US Treasury Changes Mind, Not Buying Troubled Mortgage Assets
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Just six weeks after it was announced, the so called “financial bailout” plan has reversed its course leading to steep drops in the stock markets worldwide. In an announcement on Wednesday, Treasury Secretary Henry Paulson has declared he is burying the idea of buying trouble mortgage assets and will focus on non-bank Financial Institutions and consumer confidence. Paulson admitted that buying up mortgage assets “is not the most effective way” to use government funding.
At the time of its inception, the financial rescue plan was designed around the idea of buying these troubled assets. All of the debate in the Congress was around this issue and no one was sure if the Government will have any use of such assets. But almost as soon as Treasury received the money, it decided that giving capital to banks in return for preferred stock was a better use of the funds.
“I believe we have taken the necessary steps to prevent a broad systemic event. Both at home and around the world, we have already seen signs of improvement,” Paulson said in a speech at the Treasury Department.
“This market is currently in distress, costs of funding have skyrocketed and new issue activity has come to a halt. Today, the liquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards. This is creating a heavy burden on the American people and reducing the number of jobs in our economy,” Paulson warned.
The news that the money will now be used for other purposes sent the Dow Jones industrial average down more than 3%, or 273 points, to 8420. In London, the FTSE 100 dropped almost 65 points to close at 4182.02, a fall of 1.5%. Germany’s Dax and France’s CAC also declined, and the dollar fell below 96 yen.
It is not clear if the issue of bonuses for Executives have been decided yet.
