Paulson defends government intervention

Treasury Secretary Henry Paulson said Wednesday he expects improvement in the condition of the economy over time but that there will be "a bump in the road" along the way.

Paulson said the government's decision to buy into the nation's banking system with a $250 billion investment in nine large banks at the outset should stabilize the financial system and loosen the tight credit market. The secretary acknowledged in an interview on ABC's "Good Morning America" that he initially opposed government intervention into the banking industry but that new developments in recent days changed the circumstances.

Paulson said, "There's no doubt that the way to get the maximum bang for the taxpayers here was to invest in banks."

Big banks have started getting behind a reconfigured federal bailout plan that will have the government spending as much as $250 billion in exchange for partial ownership of some key banks.

President Bush, in announcing the plan Tuesday, declared that it was "not intended to take over the free market but to preserve it."

Paulson cautioned in Wednesday's interview that the process of reinvigorating the struggling economy will take time and that some problems, including rising joblessness, could continue in the short term.

He said that people's jobs and retirement plans have been thrown into jeopardy as a result of the tight credit conditions but also said he was confident that "as we stabilize this system and as banks begin to lend ... we will make progress."

"The folks at home should expect that we're going to have some challenges for a number of months here," the secretary said.

"What I have said to the banks is, this is about making sure that our healthy banks have plenty of capital," he said. "We have the tools we need, we have the resources we need, and we're going to meet this challenge .. like we have every other one."

Asked about a push in Congress for a new stimulus package to help the economy, he said on CBS's "The Early Show" that he is focused for now on "restoring confidence in the financial system, and that will do more for the economy than any single thing. You get banks lending going again, supporting businesses, supporting jobs, supporting consumers, that's what we need to do."

Paulson also said the government's new steps did not merely amount to an attempt to bail out Wall Street.

"This is only about the American people, only about Main Street," he said. "The path we're taking is making sure that the healthy banks have plenty of capital so that they're going to be lending and we're going to have confidence in the system. But if that doesn't work the way it should work, the people that are going to pay the costs are going to be those on Main Street."

"This is about injecting confidence in the system, capital in the system so that the financial system and the banks can resume lending and help businesses raise the capital they need to support jobs, help investors with their 401(k) plans, with their investment plans," he said on NBC's "Today" show.

"I believe this is a major step toward restoring confidence in our capital system, stabilizing our capital system, and - you're right, that that is key," he said. "Doing this is the most important thing we can do for our economy. If we can get this in place and have it be successful, over time you're going to see banks begin lending more and more to businesses. That's going to help us with our jobs. That's going to do more to strengthen the economy than any single thing we can do."

(Copyright 2008 by The Associated Press. All Rights Reserved.)

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