstate highway system a half-century ago.

“When Congress reconvenes in January, I look forward to working with them to pass a plan immediately,” he said. Obama takes office as the 44th president on Jan. 20.

Congressional Democrats

With the economy heading toward the longest and deepest recession since World War II, pressure is rising for a spending program that will create new jobs. Congressional Democrats have said they will send Obama an economic stimulus package as soon as he takes office. New York Senator Charles Schumer late last month put the size of such a program at between $500 billion and $700 billion.

In addition to investing in infrastructure, requiring energy standards on public buildings and updating health-care practices, Obama said that he will start a “sweeping effort to modernize and upgrade school buildings” and will boost broadband access across America.

To the states that will be the conduits for the funding, he had a simple message: “use it or lose it.”

“If a state doesn’t act quickly to invest in roads and bridges in their communities, they’ll lose the money,” he said.

Obama’s plan to make public buildings more energy efficient should reduce the government’s energy bill, which he called the highest in the world. He plans to replace heating systems and install energy-efficient light bulbs.

Internet Upgrade

Obama also plans to upgrade Internet infrastructure, calling it “unacceptable that the United States ranks 15th in the world in broadband adoption.”

Upgrading health care is the final component of the plan. By introducing new technology and electronic medical records, he said health-care workers could “prevent medical mistakes, and help save billions of dollars each year.”

Obama, in Chicago for the weekend, has no public events scheduled for today. Tomorrow, he will mark the anniversary of the 1941 attack on Pearl Harbor with a news conference in Chicago, according to a statement from his transition team.

Obama will announce his choice to lead the Department of Veterans Affairs at the news conference, according to a Democratic aide who spoke on the condition of anonymity.

To contact the reporter on this story: Hans Nichols in Chicago at hnichols2@bloomberg.net

Last Updated: December 6, 2008 15:12 EST