By Guardian UK
November, 12 2008
US treasury secretary Henry Paulson said today that the US
government had reversed course on its $700bn economic rescue
package and will not relieve troubled banks and financial
institutions of assets.
Paulson said the government will spend $250bn to purchase
shares in banks in order to supply them with capital to make
new loans, thereby righting US credit markets and getting the
economy moving again.
At a press conference in Washington, Paulson said the Bush
administration remains committed to reducing home foreclosure
rates, and said the consumer credit market, including the roughly
40% provided by securities backed by pooled auto loans and
credit card debt also needs government support.
The announcement that the treasury department will not buy "illiquid" assets
from banks marks a major departure from the way the package
was initially sold to the US Congress and the public.
But Paulson emphasised that the current programme of investing
directly in financial institutions was meeting with success.
"I believe we have taken the necessary steps to prevent
a broad systemic event," he said. "Our system is
stronger and more stable than it was just a few weeks ago." Paulson
said the investments in major US banks have "significantly
enhanced liquidity and helped improve market conditions".
The bailout money also should be used to support efforts to
keep mortgage borrowers from losing their homes because of
soaring default levels, he said.
A proposal to have part of the bail-out funds used to guarantee
mortgages that have been reworked to reduce monthly payments
for borrowers is an approach the administration continues to
discuss, but Paulson did not announce that it would be adopted.
Federal Deposit Insurance Corporation chairwoman Sheila Bair
has pushed for that approach.
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