Paulson says banking system has been 'stabilized'

Treasury Secretary Henry M. Paulson said today that he believed the banking system had been "stabilized," and he implied that there was no major institution likely to present a problem that would shock regulators.

Here’s Paulson in an interview with Robert Siegel on NPR News’ "All Things Considered":

Siegel: You said yesterday, overall, we’re in a better position than we were. That’s a modest statement of progress, but it’s a statement of progress. How can you tell Americans who are listening something that’s happened, something that should have affected their lives by now, that is a tribute to the nearly $300 billion that has already been committed by the U.S. government [to a banking bailout]?

Paulson: Yeah, I would say the first thing I would say to Americans, what we were dealing with was, we were dealing with a financial system, a banking system that was on the tipping point. Credit was frozen. Banks weren’t lending to each other. People were asking themselves about the viability of banks.

I believe the banking system has been stabilized. No one is asking themselves anymore, is there some major institution that might fail and that we would not be able to do anything about it. So I think that is a positive.

I think in terms of the challenges, in terms of working through this economic downturn. Let me tell you, it took a long time to build up these excesses. It’s going to take a good while to work through this period. And the first focus, as I said yesterday, should be on recovery and repair. And it’s going to take a while longer to work through it.

Siegel: But just to clarify, you’re saying no one is saying now there could be a failure of a major institution that we wouldn’t be able to deal with. There could be a failure of another major institution, though.

Paulson: I got to tell you, I think our major institutions have been stabilized. I believe that very strongly.

So, after Bear Stearns, IndyMac Bank, Fannie Mae, Freddie Mac, Lehman Bros., Washington Mutual and American International Group -- no more major surprises.

Write it down, folks.

Photo: Treasury Secretary Henry M. Paulson (Brendan Smialowski / Bloomberg News)

Comments

[Michael Frisbie]

What Tripe! This has been nothing but a shell game. Another hand out to the bankers. First the Savings and Loan, thrift, whatever bailout. Then the bank failures. We said nothing about it to any matter. So, what else? Make a case for a huge money bailout of everything financial. Don't read it, there's no time. Just sign. And bye the way there's a no arrest clause and no oversight whatsoever. Just gimmee da money, quick. Or else.

[Julien Couvreur]

In the interview Paulson repeated that his latest change of plan (inject capital instead of buying distressed assets) would be more efficient use of the money. But first, he didn't explain what is the difference between the two methods, and second he didn't say anything about why the new method is actually better.
Any pointers?

[Underboss]

But Paulson's no fool; he knew exactly what the reaction would be on Wall Street. He simply decided that blowing up the equities market was worth the price of reviving "securitization"--the transformation of loans into securities. You see, securitization is Wall Street's Golden Goose. It's the foundation block upon which structured finance and all its complex credit-enhancing derivatives rests.

Keep in mind, that all these exotic, financially-engineered products--the CDOs, MBS, and CDS--were all created with one goal in mind; to maximize leverage with minimum capital so that profits can be skimmed off the top. That's how Paulson managed to walk away from Goldman Sachs with hundreds of millions of dollars in his pockets. It's a racket.

http://www.counterpunch.org/whitney11142008.html

[Keith]

What is wrong with this math? AIG has a market cap today of $5.6 billion. Yet, taxpayers are giving AIG a lot more than $5.6 billion. Why? Wouldn't it be cheaper to just buy the whole company, fire the management and break up the pieces to the highest bidder?