Paulson Says TARP Wasn't Designed to Help Homeowners and Automakers

The $700 billion Troubled Asset Relief Program (TARP) was designed to stabilize the financial system and improve lending liquidity, and "is not a panacea for all our economic difficulties" said U.S. Treasury Secretary Henry Paulson on Tuesday.

"The rescue package was not intended to be an economic stimulus or an economic recovery package," Paulson said in his testimony to the House Financial Services Committee.

Lawmakers are expected to grill the Treasury Secretary about the TARP revamp. The program was expected to buy troubled assets from bank balance sheets but has instead been used to take equity stakes in troubled financial firms.

Paulson defended the change of course, saying "the efforts already under way will do more to prevent foreclosures than might have been achieved through very large purchases of mortgage-related securities through the TARP."

An estimated $410 billion of the program remains unspent and Paulson said earlier on Tuesday that he plans to leave the remainder to his successor. He suggested setting aside some of the funds to improve the secondary market for consumer loans.

"By investing only a modest share of TARP funds in a Fed liquidity facility, we can improve securitization in this market and have significant impact on the availability of consumer credit," he said.

By Adam Button and edited by Nancy Girgis
©CEP News Ltd. 2008