RTT News
November 18, 2008
Treasury Secretary Henry Paulson, who is in charge of implementing the $700-billion financial relief package put into effect last month, appeared before a congressional panel on Tuesday, defending his decision to switch tactics in distributing the relief funds.
Saying that there “is no playbook” for fighting the financial turmoil that the country is facing, he argued that he had to change his focus as a result of the changing nature of the crisis.
While he originally proposed the financial relief package to buy troubled mortgage-backed assets from banks, Paulson said market deterioration from the time the plan was conceived to the time it could be implemented caused him to take what he saw as more direct action.
- A d v e r t i s e m e n t
“There is no playbook for responding to turmoil we have never faced,” Paulson told the members of the House Financial Services Committee. “We adjusted our strategy to reflect the facts of a severe market crisis always keeping focused on Congress’s goal and our goal – to stabilize the financial system that is integral to the everyday lives of all Americans.”
Originally, the financial relief package was passed to purchase mortgage-backed assets from financial institutions that had become nearly impossible to sell in the wake of the collapse of the housing market. The idea was to remove these toxic investments from the books of financial institutions in order to get the companies back to normal lending practices.
However, Paulson has announced recently that he will switch the focus of the program on improving the capital position of banks, using direct equity investments.
While the law that created the $700-billion Troubled Asset Relief Program, or TARP, allowed for the purchase of bank equity, it was originally seen as a secondary front.
Paulson told the House committee that improving the capital in banks will ultimately achieve the same goal as buying troubled assets.
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