Paulson Says Government Not "Experimenting" With the TARP

By: • Mon, Nov 17 2008, 9:01 PM

U.S. Treasury Secretary Henry Paulson said tensions in financial markets will probably continue for many months, and now that his government has addressed the potential failures of massive corporations, the next step will be to deliver a boost to the U.S. economy.

Speaking at a panel discussion in Washington alongside former Treasury Secretaries Robert Rubin and Lawrence Summers, Paulson defended the U.S. government's Troubled Asset Relief Program (TARP) and his decision to change the program's course of action away from buying toxic bank assets.

The Treasury has been confronted with an "unprecedented situation," he said, adding their actions have worked to aid in stabilizing financial markets.

Paulson first addressed the government's adjusted AIG bailout, which has been enlarged significantly and now stands at over $150 billion. Paulson defended the expansion, saying the current package is better for the company and for taxpayers.

Paulson also touched briefly on the latest hot topic - the U.S. auto industry crash that has seen automaker GM on the brink of bankruptcy. Paulson said it is an important industry, and that a sustainable, viable plan is needed to save it.

Nevertheless, he said, he's currently focused on capital markets and banks. He is working "intently" on the TARP, he said, and denied the Treasury is "experimenting" with the TARP program.

The TARP's original purpose when introduced in early October was to buy toxic assets from banks, but Paulson recently abandoned that plan. At the panel in Washington he defended this choice, saying that buying illiquid assets isn't the best use for TARP money.

Furthermore, Paulson said the TARP purchases are an investment for the government that will bring returns.

On the topic of money markets, Paulson said credit markets are still "clogged" and there is little demand for AAA-rated consumer debt.

Turning back the clock, Paulson defended the government's decision to allow Lehman Brothers to go bankrupt in September. He said there was no TARP program at the time, and although Lehman tried very hard to find a buyer none could be found. He said letting them go bankrupt was not a mistake.