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Paulson says US bail-out working Paulson says US bail-out working
(20 minutes later)
The $700bn (£494bn) US bail-out package has already "clearly helped stabilise" the financial system, US Treasury Secretary Henry Paulson has said.The $700bn (£494bn) US bail-out package has already "clearly helped stabilise" the financial system, US Treasury Secretary Henry Paulson has said.
But he added that there were still many challenges ahead and market turbulence would likely continue for some time. But he added that there were still many challenges ahead and market turbulence was likely to continue for some time.
Mr Paulson said authorities had abandoned plans to use part of the rescue funds in order to buy up the banks' bad debts. Mr Paulson said authorities had abandoned plans to use some of the $700bn to buy up banks' bad debts.
Instead, the plan will continue to buy shares in banks to boost their funding. He also appeared to rule out giving any of the funds to US carmakers, saying the bail-out was for financial firms.
However, Mr Paulson added that the Treasury Department and the Federal Reserve would continue to monitor whether bad debt purchases could "play a useful role" in the future. Instead of buying up the banks' toxic debts, as first proposed by the rescue deal, the bail-out fund will continue to be used to buy shares in the lenders to help boost their balance sheets.
However, Mr Paulson added that the Treasury Department and the Federal Reserve would continue to monitor whether bad-debt purchases could "play a useful role" in the future.
CarmakersCarmakers
Mr Paulson's comments came after House of Representatives Speaker and leading Democrat Nancy Pelosi called for the government to spend some of the $700bn on America's three main carmakers - General Motors, Ford and Chrysler. Mr Paulson's comments regarding America's three main carmakers - General Motors, Ford and Chrysler - are likely to disappoint House of Representatives Speaker and leading Democrat Nancy Pelosi.
As things stand, carmakers are not eligible to apply for this money.
On Tuesday, Ms Pelosi urged the incumbent administration to take a more sympathetic line.
The US is embracing a form of state control and intervention that looks remarkably Chinese Robert Peston, BBC Business Editor Read Robert Peston's blog in fullThe US is embracing a form of state control and intervention that looks remarkably Chinese Robert Peston, BBC Business Editor Read Robert Peston's blog in full
She said: "In order to prevent the failure of one or more of the major American automobile manufacturers, Congress and the Bush administration must take immediate action." On Tuesday night she called for the government to spend some of the $700bn on the three firms, who are all now struggling against big losses and falling sales.
"In order to prevent the failure of one or more of the major American automobile manufacturers, Congress and the Bush administration must take immediate action," said Ms Pelosi.
There is, however, a great deal of opposition to a bail-out for the car industry.There is, however, a great deal of opposition to a bail-out for the car industry.
"Once we cross the divide from financial institutions to individual corporations, truly, where would you draw the line?" said Jeff Sessions, Republican Senator for Alabama."Once we cross the divide from financial institutions to individual corporations, truly, where would you draw the line?" said Jeff Sessions, Republican Senator for Alabama.
Massive lossesMassive losses
The call for help comes after General Motors (GM) announced a third-quarter operating loss of $4.2bn (£2.73bn) last week. The carmaker said it would run out of cash early in 2009 if market conditions did not improve. The call for help comes after General Motors (GM) announced a third-quarter operating loss of $4.2bn last week. The carmaker said it would run out of cash early in 2009 if market conditions did not improve.
GM also announced it would be forced to lay off 3,600 workers, and has since announced a further 1,900 job cuts.GM also announced it would be forced to lay off 3,600 workers, and has since announced a further 1,900 job cuts.
Last week, Ford also reported a $2.98bn loss for the third quarter and said it would have to cut salary-related expenses in North America by 10%.Last week, Ford also reported a $2.98bn loss for the third quarter and said it would have to cut salary-related expenses in North America by 10%.
Sales at the two car giants have been hit hard as consumers tighten their belts for the impending recession. Sales at GM fell by 45% in October compared with the same month last year, while sales at Ford fell 30%.Sales at the two car giants have been hit hard as consumers tighten their belts for the impending recession. Sales at GM fell by 45% in October compared with the same month last year, while sales at Ford fell 30%.
Chrysler was also hit hard, with sales falling 35%.Chrysler was also hit hard, with sales falling 35%.
At the start of October, President George W Bush signed legislation that gives GM and fellow US carmakers Chrysler and Ford access to $25bn of cheap government-backed loans to help them develop less-polluting cars.At the start of October, President George W Bush signed legislation that gives GM and fellow US carmakers Chrysler and Ford access to $25bn of cheap government-backed loans to help them develop less-polluting cars.
Reports had suggested that some of the $700bn bail-out package for the financial services sector might, in fact, be made available to the finance arms of some US carmakers.