Paulson Says US Bail-out Package is Working, Doesn’t Want to Buy Up Toxic Bank Debts
Treasury Secretary Henry Paulson has said today that the $700 billion US bail-out package has already "clearly helped stabilize" the financial system. He did add, however, that there were still many challenges ahead and market turbulence was likely to continue for some time.
Mr. Paulson said authorities had abandoned plans to use some of the $700b to buy up banks' bad debts.
He also appeared to rule out giving any of the funds to US automakers, saying the bail-out was for financial firms.
Instead of buying up the banks' toxic debts, as first proposed by the rescue deal, the bail-out fund will continue to be used to buy shares in the lenders to help boost their balance sheets.
However, Mr. Paulson added that the Treasury Department and the Federal Reserve would continue to monitor whether bad-debt purchases could "play a useful role" in the future.
Mr. Paulson's comments did little to ease continuing investor jitters, and Wall Street's main Dow Jones index was down 3% by late morning trading in New York.
However, many analysts said he was right to backtrack on the plan to buy up the bad debts, saying it was difficult to see it being workable, and that simply buying up more banking stock was more straightforward.
"The best bet is just to give them [the banks] the capital and to let them absorb the losses anyway," said Rudy Narvas, senior analyst at 4Cast. "That is exactly what it looks like is happening."
Published on November 12, 2008
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