Treasury Secretary Paulson on Fox Business
The new kids on the block scored their biggest interview since the launch, snagging Treasury Secretary Hank Paulson for a lengthy interview. Paulson spoke on the economy:
“Nothing has changed over the last couple of months except that the credit markets and capital markets made improvements. What I said, and what I’ve said for some time, the problems are against the backdrop of strong global economy and a healthy US economy, which is creating jobs, exports are growing much faster than imports, business investment is increasing, inflation seems to be contained and that’s the key to extending economic expansions. But what I said was late last year is that looked like the housing decline would end sooner than it appears to be. There’s no doubt it is taking a penalty to growth by virtue of what’s going on in the capital markets. That’s the biggest risk but I believe we’re going to continue to grow so I’m optimistic about that.” Fox Business
And also defended the Entity, or private-sector super-fund, that has garnered mixed reviews thus far. Bill Gross thinks its "lame". Hank is on the defensive:
"Let's understand. This is a 100% market based, its private sector but as we talked with market participants throughout August and recently ,we realized that the asset-backed paper market, which is a very large market, has liquidity problems, which are separate from credit problems. And some of the product, which really wasn’t a big percentage of the product, had some credit problem and there were rating downgrades. So, then there’s a cloud that comes over the whole market. So, the market participators are figuring out how to work together with a market-based solution to re-brand the product."
Part two of Dagen McDowell's video interview after the jump. Fair warning, Hank seemed a bit tongue tied.
On protecting lenders and investors:
“Our focus is not on protecting investors or lenders it’s on homeowners or primary residents who have the capability to stay in their homes. In the past, going back a number of years ago, a homeowner, or before becoming a homeowner, he could go to the neighborhood bank got a mortgage and when issues came up, often they could work that out – modifications, changes in payment provisions – they would do something that made sense for both parties. Today, given innovation in the market and the desegregation, some of these mortgages have gone through several different hands. You’ve had the originator who may or may not be in business but often still is in business. They’ve gone through Wall Street, they’ve been securitized and have been put in complex securities that have been sold to investors around the world. First thing we need to do is to help market participants come up with market-based solutions to allow as many people to stay in their homes and also look for new products. And, that’s why the president has proposed this FHA modernization. That is why we are urging Fannie Mae and Freddie Mac, the GSE’s, because this is right at the heart of their missions to come up with products that will work.”
On simply lifting caps to immediately help people in high-priced home states:
“There are two things: there are investment caps. We have an independent regulator so that’s the investment caps. And, then there are things that Fannie Mae and Freddie Mac can do right now which is the most efficient use of dollars in terms of getting to the affordable housing mission because they can securitize and guarantee loans. So to the extent that they do that, that is really where the help is going to come. They, in terms of the agency market, are performing well so we need them to do more. And, then of course there are other things that can be done and we are open to raising the limit on the size of the loans on a temporary basis in order to deal with this situation but that should be done in the context of regulation and getting a strong, independent regulator and reform and the House Banking Committee has taken action here.”
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