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Bail-out not 'panacea' - Paulson Bail-out not 'panacea' - Paulson
(20 minutes later)
The $700bn US bail-out package is "not a panacea" to cure economic woes, says Treasury Secretary Henry Paulson. US Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke have defended their management of a $700bn US financial bail-out plan.
Mr Paulson and Federal Reserve chairman Ben Bernanke have been called to give evidence about the Troubled Asset Relief Program (TARP) scheme. Mr Paulson and Mr Bernanke are giving evidence to a Congressional committee about the Troubled Asset Relief Programme (TARP) scheme.
It was authorised by Congress last month to shore up the financial system. The scheme was approved by Congress last month to shore up the US banking system.
However, Mr Paulson warned it would not be "a panacea" to cure economic woes.
"It will take a while to get lending going and repair our financial system, which is essential to an economic recovery," Mr Paulson said."It will take a while to get lending going and repair our financial system, which is essential to an economic recovery," Mr Paulson said.
BAIL-OUT PROGRESS 3 October - $700bn rescue bill passes through Congress14 October - Plans announced to buy $250bn in banking stock26 October - First $115bn spent buying shares in eight lenders10 November - $40bn to buy further stake in insurer AIG He also told Congress it was vital the administration be nimble in assessing changing conditions and adapting the bail-out strategy accordingly.BAIL-OUT PROGRESS 3 October - $700bn rescue bill passes through Congress14 October - Plans announced to buy $250bn in banking stock26 October - First $115bn spent buying shares in eight lenders10 November - $40bn to buy further stake in insurer AIG He also told Congress it was vital the administration be nimble in assessing changing conditions and adapting the bail-out strategy accordingly.
"If we have learned anything throughout this year, we have learned that this financial crisis is unpredictable and difficult to counteract," Mr Paulson said."If we have learned anything throughout this year, we have learned that this financial crisis is unpredictable and difficult to counteract," Mr Paulson said.
Instead of buying up the banks' toxic mortgage 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. 'Financial stabilisation'
Democrats want the bail-out funds to be used to help the struggling US auto industry, while Mr Paulson says it is also important to help other financial institutions in difficulty, including credit card companies and other non-banks who lend to consumers. Earlier this month, the White House abandoned the original strategy behind the rescue.
Instead of buying up the banks' toxic mortgage debts, as first proposed under the deal, the bail-out fund is being used to buy shares in banks to help boost their balance sheets.
Focusing the scheme on infusing billions of dollars into banks - to pump up their capital and bolster lending to customers - was deemed a faster and more effective approach to stabilising the financial system, the US Treasury Secretary said.
Explaining the change of strategy, Mr Paulson said that buying the banks' toxic debts would have required a "massive commitment" of money.
He told the committee that as economic and financial conditions quickly worsened, it became clear that the first instalment of the money - $350bn - would not be "enough firepower".
Mr Bernanke said it would be "will be critical for restoring confidence and promoting the return of credit markets to more normal functioning", that the money could be used to inject cash into banks.
Auto bail-out
Democrats want the bail-out funds to be used to help the struggling US car industry, while Mr Paulson says it is also important to help other financial institutions in difficulty, including credit card companies and other non-banks who lend to consumers.
Mr Paulson said the financial bailout was not intended as a stimulus package: "It was intended to shore up the foundation of our economy by stabilising the financial system."
"It is unrealistic to expect it to reverse the damage that had already been inflicted by the severity of the crisis," he said.