Paulson is open to more stimulus aid
U.S. Treasury Secretary Henry M. Paulson said Sunday that he wouldn’t rule out a second stimulus package but first wanted to gauge the effects of rebate checks already sent out.
He said on NBC’s “Meet the Press” program that he was taking a wait-and-see approach on a possible second round of economic aid, an idea that congressional Democrats are pushing to a vote.
House Speaker Nancy Pelosi (D-Calif.) plans to have the House vote on additional aid when lawmakers return in September from summer vacation. She believes that more is needed to counter higher gasoline prices and other costs.
But Paulson said the $168-billion program of tax rebate checks that President Bush signed into law in February was the right size to help the struggling economy this year.
He wants to see how it ends up helping the economy in the July-through-September period and worries about driving the budget deficit higher with a second aid plan.
The economy is struggling to emerge from crises in the housing, financial and credit markets and to cope with rising prices at the pump and grocery store. Paulson asserted that the country’s economic fundamentals were sound.
Paulson also said there were no plans to use his new authority to inject capital into mortgage companies Fannie Mae and Freddie Mac, which both posted worse-than-expected losses last week.
“We have no plans to insert money into either of those two institutions,” Paulson said in the interview broadcast from Beijing, where he was watching the Olympics.
“Given that Fannie Mae and Freddie Mac are solely involved in housing, that’s their sole business, and given the magnitude of the housing correction we’ve had, it’s not a surprise to me to see those losses,” he said.
Paulson and Congress last month brokered a plan to bolster Fannie and Freddie that includes giving the Treasury the right to buy their shares. The losses at the two government-sponsored enterprises, which account for almost half the $12-trillion mortgage market, prompted some analysts to predict that Paulson would have to act.
Paulson, a former Goldman Sachs chairman, also acknowledged that Wall Street played a role in the current downturn, particularly in its borrowing and lending practices. He agreed with Bush’s comment that Wall Street “got drunk and now it’s got a hangover,” as a way of understanding the current economic climate.
“Absolutely, there’s a lot of truth to what the president said. And in terms of Wall Street, there was too much leverage in the system and . . . the leverage came into the system in the form of highly complex, structured products,” Paulson said.
Paulson has offered a 218-page blueprint for overhauling regulation of the nation’s financial system. The plan would create three super-agencies with power over the financial industry. It is the broadest proposal since the current system was formed in response to the biggest financial crisis of the last century, the 1929 stock market crash and Great Depression.
But time is running out on the administration’s term -- Bush leaves office in January -- and Paulson said he would not continue serving as treasury secretary under the next president in hopes of seeing the new rules through.
He said the current focus was on the housing rescue bill that Bush recently signed. It is designed to help 400,000 families avoid losing their homes to foreclosure and to provide a financial lifeline to Fannie Mae and Freddie Mac.
The Democrats’ new aid plan could include additional tax rebates, heating and air-conditioning subsidies for the poor, public works projects, higher food stamp payments and aid to the states.