Krogoth needs your help
I need your help with the Paulson flip flop press conference the other day. I am overseas, and they cut off the portion where the press was asking questions at the end of the meeting. Did Paulson state "we are doing nothing illegal here" in part of the questioning? If anyone has the transcript or video of this, please let me know.
SPEAKER: SECRETARY OF THE TREASURY HENRY M. PAULSON JR.
[*] PAULSON: Good morning, everyone.
I will provide an update on the state of the financial system, our economy and our strategy for continued implementation of the financial rescue package.
The actions taken by the Treasury, the Federal Reserve and the FDIC in October have clearly helped stabilize our financial system.
Before we acted, we were at a tipping point. Credit markets were largely frozen, denying financial institutions, businesses and consumers access to vital funding and to credit. U.S. and European financial institutions were under extreme pressure, and investor confidence in our system was dangerously low.
We also acted quickly, and in coordination with colleagues around the world, to stabilize the global financial system.
Going into the annual IMF-World Bank meetings in early October, I made clear that we would use the financial rescue package granted by Congress to purchase equity directly from financial institutions, the fastest and most productive means of using our new authorities to stabilize our financial system.
We launched our capital purchase program the following week, when we announced that nine of the largest U.S. financial institutions, holding approximately 55 percent of U.S. banking assets, would sell $125 billion in preferred stock to the Treasury.
At the same time, the FDIC announced it would temporarily guarantee all newly issued senior unsecured debt of participating organizations for up to three years.
In addition, the FDIC provided an unlimited guarantee on non- interest-bearing transaction accounts that expires at the end of next year.
As I assess where we are today, I believe we have taken the necessary steps to prevent a broad systemic event. Both at home and around the world, we have already seen signs of improvement. Our system is stronger and more stable than just a few weeks ago.
PAULSON: Although this is a major accomplishment, we have many challenges ahead of us. Our financial system remains fragile in the face of an economic downturn here and abroad. And financial institutions balance sheets still hold significant illiquid assets.
Market turmoil will not abate until the biggest part of the housing correction is behind us. Our primary focus must be recovery and repair.
Overall, we are in a better position than we were. But we must address the continued challenges of a weak economy, especially the housing correction and lending contraction.
On housing, we’ve worked aggressively to avoid preventable foreclosures and keep mortgage financing available.
In October of 2007, we helped established the Hope Now alliance, a coalition of mortgage servicers, investors and counselors, to help struggling homeowners avoid preventable foreclosures.
Hope Now created a streamlined protocol to assist struggling borrowers who could afford their homes with a load modification.
Industry is now helping 200,000 homeowners a month avoid foreclosure.
In addition, HUD has created new programs to complement existing FHA options and to refinance a larger number of struggling borrowers into affordable mortgages.
Most significantly, we acted, earlier this year, to prevent the failure of Fannie Mae and Freddie Mac, the housing GSEs that now touch over 70 percent of mortgage originations.
PAULSON: I clearly stated at that time three critical objectives: providing stability to financial markets, supporting the availability of mortgage finance, and protecting taxpayers both by minimizing the near-term cost to the taxpayer and by setting policy- makers on a course to resolve the systemic risk created by the inherent conflict in the GSE structure.
Fortunately, we acted, citing concerns about both the quality and quantity of GSE capital. Unfortunately, out actions proved all too necessary. The GSEs were failing and if they did fail, it would have materially exacerbated the recent market turmoil and more profoundly impacted household wealth, from family budgets to home values to savings for college and retirement.
Early this week, Fannie Mae reported a record loss, including write downs of its deferred tax assets that make up a significant portion of its capital.
We monitor closely the performance of both Fannie Mae and Freddie Mac and both are performing within the range of our expectations. The magnitude of the losses at Fannie Mae were within the range of what we expected and further confirms the need for our strong actions.
Eight weeks ago, Treasury took responsibility for supporting the agency debt securities and the agency MBS through a preferred stock purchase agreement that guarantees a positive net worth at each enterprise, effectively a guarantee on GSE debt and agency MBS.
We also established a credit facility to provide the GSEs the strongest possible liquidity backstop.
As the enterprises go through this difficult housing correction, we will, as needed and promised, purchase preferred shares under the terms of that agreement.
The U.S. government honors its commitments and investors can bank on it.
When we took action in September, I said that we would be entering a timeout, a period where the new president and Congress must decide what role government in general, and the GSEs in particular, should play in the housing market.
PAULSON: In my view, government support needs to be either explicit or nonexistent, and structured to resolve the conflict between public and private purposes, and policy-makers must address the issue of systemic risk.
In the weeks ahead, I will share some thoughts outlining my views on long-term reform.
In the meantime, the GSEs now operate on stable footing. They have strong government support backing both future capital and liquidity needs. We have stabilized the GSEs and limited systemic risk, and our authorities provide us with additional flexibility to use as necessary to accomplish our objectives.
More recently, we have also taken extraordinary steps to support our financial markets and financial institutions.
As credit markets froze in mid-September, the administration asked Congress for broad tools and flexibility to rescue the financial system. We asked for $700 billion to purchase troubled assets from financial institutions. At the time, we believed that would be the most effective means of getting credit flowing again.
During the two weeks that Congress considered the legislation, market conditions worsened considerably. It was clear to me by the time the bill was signed, on October 3rd, that we needed to act quickly and forcefully, and that purchasing troubled assets, our initial focus, would take time to implement and would not be sufficient given the severity of the problem.
PAULSON: In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks.
Of course, before that time, the only instances in which Treasury had taken equity positions was in rescuing a failing institution. Both the preferred stock purchase agreements for Fannie and Freddie Mac, and the Federal Reserve secured lending facility for AIG, came with significant taxpayer protections and conditions.
As we planned a capital purchase plan to support the overall financial system by strengthening balance sheets of a broad array of healthy banks, the terms had to be designed to encourage broad participation, balanced to ensure appropriate taxpayer protection, and not impede the flow of private capital.
We announced a plan, on October 14, to purchase up to $250 billion of preferred stock in federally regulated banks and thrifts. By October 26, we had $115 billion out the door to eight large institutions. In Washington, that is a land speed record from announcing a program to getting funding out the door.
We now have approved dozens of additional applications, and investments are being made in approved institutions. Although we are moving very quickly, it’ll take time to complete legal contracts and execute agreements in the significant number of institutions who meet the eligibility requirements, and are approved, but we are on the path to getting this done.
Although this program’s primary purpose is stabilizing our financial systems, banks must also continue lending.
PAULSON: During times like these, with a slowing economy and some deterioration in credit conditions, even the healthiest banks tend to become more risk-averse and restrain lending. And regulators’ actions have reinforced this lending restraint in the past.
With the stronger capital banks — excuse me, with a stronger capital base, our banks will be more confident and better positioned to play their necessary role to support economic activity.
Today, banking regulators issued a statement emphasizing that the extraordinary government actions taken by the Fed, Treasury and FDIC to stabilize and strengthen the banking system are not merely one- sided. All banks, not just those participating in the capital purchase program, have benefited. So they all have responsibilities in the areas of lending, dividend and compensation policies and mortgage mitigation — excuse me, foreclosure mitigation.
I commend this action, and I am particularly focused on the importance of prudent bank lending to restore our economic growth.
Since announcing the capital purchase program, we have been examining a wide range of ideas that can further strengthen the financial system and get lending going again to support the broader economy.
First and foremost, because the system remains fragile, we must continue to stand ready to prevent systemic failures. That is the basis for Monday’s action to preferred — to purchase preferred shares in AIG. The stability of our financial system remains the highest priority.
We must also allow markets and institutions to absorb the extensive array of new policies put in place in a very short period of time. The injection of up to $250 billion of capital into individual banks, the FDIC’s temporary guarantee of bank debt and the Federal Reserve’s multiple liquidity facilities for banks, money funds and commercial paper issues have all significantly enhanced liquidity and helped improve market conditions.
We have evaluated options for most effectively deploying the remaining TARP funds, and have identified three critical priorities.
First, we must continue to reinforce the stability of the financial system, so that banks and other institutions critical to the provision of credit are able to support economic recovery and growth.
PAULSON: Although the financial system is stabilized, both banks and non-banks may well need more capital, given the troubled-asset holdings projections for continued high-rates of foreclosures and stagnant U.S. and world economic conditions.
Second, the important markets for securitizing credit outside of the banking system also needs support. Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar products. This market, which is vital for lending and growth, has, for all practical purposes, ground to a halt. Addressing these two priorities will have powerful impacts on the overall financial system, the strength of our financial institutions and the availability of consumer credit.
Third, we continue to explore ways to reduce the risk of foreclosure. Over these past weeks, we have continued to examine the relative benefits of purchasing illiquid mortgage-related assets. Our assessment at this time is that this is the — is not the most effective way to use TARP funds. But we will continue to examine whether targeted forms of asset purchase can play a useful role relative to other potential uses of TARP resources in helping to strengthen our financial system and support lending.
But other strategies I will outline will help to alleviate the pressure of illiquid assets. First, we are designing further strategies for building capital in financial institutions. Stronger capital positions will enable financial institutions to better manage illiquid assets on their books and better ensure that they remain healthy.
PAULSON: Any future program would maintain our principle of encouraging participation of healthy institutions while protecting taxpayers.
We are carefully evaluating programs which would further leverage the impact of a TARP investment by attracting private capital, potentially through matching investments.
In developing a potential matching program, we will also consider capital needs of non-bank financial institutions not eligible for the current capital program.
Broadening access in this way would bring both benefits and challenge. Non-bank financial institutions provide credit that is essential to U.S. businesses and consumers.
However, many are not directly regulated and are active in a wide range of businesses. And taxpayer protections in a program of this sort would be more difficult to achieve.
Also, before embarking on a second capital purchase program, the first one must be completed, and we have to assess its impact and use this information to evaluate the size and focus of an additional program, in light of existing economic and market conditions.
Second, we are examining strategies to support consumer access to credit outside the banking system. To date, the Fed, FDIC and Treasury programs have been targeted at our banking system. And the non-bank consumer finance sector continues to face difficult funding issues.
Specifically, the asset-backed securitization market has played a critical role, for many years, in lowering the cost and increasing the availability of consumer finance.
This market is currently in distress; costs of funding have skyrocketed; and new issue activity has come to a halt.
Today, the illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards. This is creating a heavy burden on the American people and reducing the number of jobs in our economy.
PAULSON: With the Federal Reserve, we are exploring the development of a potential liquidity facility for highly rated AAA asset-backed securities.
We are looking at ways to possibly use the TARP to encourage private investors to come back to this troubled market by providing them access to federal financing while protecting the taxpayers’ investment.
By doing so, we can lower costs and increase credit availability for consumers.
Addressing the needs of the securitization sector will help get lending going again, helping consumers, and supporting the U.S. economy.
While this securitization effort is targeted at consumer financing, the program we are evaluating may also be used to support new commercial and residential mortgage-backed securities lending.
Third, we are examining strategies to mitigate mortgage foreclosures. In crafting the financial rescue package, we and the Congress agreed that Treasury would use its leverage as a major purchaser of troubled mortgages to work with servicers and achieve more aggressive mortgage modification standards.
Now that we are not planning to purchase illiquid mortgage assets, we must find another way to meet that commitment.
FDIC Chairman Bair has given us a model in the mortgage modification protocol she developed with IndyMac Bank. Through the end of October, the FDIC has completed loan modifications for 3,500 borrowers, with several thousand more modifications currently being processed.
These modifications have helped reduce payments for participating homeowners by an average of $380 month, or about 23 percent.
PAULSON: We have worked with the FHFA, the GSEs, HUD and Hope Now alliance, who, yesterday, announced a streamlined industry-wide modification program that, for the first time, adopts an explicit affordability target similar to the model pioneered at IndyMac.
With this commitment, the GSEs and large portfolio investors are setting a new industry standard for foreclosure mitigation. Potentially hundreds of thousands more struggling borrowers will be enabled to stay in their homes at an affordable monthly mortgage payment.
Beyond these efforts, there has been significant work to design and evaluate a number of proposals to induce further modifications. Each of these would, however, require substantial government subsidies. The FDIC has, for example, developed a proposal that Treasury and others in the Administration continue to discuss.
I believe it is an important idea. As we evaluate the merits of any new proposal, we’ll also have to identify and justify the means to finance it. We must be careful to distinguish this type of assistance, which essentially involves direct spending, from the type of investments that are intended to promote financial stability, protect the taxpayer, and be recovered under the TARP legislation.
Maximizing loan modifications, nonetheless, is a key part of working through the housing correction and maintaining the quality of communities across the nation, and we will continue working hard to make progress here.
PAULSON: We will continue to pursue the three strategies I have just outlined: how best to strengthen the capital base of our financial system; how best to support the asset-based — excuse me — the asset-backed securitization market that is so critical to consumer finance; and how to increase foreclosure mitigation efforts.
All of these strategies are important, but ensuring the financial system has sufficient capital is essential to getting credit flowing to consumers and businesses, and that is where the bulk of the remaining TARP funds should be deployed — in a program to support the system and as a contingency reserve for addressing any unforeseen systemic events.
We are focused on developing and preparing programs which can be implemented for each of these strategies. We will continue to brief President-elect Obama’s transition team on all of these issues.
Of course, managing through this market turmoil while mitigating the impact of the credit crisis is — is global — is a global as well as a national issue. We in the U.S. are well aware and humbled by our own failings and recognize our special responsibility to the global economy.
The U.S. housing correction exposed gaping shortcomings in the outdated U.S. regulatory system, shortcomings in other regulatory regimes, and excesses in U.S. and European financial institutions.
These institutions found themselves with large holdings of structured products, including complex and opaque mortgage-backed securities. Some European institutions were characterized by high leverage, exposure to their own housing markets, exposure to the Central European institutions, weak business models or overly aggressive expansion, while others faced weaknesses because of inadequate depositor protection systems.
PAULSON: It should not be surprising, that after 13 months of stress of the global markets, banks from the U.S. to the U.K., from Germany to Iceland, from Russia to France, have difficulties that expose some of these weaknesses for the first time. For some of these banks, it’s proved to be a hurdle too high, and government action was necessary to support financial stability. In that regard, the Chief Seven Finance Minister’s meeting last month presented a major turning point in stabilizing the global financial system, as the ministers came together to support a number of powerful strategies that were soon turned into effective actions in the United States and Europe.
It is also clear that our first — first priority must be recovery and repair. And of course, we must take strong actions to fix our system so that the world does not have to suffer something like this ever again. The Leader’s Summit President Bush will be hosting this weekend marks a very — important step in what will be an on-going process of recovery and reform.
And to adequately reform our system, we must make sure that we fully understand the nature of the problem, which will not be possible until we are confident it is behind us. Of course, it is already clear that we must address a number of significant issues, such as improving risk management practices, compensation practices, oversight of mortgage origination and the securitization process, credit rating agencies, over-the-counter derivative market infrastructure and regulatory policies, practices and regimes in our respective countries.
PAULSON: And we recognize that our financial institutions and our markets are global, but our regulatory regimes are national, so we will examine how best to improve cooperation and information sharing to foster global financial system stability.
But let us not forget one fundamental issue which lies at the heart of our problems. Over a period of years, persistent and growing global imbalances fueled a dramatic increase in capital flows, low interest rates, excessive risk taking and a global search for return.
These excesses cannot be attributed to any single nation. There is no doubt that U.S. — there’s no doubt that low U.S. savings are a significant factor. But the lack of consumption and accumulation of reserves in Asia and oil-exporting countries, and structural issues in Europe have also fed the imbalances.
If we only address particular regulatory issues — as critical as they are — without addressing the global imbalances that fueled the recent excesses, we will have missed an opportunity to dramatically improve the foundation for global markets and economic vitality going forward. The pressure from global imbalances will simply build up again until it finds another outlet.
The nations attending this weekend’s summit represent the 20 largest economies in the world — over 77 percent of global GDP.
PAULSON: President Bush is convening this group of countries to discuss and address problems such as global imbalances, making regulatory regimes more effective, fostering cooperation among regulators, and reforming international institutions to better address today’s global economy.
We can’t simply task the IMF, the FSF or other international financial institutions to solve the problem unless member nations all see that they have a shared interest in a solution.
There are no easy answers, because until we reach a consensus on a broad-based reform agenda, we will not reach a solution. This weekend provides an opportunity for nations to take an important step, but only one step on the necessary path to reform.
The road ahead for the U.S. economy and the global economy is full of challenges. And it will take strong leadership to address them.
I am confident the United States under this and the next administration will rise to these challenges.
I will do everything I can to put us on the right path, both by working diligently through the end of my term and by working closely to ensure the smoothest transition possible.
And I’ll now take some questions.
QUESTION: (inaudible) if I may, two quick questions on TARP.
QUESTION: Federal (inaudible) needed for state and local governments and their transportation agencies either through TARP or something the Fed can do?
PAULSON: The question is the federal response to state and local agencies.
PAULSON: Governments. I think you would have to ask the Fed for the answer there, but I don’t believe that is something that — that they can do.
QUESTION: Not the TARP?
PAULSON: And it’s not the focus of TARP. The focus of TARP, as you know, is to — is to stabilize financial institutions and strengthen the financial system, promote lending and so on.
QUESTION: Thank you.
You mentioned that under TARP you still have a duty to encourage and try to aid borrowers facing foreclosure.
QUESTION: This model the FDIC has used — there’s talk of, maybe, a co-pay. This is a plan that’s been aired out, a co-pay. The Treasury would — TARP would pay some of that mortgage payment.
Can you say anything about what could work, what the Treasury could get behind?
PAULSON: Yes, what I — what I said here, which is to just lay it out, really, quite clearly, when we were putting forward the idea of TARP, to Congress and the American people, the focus was buying illiquid assets. And it was an investment program.
But owning these assets was going to give us leverage to more forcefully drive more mortgage modifications. As I’ve said now, this is not going to be the focus. We’ve — you know, we’ve kept open the possibility of targeted responses, but that’s not the focus.
So the — and now, when we look at the program you’re mentioning, the FDIC program, which is something we spent a lot of time on, and we’re continuing to discuss and work through, and it’s — it’s an important program.
But that is a subsidy or spending program. And so we have a — TARP, which was investment, not spending. And so we’re dealing with that and we’re continuing to work through that issue.
QUESTION: Secretary Paulson, absent government action, at least one U.S. auto maker may fail before the end of the year. What actions do you see your Treasury taking to forestall such an event?
PAULSON: Well, first of all, rather than focusing on any particular company, let me say that, first of all, I believe and I know that this administration believes the auto industry is a very important, critical industry in this — in this country. We’re very supportive of management — excuse me. We’re very supportive of — of manufacturing.
And so, again, it’s a critical industry. It’s critical to the country. Manufacturing is critical to the country.
The — our position all the way along is that any solution has got to be a — a solution leading to viability. So any solution has got to be leading to — to long-term viability.
And I think what you’ve heard the administration say so far is that — that the 136, which was the congressional bill, where $25 billion was set aside for the auto industry, one option would be to amend that — amend that bill to make it available.
QUESTION: Securitization. Two-part question. You talk about asset-backed securitization. It’s a technical issue, but it kind of works in the background and makes consumer credit available.
What specifically are you guys thinking to get in there and target that market that’s frozen? (inaudible) supporting, backstopping the securitizers or guaranteeing the product because nobody wants to buy it?
PAULSON: Well, the — what — again, we’re in the process of working with the Fed to design it. And what we were — the idea I presented very generally was a program of liquidity which would make financing available to the buyers of this so — on a non-recourse basis — so to make financing available so that it encouraged their participation, you know, investors’ participation in the market.
QUESTION: Mr. Secretary, almost all of the first $350 billion has been allocated through TARP. When are you going to go to Congress to discuss accessing the remaining $350 billion? And is the total, is $700 billion, going to be enough?
PAULSON: Well, first of all, I have no timeline for going to Congress to ask for the drawdown of the second $350 billion. We have — we’re working to continue to design, develop programs that could be — it could be used.
And when it’s the right time to use them, we will roll — we will roll them out. And if it then makes sense to go to Congress, we will go to Congress and ask for the drawdown of the second $350 billion.
And, as you know, that’s the — that’s really the process that Congress laid out for us.
Now, in terms of the — of the $700 billion size, I still am comfortable that with $700 billion we have what we — what we need.
QUESTION: Mr. Secretary, on the illiquid asset program (inaudible), what was your main reason for scrapping that? There have been thoughts (ph) that you had a problem pricing the assets.
PAULSON: No, it was the — let’s step back, give you a longer response to this. From the time we first focused on this issue, it was about capital — and capital in our financial institutions.
PAULSON: Our institutions have illiquid assets and there’s no doubt that buying illiqid assets serves two purposes. It freezes up capital and there’s a price discovery process which encourages — makes it easier for — for additional capital to come in. That’s still a very valid concept. But what — what changed — the facts changed, and the situation worsened. And given the situation we confronted, we said, the right way to use the taxpayers’ money — it would be through an investment program in — in — directly into capital — taking capital, because there’s — it’s much more powerful and there’s more leverage that goes with a — with the taxpayer dollars in such a program.
QUESTION: (inaudible) rechanged (ph) the (inaudible) some people say (inaudible). I’m wondering if you could walk us through your decision on why you think (inaudible)?
PAULSON: Well, first of all, this was — this was done through a — an administrative process. It was quite legal, and let me explain to you just in — in layman terms what we’re dealing with. And again, I’m, you know, I’m not going to go through all of the technicalities, but the way the system worked was that if you’re an institution and you have a loss that isn’t realized — and when — then after a merger or acquisition, that loss couldn’t be used to off-set taxes if it was realized later. And in the situation we are dealing with in the market place, where values were very difficult to determine, this became a very impractical and unworkable, and it was an impediment to — to activity that was very worthwhile activity, so we made the change.
QUESTION: What non-bank financial institutions do you have in mind? How do you define them in terms of helping them?
And if you’re going to open it up to non-bank financial institutions, why not open it up to other critical companies which you have ruled out? Where do you — why you draw the line there?
PAULSON: Again, let’s go back to the TARP, OK. The TARP was focused on — and the reason for getting these authorities was focused on the stability of our financial system, preserving the stability and stabilizing our financial system.
And we were focused on strengthening that financial system, getting lending going, OK. So it wasn’t — we didn’t say “banking system.” We said “financial system.” And that’s what the TARP was focused on.
Now, what we’re — what we’re doing right now is we are going to — making it available to banks and thrifts that are — you know, are savings and loans, that are thrifts, that are — have a federal regulator. And that’s where the focus is right now.
And as I said, if we go beyond that, there are certain advantages to going beyond it and there are different — there are implementation difficulties to go to institutions where there is no federal regulator.
QUESTION: From a macro perspective, do you think that the U.S. auto makers have systemic importance to the economy? Are you concerned — I mean, I see numbers 2 million or 3 million jobs that could be lost if the industry were to fail. Is that a concern?
PAULSON: I would say that — I think I was pretty clear earlier, and I’ll just repeat it. You know, I know the automakers are important to the U.S. We care about our auto industry in the U.S. They’re a key part of our manufacturing industry. Manufacturing is critical. So, when you look at autos, and you look at that whole food chain, and what it means to manufacturing, it’s critical.
And, I’ve said very clearly, and I think the Administration said that, you know, we need a solution but the solution has got to be one that leads to viability. And, the — and I’ve — you know, and — again, the TARP is — the intent of the TARP was to deal with the financial industry.
QUESTION: President-elect has said that his first order of business in January will be to pass a new stimulus package unless it gets done before then. Will you guys support a lame duck stimulus package? And would you support a lame duck automobile industry assistance package?
PAULSON: Well, I would say — let’s start with stimulus, and say that my focus is on the financial sector getting credit going, getting lending going. I can’t imagine anything else will have a bigger impact and a bigger positive impact, and a bigger stimulative impact than getting credit flowing again; getting lending flowing again.
Some of the things we’re talking about, and that’s where I’m — my focus is. And, the — I made my comments on the importance of the auto industry. I’ve said that one idea that this administration has had is, Congress has already passed legislation, appropriated funds. You know, so we have 136.
PAULSON: So we had a viewpoint that that legislation could be modified to make that money available.
QUESTION: Modifying legislation, sir — back on the FDIC proposal, you said that the challenge there is that the TARP is an investment plan. Ms. Bair’s proposal would be a spending plan because it would require a subsidy.
How do you fix that?
Would you need more legislation?
How do you get around that problem?
PAULSON: I wasn’t speculating on that. I’m saying this is something — you know, I told you what we are doing, and then I outlined three priorities.
And we’re going to continue — I’ve been working to prevent avoidable foreclosures for a long time, and working hard. And we’re going to continue to work hard and discuss — discussing various programs.
I just went through, with you, the trade-offs. And there are trade-offs. And so we’re discussing the trade-offs publicly. We will keep discussing them, and that remains one of our priorities.
I did say, though, the top priority has to be stability, making sure we have, you know, the resources in reserve to deal with any systemic events and make sure that we’ve got capital to put in institutions. That’s got to be the number one priority.
But an important priority is foreclosure prevention. And that was right there when we — up front, when we talked about the TARP. And I — I believe — I’ve spent time looking at — I just can’t tell you how many proposals I’ve looked at to modify mortgages and keep people in their homes.
PAULSON: This is a very complicated area. There are no easy answers. The — I think the FDIC program you’re talking to is a — is — is — is a good program because it’s — it’s not perfect, and there continues to be work done on it.
But there’s going to be no program that’s perfect that’s going to lead to — to fast modifications and goes farther than — you know, I just don’t want you to lose sight of what was announced yesterday, because what was announced yesterday, which is underwriting so that families won’t have to spend more than 38 percent of their income to get a modification is very important.
And the getting the GSEs to take that step, with all of the servicers, and then you look at what’s happened with a number of these big banks, this is extraordinary progress.
But to go beyond that it may take spending. And so I’ve just tried to outline — to be — quite transparency put forward the tradeoffs we’re looking at right now.
QUESTION: On that — on that question, yesterday all the action taken by the GSEs and others, did you force them to do that? Is that enough? Have you abandoned homeowners because you’re no longer going to use TARP to help the homeowners?
And on a broader question, you’re using TARP now completely differently than you told Congress you were going to use it. Did you mislead Congress? What’s happened?
PAULSON: Well, let me get to the — what we — what we said to Congress was we needed a financial rescue package because the credit markets were stopped up.
PAULSON: And we were focused on the problem. And the — and when we went to Congress, the illiquid assets looked like the way to go. As the situation worsened, the facts changed. The thing I’m grateful for is we were prescient enough and Congress was, that we got a wide array of authorities and tools under this legislation.
And I will never apologize for — for changing an approach or a strategy when the facts change. I think the apologies should come the other way if — if someone doesn’t change when the facts change.
So we — I think we moved quickly; we moved powerfully to address the situation, and as it — as it exists now.
But therein lies your — you know, your second question, because this was never — we never had the discussion in the context of not buying the illiquid assets. And so — but, you know, foreclosure prevention is something I’m going to keep working on right up until I leave.
And in terms of what was done yesterday, with the GSEs and with Hope Now and others, we’ve been — ordering is too strong, but we’ve been encouraging. And they’ve been looking, also for ways to be helpful.
But I think government can play a role in bringing people together. And, of course, given the conservator status ship (ph) of GSEs, it’s easier to do that now.
QUESTION: (inaudible) change the focus from buying assets to…
PAULSON: The — let me say, without getting into any particular details there, that — that on Monday I had a meeting with the head of the Economic Transition Team, and a — another individual who is going to have responsibility for — for really staying very close to what we’re doing with the TARP.
PAULSON: And I believe very much, anybody that knows me and — open lines of communication — I’m totally dedicated to a — to a seamless transition. But in terms of, you know, what communications, I really think I should let them speak to that.
QUESTION: What advice to do you have…
QUESTION: The rescue package bill says that bonds can be used to purchase troubled financial instruments that the Treasury secretary deems appropriate. Do you see any limit to you given in the bill?
PAULSON: Do I see limits?
Well, there’s — there’s — I want to first of all say, we got broad authority, and we asked for broad authority, and it was necessary for broad authority and if — the way the situation has developed, if it’s done anything, it’s proved the importance of broad authority. There, obviously, are limits, and we welcome oversight, we have an oversight board. And I think what I’m trying to demonstrate in my comments here today is that I also think that it’s very important for me to live within the intent of the bill, rather than try to find loop-holes or what have.
So there’s — we have broad authority and I’m doing what I can to live within the intent of the bill.
OK, one more.
QUESTION: Can you talk a little bit about the liquidity facility at the Fed, the timing for such (inaudible) and how big you think you might need it to be?
PAULSON: Well, the question is the securitization asset-backed paper liquidity facility and the timing.
This will take — it’s — these things are complicated and they’re not easy to get up and going and then have work smoothly. And so this will take — this will take, in my judgment, weeks to design. And then it will take longer to get up and going.
And in terms of the size, decisions haven’t been made on that yet. But — but this is something that could be — that could be significant in size and would really need to be significant to make a difference. Thank you very much.