In prepared testimony to the House Financial Services Committee oversight hearing on the Troubled Asset Relief Program, Paulson said that the program has helped “prevent the collapse†of the U.S. financial system, but there’s still work to be done.
“There is no playbook for responding to turmoil we have never faced,†said Paulson. “We adjusted our strategy to reflect the facts of a severe market crisis always keeping focused on Congress’s goal and our goal — to stabilize the financial system that is integral to the everyday lives of all Americans.â€
Members of Congress took Paulson to task on recent changes he made to TARP, expressed their concern about his lack of consistency, and questioned his reasons for not supporting a bailout to automakers.
Also at the hearing were Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair.
Last week, the Bush administration abandoned the original strategy behind the rescue. Instead of stabilizing the financial system by buying bad assets from financial institutions, the centerpiece of the original plan, the government is now focusing TARP on putting billions into banks to boost their capital and bolster lending to customers.
“We recognized that a troubled asset purchase program, to be effective, would require a massive commitment of TARP funds,†Paulson said. “It became clear that, while in mid-September, before economic conditions worsened, $700 billion in troubled asset purchases would have had a significant impact. Half of that sum, in a
Several members of Congress including Rep. Barney Frank, chair of the House Financial Services Committee expressed concern that the $700 billion given to the Treasury Department isn’t being used appropriately and that the businesses and individuals who need it most do not have access to bailout funds.
“I have serious concerns about the improvised and ad hoc nature of Treasury’s implementation of the Capital Purchase Program and other elements of the TARP,†said Rep. Spencer Bachus (R-AL), a ranking member on the committee in his opening statement. “We all understand that when conditions on the ground change, policymakers must be agile enough to
adjust to those changed circumstances. But changing too quickly, without adequately explaining why you’ve changed or what you’re going to do next, risks sending mixed signals to a marketplace that is in dire need of certainty and a sense of direction.â€Rep. Carolyn Maloney (D-NY), vice chair of the joint economic committee, and Rep. Maxine Waters (D-CA), chairwoman of its Subcommittee on Housing and Community Opportunity chastised Paulson for funding mergers and acquisitions and not getting credit out into the communities.
“The fact that you ignored the direction that this Congress gave you amazes me,†said Waters, who said she had faith in Paulson’s ability to help out homeowners, but is now disappointed that he did not utilize his authority.
Bernanke also defended results of TARP. He cited the distribution of funds to nine banks, a move by the FDIC to extend insurance guarantees to certain transactions that TARP was working.
“These actions, together with similar measures in many other countries, appeared to stabilize the situation and to improve investor confidence in financial firms,†said Bernanke in his testimony. “Going forward, the ability of the Treasury to use the TARP to inject capital into financial institutions and to take other steps to stabilize the financial system–including any actions that might be needed to prevent the disorderly failure of a systemically important financial institution–will be critical for restoring confidence and promoting the return of credit markets to more normal functioning.
Paulson also told Congress that the administration remains firmly opposed to using any part of the financial bailout fund for a $25 billion rescue package for the Big Three automakers.
“There are other ways” to help battered automakers, Paulson said
Auto executives insist they need more emergency loans — on top of the $25 billion already approved — to avert a collapse of one or more of their companies before year’s end.