Paulson Sticks To Bailout Strategy
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Treasury Secretary Henry Paulson defended himself in front of a frustrated House committee today. Paulson was testifying about the administration's use of the $700 billion financial rescue program. As NPR's John Ydstie reports, members of Congress were especially upset that none of the money has been used to directly help homeowners facing foreclosure.
JOHN YDSTIE: Up to now, the Treasury has committed $250 billion of the rescue package to injecting capital into the banking system and $40 billion to the rescue of insurance giant AIG. Paulson again defended his decision to use the money that way instead of buying up troubled mortgage-backed securities, his original argument for getting the money from Congress.
Secretary HENRY PAULSON (Treasury Department): We went to the heart of the problem. And the heart of the problem was the financial system and capital. And we used a strategy that would work more effectively. And it has worked, number one, in stabilizing the system.
YDSTIE: Committee Chairman Barney Frank acknowledged the Treasury's use of the so-called TARP program had been successful in some respects. But he pressed Paulson, quoting language from the bill, on why he hadn't found a way to spend some of the money from the rescue package to help homeowners avoid foreclosure.
Representative BARNEY FRANK (Democrat, Massachusetts; Chairman, House Financial Services Committee): There are pages - it's four pages - of specific authorization to buy up mortgages and write them down. In Section 110: "To the extent that the Federal property manager holds, owns, or controls mortgages," they shall "implement a plan that seeks to maximize the assistance for homeowners." Again, the intent couldn't be clearer from what I've read.
Secretary PAULSON: Let me then, Mr. Chairman, say what you've heard me say a number of times before...
YDSTIE: Paulson went on to list several other government efforts aimed at reducing foreclosures, including a recent announcement by Fannie Mae and Freddie Mac to increase loan modifications for struggling homeowners. He continued in that vein in response to concerns from New York Democrat Nydia Velazquez.
Secretary PAULSON: So there have been real steps that have been taken that make a difference. More needs to be done. I hear your frustration. More needs to be done, and we're going to keep working on it.
Representative NYDIA VELAZQUEZ (Democrat, New York): Yes, you hear my frustration. And I hope that you understand the pain and the suffering of so many homeowners in this country that are losing their homes. So, it's just not enough to say to the banks, here is the money, and by the way, I trust you, because they are not lending.
YDSTIE: Velazquez and other committee members expressed interest in an anti-foreclosure program developed by the FDIC to deal with troubled mortgages at IndyMac which the FDIC took over during the summer. FDIC Chairman Sheila Bair was also at the hearing and warned that four to five million homeowners will go into foreclosure over the next two years if nothing more is done. She urged the Treasury to use money from the bailout program to reduce that number. Chairman Frank made clear that he agreed.
Representative FRANK: It is nobody's view that we have been as successful as we need to be for the sake(ph) of the economy in reducing foreclosures. We have a very large pot that was intended to be part of that effort that's going untapped.
YDSTIE: After the hearing, Frank told reporters he believed it's likely that TARP money will eventually be used to aid homeowners facing foreclosure once the new administration comes into power. John Ydstie, NPR News, Washington.