http://www.bloomberg.com/apps/news?pid=20601087&sid=aPR8k.dkNie0&refer=home Paulson Says He'll `Do What It Takes' to Calm Markets (Update4) By Brendan Murray March 16 (Bloomberg) -- Treasury Secretary Henry Paulson, defending the bailout of Bear Stearns Cos., said policy makers will do whatever is needed to prevent disruptions in financial markets from hurting the economy. ``The government is prepared to do what it takes to maintain the stability of our financial system,'' Paulson told the ``Fox News Sunday'' television program in Washington today. ``Our focus, our No. 1 priority, is the stability of our financial system.'' Paulson, 61, spoke two days after the Federal Reserve rescued Bear Stearns, the fifth-largest U.S. securities firm, with an emergency loan. The move failed to avert a crisis of confidence among Bear Stearns customers and shareholders, who drove the stock down a record 47 percent. In three appearances today, the former chairman of Goldman Sachs Group Inc. several times said the Fed made ``the right decision'' and expressed ``great confidence'' in its chairman, Ben S. Bernanke. Paulson said that in the case of Bear Stearns, the risk to financial stability outweighed his concern about so- called moral hazard, in which investors come to expect government rescues. ``I'm as aware as anyone is of moral hazard,'' he said in a CNN interview. ``I'm also aware of the importance of keeping our economy strong, of orderly capital markets, of the stability of the financial system doing things that promote orderliness and minimize the disruption.'' Weekend Talks Paulson said ``conversations are going on over the weekend'' about Bear Stearns. ``I'm very involved in those conversations.'' He declined to be specific about the future of the 85-year-old firm, the second-biggest underwriter of U.S. mortgage bonds, or to say whether any additional government steps are planned. ``There's always a decision to be made to say what's best for the stability of the marketplace, the orderliness of the marketplace,'' Paulson said. ``I think we made the right decision.'' The Treasury chief refused to say what a growing number of economists have concluded -- that the economy has entered a recession. Economic Debate ``Economists are going to be debating that for months and months,'' he said. ``It's much less important what you call it than what you're doing about it.'' The Standard & Poor's 500 Index is down 12.3 percent this year, while the dollar is down 5 percent against a basket of currencies of major U.S. trading partners. Home foreclosures in January and February were up 58 percent from the first two months of 2007. ``I've got great confidence in our financial markets and our financial institutions,'' Paulson said. ``Our markets are resilient, are flexible. Our institutions -- our banks and investment banks -- are strong.'' Paulson repeated his support for a ``strong dollar,'' and said the long-term strength of the U.S. economy would be reflected in the country's currency. President George W. Bush is scheduled to meet tomorrow with his Working Group on Financial Markets. Paulson chairs the group, which includes Bernanke and Securities and Exchange Commission Chairman Christopher Cox. The Bush administration has resisted the use of government funds or guarantees to stem the surge in foreclosures. Paulson has brokered a series of voluntary accords among lenders to freeze interest rates on subprime loans and negotiated a one- month moratorium on foreclosures. Plans in Congress A credit crisis that began in August has left markets ``more fragile than we would like right now,'' Paulson said in a separate interview on ABC News's ``This Week'' program. ``My concern is to minimize the impact on the broader economy.'' Paulson said the administration doesn't support measures in Congress to help struggling homeowners. House Financial Services Committee Chairman Barney Frank and Senate Banking Committee Chairman Christopher Dodd offered a plan last week to let the Federal Housing Administration insure refinanced mortgages after lenders reduce principal to help struggling borrowers. The two lawmakers are leading congressional efforts to tackle the surge in foreclosures, which reached record levels in the fourth quarter of 2007. Their plan goes beyond the Bush administration's approach that relies on voluntary agreements between lenders and loan servicers to modify mortgages for borrowers who can't make their monthly payments. Weighing Response ``I'm looking very carefully at any proposal, but all the ones I've seen call for much more government intervention, raise more problems, do more harm than do good,'' Paulson said in the ABC interview. In an interview on CNN, Paulson said there's ``no silver bullet'' to prevent home prices from falling and foreclosures from rising. Paulson last week proposed that U.S. regulators heighten their scrutiny of lenders, mortgage brokers and debt-rating firms to prevent a reoccurrence of the credit crisis roiling capital markets. Writedowns from subprime securities will probably rise to $285 billion, Standard & Poor's said in a report March 13. Schumer Attacks ``This has become the Bush recession,'' Senator Charles Schumer, a New York Democrat, said on the Fox News program. ``The president's hands-off attitude is reminiscent of Herbert Hoover,'' who led the country from 1929 to 1933. Bush yesterday said he won't be stampeded into ``bad policy decisions'' that might harm the economy. ``The market now is in the process of correcting itself, and delaying that correction would only prolong the problem,'' he said in his weekly radio address. ``I believe the government can take sensible, focused action to help responsible homeowners weather this rough patch.'' To contact the reporter on this story: Brendan Murray at brmurray@bloomberg.net Last Updated: March 16, 2008 13:08 EDT -------------- Funny how he supports using taxpayers money to bail out a bunch of multi-millionaire gamblers...er, I mean investment bankers....for the purposes of "market stability". However, when it comes to homeowners facing foreclosure, the "market stability" of the housing market doesn't seem to matter - intervention for them would do "more harm than good" and the bear market has to be left to take its course. Paulson and Bush want to let the free market process work for the little guys, but think intervention is necessary for the rich. Can you think of a more two-faced, hypocritical, unfair and unrepresentative policy as this one? "``I'm looking very carefully at any proposal, but all the ones I've seen call for much more government intervention, raise more problems, do more harm than do good,'' Paulson said in the ABC interview." Sounds like this comment could be applied just as much to the Bear Stearns bailout. "In an interview on CNN, Paulson said there's ``no silver bullet'' to prevent home prices from falling and foreclosures from rising." But he thinks bailing out one bank is a silver bullet that will prevent stocks falling and the economy going into recession. Bush - "``The market now is in the process of correcting itself, and delaying that correction would only prolong the problem,'' he said in his weekly radio address." So he thinks the Fed bailing out Bear Stearns is just going to delay the inevitable correction and prolong the problem? Or does he only think this about the housing market and not the stock market? ""Paulson said that in the case of Bear Stearns, the risk to financial stability outweighed his concern about so- called moral hazard, in which investors come to expect government rescues."" Hasn't he twigged yet? A repeated history of these kind of bailouts - from Mexico 1995 to LTCM 1998 to the dot.com fallout - is *exactly why* we have this financial instability now. Wall Street knows that heads they win, tails the taxpayer picks up the tab. So unsurprisingly they take reckless risks and if they go wrong, Joe Public picks up the bill as the Fed steps in - yet again. How can you expect financial stability of rich millionaire speculators are not held accountable when they lose disastrously? The consequences fall not just on themselves but on others - they should be punished *more*, not bailed out. Paulson: ""Our institutions -- our banks and investment banks -- are strong.''" Ha! So strong they need a historic Fed bailout based on an obscure rule from the 1930s? "Paulson repeated his support for a ``strong dollar,''" LOL. Who hired this chump? Is there any politician in the civilised world with less credibility than this guy?
as soon as the next president is in, watch the floodgates rip open (if not sooner). The Bush administration has been holding one giant load of economic diarrhea as long and as tightly as humanly possible
You know I'm a vocal critic round here of bailouts, excessive rate cuts, dollar weakness and moral hazards. On this BSC biz though you're a bit over the top. This move isn't to save Bear. They're history. It's to save counter parties. The NY Fed isn't much more of a government enity than the CME clearinghouse. Along those same lines it's easy for all of us to bitch about "rich guy's" ect. How much bitching would you see if one day the CME said oops sorry, you're cuffed because SocGen or whoever took us down and you're SOL getting money out of your trading account. In stock trading accounts it's happened as recently as 1970. Compared to rampant Bernanke bs this is actually a pretty fair deal. And yea, detested JPM has done enough good deeds for the "system" over the years that they probably deserve a bone. As far as Paulson: If he doesn't intervene on behalf of the dollar Pabst is going to need his own bailout. That aside as much as I want to strangle his bald ass it's hard to say his pedigree is undersized. While Wall Street views Bernanke as a clueless academic, few people can say they achieved/earned more than Paulson.
But why should the counterparties get saved? Any other line of business, if a firm goes bust, the counterparties join the list of other unsecured creditors behind the IRS and the banks. Why should trading with an investment bank which takes huge speculative positions on massive leverage have all the credit risk socialised by the taxpayer, when trading with a steel foundry or a real estate developer carries no such protections? Just what is so special about gambling on derivatives? Can't the counterparties ask for collateral and margin, can't they diversify their positions among many I-banks, so that Bear going down doesn't screw them over? And if they can't, why should they be bailed out? The CME comparison is a poor one, because the CME don't gamble their capital on leveraged illiquid off-exchange securities, and have their entire setup devoted to nipping credit risk in the bud. When was the last time a futures exchange went bust? Customers have been blowing up since time immemorial and the exchanges have survived because they made it their job to manage the risk. If they or my broker went bust, I would take it on the chin, not expect the taxpaying public to bail me out. Also, if a bailout is viewed as beneficial, then the taxpayer should be compensated. In this deal, heads JP Morgan gets the profits, tails the taxpayer gets the bill. Sorry, that's an unfair proposition. How much would a free market private entity (e.g. a Buffett) charge to bail out a problem like this? They'd ask for their pound of flesh. Well, if the problem is so bad that private firms cannot handle it, then the government should be charging *even more* to bring their superior creditworthiness to the table. Bailouts should only be done when they are on balance gigantically profitable for the Fed or the government. Last resort lending should be viewed as a business, done only when it is highly likely that a gigantic killing will be made in order to compensate for the risk. A good example was the Hong Kong Monetary Authority buying stocks and bonds during the Asia crisis, at the height of the panic. If all these financial corporations are so badly managed that the bankruptcy of one measly investment-bank with a dodgy reputation is enough to take the system down, then quite frankly those firms deserve to go broke. Let them get wiped out, let the execs get their asses sued off, and let the remaining well-managed companies pick up the scraps and go forward with a much better, stronger, and competently run financial industry. Bailout after bailout will just result in more of the same ludicrous speculative excess, and we'll have another ridiculous bubble and bust to contend with, where rich people gamble on the taxpayers dime and collect their bonuses each year, then collectively lose back the entire profits and then some, walking away rich after being net losers, and in the end Joe Sixpack gets the shaft both from economic recession, and the bill being sent to the taxpayer. That is not capitalism it is larceny.
joe six pack has been screwed for the last coulpe of years already,and if this recession ends in the next couple of years ,joe will have a chance to improve his lot,if the fed let this thing play out without it's intervention who knows where the panic would lead to and the mess we'ld be in,and Billionare Bif and thirty pack jack and everyone in between would be screwed,I am hoping the fed,paulson,bank of japan, eu, china ,sauidis,figure out a way to fix this fvcked mess that the fed allowed to happen by merging banks,brokerage houses and hedge funds
There's so many fallacies in your argument I don't know where to begin. You keep harping upon "taxpayers". There's not an iota of public funds involved in this deal. Even if there were unlike the U.K. this is a country where the rich are just about the only taxpayers of consequence anyways. Do see any evidence of BSC stockholders being "saved" by this plan? Or the holders of distressed securities?
because we don't need panic now. The swing on Friday was -5%. Without a bail out it would be -25% Do we need it right now? We have government to defend us from such type of events. It's like a hurricane. Disaster Why not to prevent it? In this case I agree - it was wise to bail out BSC Some small money were saved for shareholders and big for the whole world. BSC is a history now anyway.
BTW, the market went down 2% on Friday, not 5%. Get your numbers right if you are going to use them for your half brain argument that the Fed and Treasury are protecting us. Yeah, sure the market woul d have gone down 25% because of Bear Stearns not being bailed out. You sound so scientific pulling out those dramatic numbers based on what? Based on nothing of course but fear that a piddling firm like Bear Stearns is enough to destroy the whole financial system. You probably thought Refco would have destroyed the CME and all the futures exchanges or Amaranth was going to destroy the NYMEX....or SocGen was going to destroy all the European AND American stock market without that emergency 75 bp cut by Bennie boy. All this fearmongering is the reason people think we need these bailouts of two-bit risk retarded firms that leverage to ridiculous levels to pick up their dimes in front of bulldozers like an LTCM. No wonder the dollar is getting shot, its like shooting fish in a barrel, with Hank and Ben handling the dollar.
BSC bond holders are in high heaven because of the Fed. They are getting bailed out. Those bonds would have been worth close to zero without Fed intervention, and now with the help of the Fed, they are worth much much more. If you don't call that a bailout what do you call it? And you don't think the Fed backstop is not costing taxpayers (actually dollar holders) money when they essentially provide a disaster put to JP Morgan for free?