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Sec. Paulson Defends Bailout

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Sec. Paulson Defends Bailout

Economy

Sec. Paulson Defends Bailout

Sec. Paulson Defends Bailout

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Treasury Secretary Henry Pauson is defending the $700 billion bailout on Capital Hill Tuesday. Meanwhile, the question of whether automakers will get more government money, hangs heavy in the air.

MADELEINE BRAND, host:

From the Studios of NPR West, this is Day to Day. I'm Madeleine Brand.

ALEX COHEN, host:

And I'm Alex Cohen. 60-percent-off sales for brand new stuff - just ahead, one bright side of the financial crisis, great holiday deals.

BRAND: First, though, not a lot of bright sides today on the Hill. Democratic members of Congress today expressed frustration over how the Bush administration is managing the $700 billion bailout program. They want some of the money used to reduce home foreclosures.

Treasury Secretary Henry Paulson stood firm. He defended the administration's decision to use the money instead to invest in the nation's banks, hoping that will encourage them to resume lending.

NPR's Jeff Brady joins us from Washington, where he's been monitoring that hearing before the House Financial Services Committee. And, Jeff, lay out the argument for us the Democrats are making.

JEFF BRADY: Well, the House Financial Services Committee Chair Barney Frank, he had two issues, essentially, and both are about the original intent of the legislation and what's actually been done. First, he said that banks aren't using all the money they've received from the federal government for lending, and, of course, that was one of the purposes. He's worried that they're sitting on the money to shore up their own books or, in some cases, using some of that money to acquire weaker banks.

And second, he said there's been no effort to reduce foreclosures, and Frank said that the language in the legislation creating the bailout bill is clear, and he quoted some of that language directly before summing up his point.

(Soundbite of House Financial Services Committee Hearing)

Representative BARNEY FRANK (Democrat, Massachusetts): So, no one can argue that it was not contemplated. Indeed, it was a very important part of, frankly, the effort to get votes for this bill, that we would do mortgage-foreclosure reduction.

BRAND: And so, Jeff, how did Treasury Secretary Paulson respond to that?

BRADY: Well, Secretary Paulson said the bailout legislation gave him a lot of flexibility. Originally, he was going to go out and buy bad loans from the banks that they had on their books and then hope that that would encourage them to start lending again.

But while the bill was working through Congress, the situation got a lot worse, and Paulson echoed statements he's made in the last week or so, that he doesn't apologize for essentially doing a 180 on how to use the bailout money.

(Soundbite of House Financial Services Committee Hearing)

Secretary HENRY PAULSON (Department of the Treasury): And when the facts changed and the circumstances changed, we changed the strategy. We didn't implement a flawed strategy. We implemented a strategy that worked.

BRAND: And speaking of changing strategy, a lot of people want some of that money to be used for the auto industry. And what did Paulson say to that?

BRADY: Well, Congressman Paul Kanjorski, he's a Democrat from Pennsylvania, brought the issue up. And he expressed the concerns that we've all heard about by now, you know, the lost jobs, the effects on the larger economy, but Paulson said the same thing he's been saying in recent days. Of course, it would be a horrible thing if the carmakers failed, but bailing out the auto industry, he said, doesn't fit in with the original purpose of the bailout legislation. Paulson said that it was aimed at protecting the financial system and getting banks to resume lending.

And he suggested Congress should do something else to help out the auto industry, and lawmakers appear to be working on that, but it probably won't happen until there's a new administration and maybe - a new Congress in January.

BRAND: Mm hmm. Mm hmm. Well, Sheila Bair - getting back to the foreclosures - chair of the FDIC, she's also there today testifying, and she has sort of a different point of view, doesn't she, than Henry Paulson?

BRADY: Absolutely. She's still a bit of an outlier in the Bush administration, and she said the country is falling behind the curve in addressing the financial crisis. She didn't mince words today, and she said that we're going to continue to fall behind the curve unless there's an effective national program to reduce foreclosures, and her agency released a plan last week. Democrats encouraged Paulson to consider that plan, but the Bush administration has been focused on using that money to recapitalize banks.

BRAND: NPR reporter Jeff Brady joining us from Washington, where he's covering the hearings today before the House Financial Services Committee. Thanks, Jeff.

BRADY: Thank you.

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