By DeViney, Jonathan D.
Story courtesy of the Associated Press:
WASHINGTON - The Bush administration will "do what it takes" to stabilize chaotic markets and minimize the economic damage, Treasury Secretary Henry Paulson said Sunday after a tumultuous week capped by the government rescue of a teetering investment bank.
All eyes now are on Wall Street as leading financial advisers prepared for a Monday meeting with President George W. Bush and the Federal Reserve weighs another deep interest rate cut Tuesday to stem even more deterioration.
Paulson, in a series of news show appearances, defended the Federal Reserve’s extraordinary step Friday to provide emergency financing to one of Wall Street’s most venerable firms, Bear Stearns Cos. The central bank’s intervention was "the right decision," he said.
The treasury chief sidestepped questions about what would have happened if the Fed had not ridden to the rescue, whether other firms are on shaky ground and the possibility of additional bailouts similar to Bear Stearns’.
At the same time, however, Paulson sought to send a calming message that the administration is on top of the turbulent situation. "The government is prepared to do what it takes to maintain the stability of our financial system," he said. "That’s our priority."
Bush planned to meet on Monday with his advisory panel on financial markets, whose members include Paulson and Fed Chairman Ben Bernanke. 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 U.S. into the first recession since 2001.
Consultations about the Bear Stearns situation continued through the weekend and involved the Treasury Department, the Fed, financial institutions and others. "I’ve been very involved, you know, been on the phone for a couple days right now helping to work through this," Paulson said. He offered no details.
Economists increasingly believe the spreading fallout from a severe credit crisis has pushed the U.S. into recession. 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."
To help shore things up, the Fed is poised to make a big cut to its key interest rate, now at 3 percent. Some economists are predicting a reduction of one-half a percentage point, while others are calling for a more hefty cut of three-quarters to a full percentage point.
The Fed used a procedure from the 1930’s Depression-era to come to Bear Stearns’ aid along with JPMorgan Chase & Co. 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.
"I really support the Fed’s work here," Paulson said during one of his three broadcast appearances. "To me, this was not difficult because the priority in a time like this has got to be the stability of our financial system and minimizing the likelihood that this disruption spills over into the real economy.
Some critics contend the Fed’s move was akin to a government bailout — something the administration has repeatedly said it is against.
"We’re very aware of moral hazard," Paulson said. "But our primary concern right now — my primary concern — is the stability of our financial system, the orderliness of the markets. And that’s where our focus is," he said.
The financial system, he said, is "more fragile than we would like right now."
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."
The government will tackle any other problems that may arise, he said.
"From the beginning I have said, as we work through this period, if this was like other times in the past, there are going to be bumps in the road. There are going to be unpleasant surprises. You are going to find that an institution or so has problems. And when they do have problems, you work to deal with it," Paulson said.
On other matters, Paulson was cool to the need for additional economic stimulus, which congressional Democrats are promoting. A recently enacted aid plan includes tax rebates for people and tax breaks for businesses. Paulson said it should help bolster the economy and produce 500,000 to 600,000 jobs this year.
To Democrats, though, Bush is not doing enough to help.
"We’re in the most serious economic problem we’ve been in in a very long time, much worse than 2001. The president’s hands-off attitude is reminiscent of Herbert Hoover in 1929, in 1930," said Sen. Charles Schumer, a New York Democrat. "There are lots of things that can be done, particularly on housing. Housing has been the bull’s eye of this crisis."
Hoover, a Republican, was president at the time of the Oct. 29, 1929, stock market crash that marked the beginning of the Great Depression in the United States. The following decade was marked by high unemployment and deflation, but brought to power Democratic President Franklin D. Roosevelt in 1933 who introduced the New Deal economic reconstruction program.
House Speaker Nancy Pelosi said, "Much of what the administration has done has been too late."
On the plunging value of the U.S. dollar, 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 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 ABC television’s "This Week," "Fox News Sunday" and "Late Edition" on CNN. Schumer was on Fox and Pelosi on ABC.
Columnist Jeremy Bennett returns, short but ever so sweet.
“With the release of GTA 4, violent video games step back into the lime light. But this time, a King is on our side.”
Senior Editor Michael Rausch further explains why he handed out the first 10 (out of 10) in GamePartisan’s six-plus year history.
David Rogers has formatting issues. We love him anyway.
THIS IS A FEATURE FROM GP BEFORE ITS RELAUNCH, REVIVED TO GIVE YOU ALL AN IDEA OF WHERE WE WANT TO TAKE OUR ‘PROGRESSIVE EDITORIAL POLICY’: "Before telling you how all of this ranting and raving pertains to our beloved video game industry, I’m going to touch very briefly on something I mentioned earlier before I move on or explode. I’m not sure which will happen first." 
The entire contents of this website (unless otherwise noted), GamePartisan, GamePartisan.com,
the GamePartisan Federal Eagle Logo and all related materials are Trademark and/or ©2002-2008 DeViney Enterprises. All rights reserved.
Reproduction in whole or in part in any form without consent from DeViney Enterprises is prohibited.