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House Committee Holds Meeting over Troubled Homeowners; Big 3 Automakers Still Struggling; Paulson Holds Press Conference

Aired November 12, 2008 - 10:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

FREDRICKA WHITFIELD, CNN ANCHOR: The economy is the focus this hour in Washington. A House committee is holding a hearing on what the private sector is doing, to help troubled homeowners in particular. This as the government's own mortgage plan is coming under fire. Later this hour Treasury Secretary Henry Paulson talks about what's going on with the $700 billion bailout package approved right before the election. The ailing auto industry is eying part of that pie. Without some government help, the big three say they may not be able to make it. CNN's Kate Bolduan is on Capitol Hill.
So what's the talk there, Kate?

KATE BOLDUAN, CNN CORRESPONDENT: Well there's a lot of talk going on, Fredricka. I mean there's little question the auto industry is in a tough spot right now, it's just as many Americans are in many industries are right now. Well House Speaker Nancy Pelosi and Senate Majority leader Harry Reid have already called on the Bush administration to do something to step in and help automakers.

Well they've taken that a step further saying, if you won't help them, then Congress will. They're already planning for a lame duck session next week to take up the issue. Now, lawmakers who support giving relief to automakers, they say this is an urgent need. They're in a dire situation and there could be dire consequences.

Listen here to Democratic Congressman Sander Levin of Michigan where the big three are based.

(BEGIN VIDEO CLIP)

REP. SANDER LEVIN (D), MICHIGAN: There's an urgency here and it can't wait for an Obama administration. The president-elect has said that the auto industry is the backbone of manufacturing in this country, and we have to make sure that backbone isn't splintered the next couple of months before there's a new administration.

(END VIDEO CLIP)

BOLDUAN: Well, there aren't any real details. I mean real details of what kind of an auto industry bailout would include or how much of a bailout would be. But House Speaker Nancy Pelosi did say in a statement yesterday that what they want is legislation that would give automakers some help under the already passed $700 billion rescue package. That, of course, ask is a package that was originally crafted to help the financial industry. So, you see Democratic leaders are on board. But how are Republicans feeling, Fredricka?

Well one top Republican aide on the Senate side put it this way, well automakers today, airlines tomorrow. Where do you stop? You see there is some skepticism on what is needed and how much we can put out there.

WHITFIELD: And what about the top Republican in the White House? What's the response from there?

BOLDUAN: Well, what we're hearing is that privately President Bush is expressing skepticism as some others are in just how many bailouts we can have, this potential bailout on the heels of a string of government bailouts. But publicly the White House spokesperson Dana Perino has said that they'll take a look at what Congress comes up with. But they also point out that Congress already approved the $25 billion loan program to help the auto industry. But people say that will help later. They're in immediate need right now.

WHITFIELD: Kate Bolduan in Capitol Hill. Thanks so much. Appreciate it, of course.

All right. Let's take a look at the markets right now. The Dow down 136 points. It's been a rough ride all week long. Pretty slow economy as yet. We're hoping that maybe there might be a rebound as a result of what Henry Paulson, the Treasury secretary could say within this hour. We'll see.

Of course, we'll continue to watch the markets for you. Meantime the recession, fears are simply driving down global markets as a whole. Germany losing close to two percent today. Britain slipped almost three quarters of a percent. Japan dropped 1.29. And Hong Kong closes down nearly three quarters of a percent.

More hope for struggling homeowners in the U.S. mortgage giant Fannie Mae and Freddie Mac have a plan to make more loans more manageable. CNN's Christine Romans is there to fill us in on all of this. Where is the hope?

CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Well, there is some hope, Fredricka. But make no sense we're in the midst of a wrenching housing crisis. A crisis that has actually been accelerating all year. I mean, at this point, according to the real estate research firm zillow.com. Zillow says you know one in every three homes sold over the past year people lost money on it. And one out of seven homes right now are underwater in the mortgage, meaning the mortgage is worth more than the house is worth. So you've got some real problems in the housing market and you're seeing that in the foreclosures, and foreclosures are still rising.

Now the government says it's going to streamline some of its existing programs, and it's trying to have an easier, simpler quicker modification plan for people who really, really need it. So what does it look like? What does this modification plan look like? And how many people could it help? It would help the homeowners who are at least 90 days late on their mortgage. They live in the home and they can prove a hardship. The payments would be adjusted to about 38 percent of the mortgage holder's income. Principal would not be reduced. But you would have the interest rate on the loan reduced to - quite dramatically actually and then it would go up a little bit after five years, one percentage point every year. Now who does this help? Well it helps anybody who Fannie Mae and Freddie owns their loan and they meet all of those requirements.

But remember, there are an awful lot of people, Fred, who their mortgage has been sliced and diced and actually it's own in securities around the world, those that make it a little more difficult to try to find those and modify the loan. So there still are a lot of loans that will not be modified. But this will be more help for some other folks. It comes a day after we heard from Citigroup, who said they're actually going to halt foreclosures on eligible borrowers.

So that was good news there JPMorgan Chase, Bank of America, also announcing similar programs recently as well. So you're seeing slowing but surely, the industry and the government trying to figure out how they stem this crisis, at least mitigate it.

WHITFIELD: All right. So meantime, that's a little bit of good news coming on different fronts. How about for Henry Paulson, should there be great expectations that he's going to bring some comforting news for people?

ROMANS: Well there's going to be a lot of questions about what he's going to say about the $700 billion bailout. I mean, the way it has been used, has changed dramatically from what Congress and the American people frankly were sold back in the end of September and early October when it was passed. At the time we were told it was absolutely critical to get toxic assets off the bank's books. It doesn't look like that's the focus of this at all. They're actually injecting capital in the banks.

You can see there a pie chart we've made for you of the $700 billion. $250 billion has been authorized to directly inject into the banks. AIG is getting a cash infusion of $40 billion which the government is actually buying preferred shares. That leaves $60 billion left over for this government to spend. And then another $350 billion that either this administration or the next must go to Congress first and ask to spend. So $700 billion has been allocated.

As you can see, fully half of it has not been earmarked for anything yet. And there's still $60 billion left to spend here. That's why you're seeing companies changing their status into bank holding companies. American Express for example yesterday wanted to become a bank holding company. That means it is technically could apply for some of this money. Some Democrats want the automakers to get this money. We've seen an insurance company get the money. So it's a lot different than buying toxic assets off the books of banks.

WHITFIELD: Interesting. All right. Christine Romans, thanks so much, from New York. Appreciate it. The transition to power, President-elect Barack Obama leading the first meeting of his team. CNN's Suzanne Malveaux joining us now from Chicago.

So what's on tap for today, Suzanne?

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Well, Fred, Barack Obama as well as Joe Biden are going to meet behind closed doors in the Chicago offices really to take a look at where they are with this transition process. It was just yesterday that we got our first briefing from the transition team, the head, former chief of staff John Podesta who basically laid this out, saying the 450 employees, a budget of some $12 million.

And a lot of folks especially from the Clinton administration who are weighing in to see who would be best when it comes to the Pentagon, when it comes to the State Department: one of those people former Senator Sam Nunn of Georgia is an informal adviser we're told. We're also told by the transition team that despite some reports out there, former Secretary of State Warren Christopher. They say that he is not an adviser. They certainly respect his opinion.

But Fred, there are a lot of people who are involved in the process. And we expect that in the weeks to come to roll out some of those names. This week, however, they'll probably talk about some of the White House staff and more of those people actually part of the transition team, Fred.

WHITFIELD: And so aside from figuring out the staff and members of his cabinet, what are the top priorities for this president elect?

MALVEAUX: Well one clear sign of Barack Obama 's priority is what really came out of the meeting with President Bush. He was really pushing forward for that second economic stimulus package which he feels needs to be passed before he actually takes office to help folks out. And then also there's a big concern over the millions of jobs that could because of the big three.

The big three automakers in the kind of financial straits they're in. He is pushing for trying to at least speed up the process of making that $25 billion loan that's already been passed, approved by Congress to make that available to those big three companies. And he's also making the case, as he did to President Bush, use some of that $700 billion bailout money to actually help the automakers, not just some of those banks. So those are two of the things that he's looking at in the immediate sense here to try to help out automakers and try to make sure not more jobs are lost in the months to come.

WHITFIELD: All right. Suzanne, thanks so much, from Chicago.

Well, the future of the GOP, on the agenda today in Miami. And Alaska Governor, Sarah Palin will be a headliner there, she'll be meeting with other Republican governors at their annual meeting. They will talk about what's ahead for the party. And they're showing in last week's election. Well President Bush opening up about his popularity, speaking with CNN's Heidi Collins in his first post election interview. That is straight ahead.

(COMMERCIAL BREAK)

WHITFIELD: Less than 20 minutes from now the expectation is that U.S. Treasury Secretary Henry Paulson will take ton that podium right there, talk a bit more about the $700 billion bailout plan. And of course, when it happened we'll take that live. Keep it right here on CNN.

Meantime, President Bush in his first post election interview. Last hour we showed you the president on his meeting with President- elect Barack Obama. Now we have the rest of that interview with the president talking with our Heidi Collins about popularity, principles and polls.

(BEGIN VIDEOTAPE)

HEIDI COLLINS, CNN ANCHOR: I have heard you say many times in the past that I don't like to look at polls, they don't really effect me, I can do what I want to do. Did the polling and I'm sure you have people who brief you on it, are up and down, all over the map a lot. Do you ever get disappointed?

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: No.

COLLINS: Does it make you feel a certain way if those numbers are low?

BUSH: I think a president who tries to be popular is a president who can fail the country. I remind people popularity is fleeting. Principles are forever. There have been times when I've been popular and times when I haven't been popular. But the job of the president is to make good, tough decisions based upon solid principles that are etched in his soul. I just - I know there's a kind of preoccupation by some you know about popularity polls. To me they're just moments - they come and go.

But what doesn't change generally is you know what you believe. And are you willing to defend your beliefs? And I can assure you that as president of the United States you better have a core set of beliefs. A lot of people are watching you and they're trying to determine where America will stand and a lot of people inside the White House are trying to determine you know whether this person is going to be making decisions based upon core principles or whether the person is going to be all over the map trying to chase popularity.

COLLINS: If those are principles that you have considered your whole life coming into this office and they are near and dear to you -

BUSH: Yes.

COLLINS: I imagine that you probably have a moment in your presidency that you are most proud of and a moment that I'm sure you most regret.

BUSH: You know, I regret saying some things I shouldn't have said.

COLLINS: Like?

BUSH: Like dead or alive, or bring them on.

You know, by the way, my wife reminded me that, hey, as president of the United States, you better be careful what you say. I mean I was trying to convey a message. I probably could have conveyed it more artfully. You know, being on this ship reminds me of when I went to the "U.S.S. Abraham Lincoln," and they had a sign that said mission accomplished. I regret that sign was there. It was a sign aimed the sailors on that ship. However, it conveyed a broader knowledge. To some it meant that Bush thinks the war is over well I didn't think that but nevertheless it conveyed the wrong message. There are things I regretted.

I've had a lot of reasons to be proud, I guess is the right word. I'm proud every time I stand in front of the United States military. I am proud to be the commander in chief of people who are so selfless and so courageous that they would volunteer to serve our country in a time of war. I'm proud when I see people feed the hungry. I'm proud when I'm in Africa and see volunteers helping citizens dying of HIV- AIDS. I'm proud to know there are young kids raising money to buy mosquito nets to help us defeat malaria on the continent of Africa. I cannot tell you what an inspiring experience it's been to be the president of this country. Because we're a nation full of generous, courageous, decent people.

COLLINS: Well after all of this, what is next?

BUSH: You know, I'll probably get back and take a deep breath. And I haven't had much time to really settle down and figure out what life is going to be like after this. I know I'm going to be in Texas. No doubt I'm heading straight home. I miss Texas. I love Texas. I've got a lot of friends in Texas. I'll probably write a book. I am going to - I know I'm going to build a policy institute and a library at Southern Methodist University in Dallas, Texas. Other than that, I'm just not quite sure yet.

COLLINS: OK. Do you have an outline for that book yet?

BUSH: Yes. I'm kind of beginning to think about it. You know, beginning to think about it. I want people to know what it was like to make some of the decisions I had to make. In other words, what was the moment like, you know. I've had one of these presidencies where I've had to make some tough calls. I want people to know the truth about what it was like sitting in the oval office. But you know it's going to take a lot of thought and a lot of work to get it out. It will be an interesting project.

COLLINS: I et it will. They're giving me the wrap.

Thank you. Appreciate it very much. An honor to meet you. BUSH: Thank you.

(END VIDEOTAPE)

WHITFIELD: All right. You know it's a no-no. But really how bad is texting while driving? We've got a shocking statistics.

(COMMERCIAL BREAK)

WHITFIELD: Premature birth. The March of Dimes says that we're not doing enough to prevent them and give the U.S. a near failing grade of d. In its first state by state report, the March of Dimes says preterm birth is the leading cause of newborn deaths and its also a major cause of life-long disability. The March of Dimes ranked Vermont at the top of the list with the lowest percentage of early births at nine percent. Mississippi is at the bottom with nearly 19 percent.

All right. Texting while driving, do you do it? Pretty dangerous mix. That you probably know. Well now the American Medical Association is urging state legislatures to make it illegal. CNN national medical correspondent Elizabeth Cohen has the details. Well why not?

Well, certain places you can't be on the phone and certainly texting is a lot more distracting, right?

ELIZABETH COHEN, CNN NATIONAL MEDICAL CORRESPONDENT: Right. Oh, absolutely. When you're on the phone, you can at least put an ear piece in and your hands can be free. But texting, I mean, I've seen people going like this.

WHITFIELD: Exactly. You forget to look at completely.

COHEN: Exactly. And the American Medical Association, Fred, we usually think of them as telling us to eat our fruits and vegetables and go see the doctor once a year. But no, now they're talking about texting. And they say, look, studies have shown that when you text like driving there's a 400 percent increase in time when your eyes are off the road. That is obviously not a good thing. It's not good for you, it's not good for the other people on the road and it's not good for your vehicle. We think of lives, first, but you know vehicles as well.

WHITFIELD: I know. You got to think about both. All right. So what now? It's one thing the AMA would say that. But it's another for state legislatures to respond, people in general to respond.

COHEN: Right. Because the AMA did this because in most states it's perfectly legal to text while driving which is scary. Let's take a look. We have a map that shows the seven states where it is illegal to text while driving. And certain municipalities in those white states have also made it illegal. But as far as whole states, its only seven of them. That's really not that many.

WHITFIELD: That's a pretty good advance. I didn't realize that any were.

COHEN: You're looking at the glass as half full. I'm looking at it as half empty. I mean, I think it's kind of pathetic that you know that -

WHITFIELD: I mean, what's good about texting while driving -

COHEN: Nothing good. Right. Exactly.

WHITFIELD: All right. Elizabeth, thanks so much. We've got the AMA to say it officially.

COHEN: Right.

WHITFIELD: All right. Well, hiccupping how about that? An occasional annoyance for most. For one Kentucky man, it's been a year-long or deal.

(BEGIN VIDEO CLIP)

MILTON BETTS, CAN'T STOP HICUPPING: I lost about 35, 40 pounds. I'm off from work right now. Because when I go to work, sometimes I lose my breath. I had a couple episodes at work where they sent me home because I couldn't breathe good. Throwing up. I get weak.

(END VIDEO CLIP)

WHITFIELD: Oh, man. That is miserable. So Betts has been prescribed numerous medications to help. He even nerve block surgery at the Mayo Clinic. And he says he's desperate for a cure and he would rather take part of in experimental research if it would help stop the hiccupping. It's pretty miserable.

All right. So where is your money going? We're about to get an update on the financial rescue package. Waiting on Treasury Secretary Henry Paulson from Washington. When it happens, we'll take you there live.

(COMMERCIAL BREAK)

WHITFIELD: All right. We're awaiting a press conference there out of Washington with Treasury Secretary Henry Paulson. He is expected to give us an update on what's being done with all that money that Congress approved on bailout for the financial sector. Fannie Mae and Freddie Mac, which have about 20 percent of delinquent loans unveil a new plan to help struggling homeowners.

And with auto sales slumping, the big three automakers are also seeking a helping hand. Will they get it? Well, possible auto bailout is indeed a big concern for Wall Street. Investors gave or rather have sent GM shares down to the lowest level since World War II. Take a look now at the Dow down 200 points. Stephanie Elam is watching all the markets there.

Stephanie, what do you know? STEPHANIE ELAM, CNN CORRESPONDENT: Well, GM shares they are bouncing back today. They are on the upside by about 11 percent. Of course that means they're trading at $3.24. So it's not exactly the most happy news. That's probably the end of the good news there. The stock is still trading in that $3.00 range down about, from 30 bucks just a year ago actually.

The dramatic tumble brings the world's largest automakers market value under $2 billion, that's less than a value of a company like Petsmart. Many analysts say without some federal help GM may not make it to January 20th when the next president is sworn in. The down-beat attitude is hitting the overall market. For the third day in a row, let's go ahead and take a look at the numbers. The Dow is on the downside by 228, 8468. Nasdaq off 34 at 1546. So we're looking at the major indices off more than two percent at this time, Fred.

WHITFIELD: And you have to wonder Stephanie how much a federal bailout might impact all of that?

ELAM: Oh, and that's the question that everybody has. And there's really no guarantee that it will work. But we do know that the ripple effects of a GM bankruptcy would be enormous. And that can come at the worst time obviously. Some analysts say it could push the unemployment rate above nine percent. Jobs would need to be cut at GM. Also at suppliers, dealerships and in other sectors.

Remember that auto maker industry buys huge amount of steel, plastic, rubber and electronics. So all of those industries would be hurt as well and Asian car companies could also get hit since they rely on the same suppliers that GM uses. Still some critics say a government bailout for GM is only delaying the inevitable. So not a lot of good news out there in the auto sector right now -- Fred.

WHITFIELD: Yes and it really is sobering when you look at the numbers in terms of people. When you hear that the big three, the U.S. automakers impact some two million jobs in the U.S. So certainly it will be devastating.

ELAM: Wide reaching.

WHITFIELD: All right. Stephanie, appreciate it, thanks so much.

ELAM: Thanks.

WHITFIELD: Well still a lot of talk today about insurance giant AIG and reports that it used taxpayer money to finance a conference at a fancy resort in Arizona. Josh Bernstein from our affiliate KNXV has more on that.

(BEGIN VIDEOTAPE)

JOSH BERNSTEIN, KNXV REPORTER: The three-day convention was held here at the Point Hilton Squaw Peak resort where the palm trees and pools seem to out number the guests.

(on camera): Is this registration for the all secretive AIG? UNIDENTIFIED FEMALE: Yes it is.

BERNSTEIN (voice-over): AIG went to great lengths to keep the conference a secret.

UNIDENTIFIED MALE: Why don't you just post a darn AIG sign? And it's like no, no, no.

BERNSTEIN (on camera): They tell you guys not to post it?

UNIDENTIFIED MALE: I can't even say the words.

BERNSTEIN (voice-over): According to the signs and brochures, it's the 2008 Asset Management Conference, training for independent financial planners. But the guest list includes a who's who of AIG senior management.

There they are sitting poolside, drinking coffee while other people attending the conference were in the meetings. That's adviser group CEO Larry Roth, senior vice presidents Bruce Leviton and Stuart Rogers. Here is company president Art Tambaro after working out at the spa, walking back to his room, a private two-story villa.

UNIDENTIFIED MALE: So they are like hotel rooms?

UNIDENTIFIED MALE: Hotel rooms.

UNIDENTIFIED MALE: The higher end ones.

UNIDENTIFIED MALE: Yes.

BERNSTEIN: This is video of a private cocktail party where AIG's top brass were working the crowd. Here are the top executives moments later, climbing into a Lincoln Town Car, shuttling off to Biltmore area restaurant McCormick & Schmick where they spent more than $400 on dinner and drinks.

(on camera): Mr. Roth, Mr. Tambaro, Josh Bernstein from ABC 15. Do you mind if we ask you a few questions about the conference?

UNIDENTIFIED MALE: We absolutely do, yes.

BERNSTEIN (voice-over): Despite the financial crisis, congressional hearings and an $85 billion taxpayer funded bailout --

(on camera): Do you think this is an appropriate use of taxpayer's money after the bailout?

(voice-over): AIG executives Larry Roth and Art Tambaro declined to talk.

(on camera): Mr. Tambaro, you were staying in one of two story townhouses, weren't you? One of the private villas?

(voice-over): A company spokesperson says it's part of a group rate at no additional cost. The spokesperson admits AIG is footing the bill, picking up the entire $343,000 tab, but expects 90 percent of the bill will be reimbursed by participating product sponsors.

The spokesperson confirms NFL legend Terry Bradshaw was scheduled to speak at the conference and get paid for signing autographs and taking pictures. But at the last second, AIG decided to cancel the appearance. But Bradshaw will still get paid.

(END VIDEOTAPE)

WHITFIELD: AIG has issued this response: "We take very seriously our commitment to aggressively manage meeting costs. Our success in enlisting product sponsors to pay for the vast majority of conference costs, while charging financial planners a registration fee and for their travel, has resulted in a minimal cost to AIG. In turn, our financial planners benefit from strong educational and training content and the ability to earn continuing education credits."

That's a response from AIG on that conference. Meantime, AIG Chief Executive Officer, Edward Liddy is defending the Phoenix conference. He told CNN's Larry King no bailout money was used.

(BEGIN VIDEO CLIP)

EDWARD LIDDY, AIG CHIEF EXECUTIVE OFFICER: It was not an executive retreat. It was 150 independent financial planners. They're not AIG employees. They can sell any products they want, any of our competitors. The purpose of this is to do education and training so they would understand our products, how to sell them and who they should sell them to.

(END VIDEO CLIP)

WHITFIELD: Without the bailout, the U.S. government owns about 80 percent of the insurance giant.

And as we wait for the Treasury secretary there, let's bring in Christine Romans one more time. Treasury secretary is expected to address the $700 billion bailout, or something to that effect.

What are our expectations?

ROMANS: Well, the Treasury Department and the Treasury secretary have been very clear from the beginning, Fredricka, that they're going to try to keep the American people posted on what they're doing and how they're spending that money. And they have promised full transparency. They promised to come before the cameras and Congress and let people know what's happening.

We know that in late September, when the Treasury and the Fed were trying to sell this to Congress, it was sold as something to take the toxic assets off the books of the banks, that they had to get those toxic mortgage-related securities, these troubled assets, off the banks' books so the banks could be healthy again and start lending and fix this credit crisis. We know since then that the actual bailout has changed a lot. It's changed from being something to take away those securities to being an actual cash injection into the troubled banks. The American people, in a sense, taking -- becoming shareholders in these banks.

If you look at a pie chart of how that money has been spent, or how it's been allocated, you can see that about half of it is still waiting to be deployed. They've got to ask Congress for it. But $250 billion is what they've said they're going to put into the banks, $40 billion is what they've said they're going to put into AIG, an insurance company -- actually buying shares of an insurance company, and then there is another $60 billion left to spend.

I'll be quite honest with you, there are a lot of different industries that would like a piece of that $60 billion. They'd like to say, hey, I don't have any toxic assets, but I'm suffering here, too. So the Democrats, some Democrats would like to see some of that money go maybe to the auto industry.

We know yesterday American Express applied to become a bank holding company and was granted that by the Fed. That means a company like American Express, a credit card company, technically can ask the Treasury Department for financial rescue funds as well.

So how the financial rescue -- how your money is being deployed is quite a bit different today than it was when we were sold.

WHITFIELD: All right, Christine, hold that thought. We're going to listen in to Henry Paulson right now.

HENRY PAULSON, TREASURY SECRETARY: Good morning, everyone.

I will provide an update on the state of the financial system, our economy and our strategy for continued implementation of the financial rescue package.

The actions taken by the Treasury, the Federal Reserve and the FDIC in October have clearly helped stabilize our financial system.

Before we acted, we were at a tipping point. Credit markets were largely frozen, denying financial institutions, businesses and consumers access to vital funding and to credit. U.S. and European financial institutions were under extreme pressure, and investor confidence in our system was dangerously low.

We also acted quickly, and in coordination with colleagues around the world, to stabilize the global financial system.

Going into the annual IMF-World Bank meetings in early October, I made clear that we would use the financial rescue package granted by Congress to purchase equity directly from financial institutions, the fastest and most productive means of using our new authorities to stabilize our financial system.

We launched our capital purchase program the following week, when we announced that nine of the largest U.S. financial institutions, holding approximately 55 percent of U.S. banking assets, would sell $125 billion in preferred stock to the Treasury.

At the same time, the FDIC announced it would temporarily guarantee all newly issued senior unsecured debt of participating organizations for up to three years.

In addition, the FDIC provided an unlimited guarantee on non- interest-bearing transaction accounts that expires at the end of next year.

As I assess where we are today, 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. Our system is stronger and more stable than just a few weeks ago.

PAULSON: Although this is a major accomplishment, we have many challenges ahead of us. Our financial system remains fragile in the face of an economic downturn here and abroad. And financial institutions balance sheets still hold significant illiquid assets.

Market turmoil will not abate until the biggest part of the housing correction is behind us. Our primary focus must be recovery and repair.

Overall, we are in a better position than we were. But we must address the continued challenges of a weak economy, especially the housing correction and lending contraction.

On housing, we've worked aggressively to avoid preventable foreclosures and keep mortgage financing available.

In October of 2007, we helped established the Hope Now alliance, a coalition of mortgage servicers, investors and counselors, to help struggling homeowners avoid preventable foreclosures.

Hope Now created a streamlined protocol to assist struggling borrowers who could afford their homes with a load modification.

Industry is now helping 200,000 homeowners a month avoid foreclosure.

In addition, HUD has created new programs to complement existing FHA options and to refinance a larger number of struggling borrowers into affordable mortgages.

Most significantly, we acted, earlier this year, to prevent the failure of Fannie Mae and Freddie Mac, the housing GSEs that now touch over 70 percent of mortgage originations.

PAULSON: I clearly stated at that time three critical objectives: providing stability to financial markets, supporting the availability of mortgage finance, and protecting taxpayers both by minimizing the near-term cost to the taxpayer and by setting policy- makers on a course to resolve the systemic risk created by the inherent conflict in the GSE structure.

Fortunately, we acted, citing concerns about both the quality and quantity of GSE capital. Unfortunately, out actions proved all too necessary. The GSEs were failing and if they did fail, it would have materially exacerbated the recent market turmoil and more profoundly impacted household wealth, from family budgets to home values to savings for college and retirement.

Early this week, Fannie Mae reported a record loss, including write downs of its deferred tax assets that make up a significant portion of its capital.

We monitor closely the performance of both Fannie Mae and Freddie Mac and both are performing within the range of our expectations. The magnitude of the losses at Fannie Mae were within the range of what we expected and further confirms the need for our strong actions.

Eight weeks ago, Treasury took responsibility for supporting the agency debt securities and the agency MBS through a preferred stock purchase agreement that guarantees a positive net worth at each enterprise, effectively a guarantee on GSE debt and agency MBS.

We also established a credit facility to provide the GSEs the strongest possible liquidity backstop.

As the enterprises go through this difficult housing correction, we will, as needed and promised, purchase preferred shares under the terms of that agreement.

The U.S. government honors its commitments and investors can bank on it.

When we took action in September, I said that we would be entering a timeout, a period where the new president and Congress must decide what role government in general, and the GSEs in particular, should play in the housing market.

PAULSON: In my view, government support needs to be either explicit or nonexistent, and structured to resolve the conflict between public and private purposes, and policy-makers must address the issue of systemic risk.

In the weeks ahead, I will share some thoughts outlining my views on long-term reform.

In the meantime, the GSEs now operate on stable footing. They have strong government support backing both future capital and liquidity needs. We have stabilized the GSEs and limited systemic risk, and our authorities provide us with additional flexibility to use as necessary to accomplish our objectives.

More recently, we have also taken extraordinary steps to support our financial markets and financial institutions.

As credit markets froze in mid-September, the administration asked Congress for broad tools and flexibility to rescue the financial system. We asked for $700 billion to purchase troubled assets from financial institutions. At the time, we believed that would be the most effective means of getting credit flowing again.

During the two weeks that Congress considered the legislation, market conditions worsened considerably. It was clear to me by the time the bill was signed, on October 3rd, that we needed to act quickly and forcefully, and that purchasing troubled assets, our initial focus, would take time to implement and would not be sufficient given the severity of the problem.

PAULSON: In consultation with the Federal Reserve, I determined that the most timely, effective step to improve credit market conditions was to strengthen bank balance sheets quickly through direct purchases of equity in banks.

Of course, before that time, the only instances in which Treasury had taken equity positions was in rescuing a failing institution. Both the preferred stock purchase agreements for Fannie and Freddie Mac, and the Federal Reserve secured lending facility for AIG, came with significant taxpayer protections and conditions.

As we planned a capital purchase plan to support the overall financial system by strengthening balance sheets of a broad array of healthy banks, the terms had to be designed to encourage broad participation, balanced to ensure appropriate taxpayer protection, and not impede the flow of private capital.

We announced a plan, on October 14, to purchase up to $250 billion of preferred stock in federally regulated banks and thrifts. By October 26, we had $115 billion out the door to eight large institutions. In Washington, that is a land speed record from announcing a program to getting funding out the door.

We now have approved dozens of additional applications, and investments are being made in approved institutions. Although we are moving very quickly, it'll take time to complete legal contracts and execute agreements in the significant number of institutions who meet the eligibility requirements, and are approved, but we are on the path to getting this done.

Although this program's primary purpose is stabilizing our financial systems, banks must also continue lending.

PAULSON: During times like these, with a slowing economy and some deterioration in credit conditions, even the healthiest banks tend to become more risk-averse and restrain lending. And regulators' actions have reinforced this lending restraint in the past.

With the stronger capital banks -- excuse me, with a stronger capital base, our banks will be more confident and better positioned to play their necessary role to support economic activity.

Today, banking regulators issued a statement emphasizing that the extraordinary government actions taken by the Fed, Treasury and FDIC to stabilize and strengthen the banking system are not merely one- sided. All banks, not just those participating in the capital purchase program, have benefited. So they all have responsibilities in the areas of lending, dividend and compensation policies and mortgage mitigation -- excuse me, foreclosure mitigation.

I commend this action, and I am particularly focused on the importance of prudent bank lending to restore our economic growth. Since announcing the capital purchase program, we have been examining a wide range of ideas that can further strengthen the financial system and get lending going again to support the broader economy.

First and foremost, because the system remains fragile, we must continue to stand ready to prevent systemic failures. That is the basis for Monday's action to preferred -- to purchase preferred shares in AIG. The stability of our financial system remains the highest priority.

We must also allow markets and institutions to absorb the extensive array of new policies put in place in a very short period of time. The injection of up to $250 billion of capital into individual banks, the FDIC's temporary guarantee of bank debt and the Federal Reserve's multiple liquidity facilities for banks, money funds and commercial paper issues have all significantly enhanced liquidity and helped improve market conditions.

We have evaluated options for most effectively deploying the remaining TARP funds, and have identified three critical priorities.

First, we must continue to reinforce the stability of the financial system, so that banks and other institutions critical to the provision of credit are able to support economic recovery and growth.

PAULSON: Although the financial system is stabilized, both banks and non-banks may well need more capital, given the troubled-asset holdings projections for continued high-rates of foreclosures and stagnant U.S. and world economic conditions.

Second, the important markets for securitizing credit outside of the banking system also needs support. Approximately 40 percent of U.S. consumer credit is provided through securitization of credit card receivables, auto loans and student loans and similar products. This market, which is vital for lending and growth, has, for all practical purposes, ground to a halt. Addressing these two priorities will have powerful impacts on the overall financial system, the strength of our financial institutions and the availability of consumer credit.

Third, we continue to explore ways to reduce the risk of foreclosure. Over these past weeks, we have continued to examine the relative benefits of purchasing illiquid mortgage-related assets. Our assessment at this time is that this is the -- is not the most effective way to use TARP funds. But we will continue to examine whether targeted forms of asset purchase can play a useful role relative to other potential uses of TARP resources in helping to strengthen our financial system and support lending.

But other strategies I will outline will help to alleviate the pressure of illiquid assets. First, we are designing further strategies for building capital in financial institutions. Stronger capital positions will enable financial institutions to better manage illiquid assets on their books and better ensure that they remain healthy. PAULSON: Any future program would maintain our principle of encouraging participation of healthy institutions while protecting taxpayers.

We are carefully evaluating programs which would further leverage the impact of a TARP investment by attracting private capital, potentially through matching investments.

In developing a potential matching program, we will also consider capital needs of non-bank financial institutions not eligible for the current capital program.

Broadening access in this way would bring both benefits and challenge. Non-bank financial institutions provide credit that is essential to U.S. businesses and consumers.

However, many are not directly regulated and are active in a wide range of businesses. And taxpayer protections in a program of this sort would be more difficult to achieve.

Also, before embarking on a second capital purchase program, the first one must be completed, and we have to assess its impact and use this information to evaluate the size and focus of an additional program, in light of existing economic and market conditions.

Second, we are examining strategies to support consumer access to credit outside the banking system. To date, the Fed, FDIC and Treasury programs have been targeted at our banking system. And the non-bank consumer finance sector continues to face difficult funding issues.

Specifically, the asset-backed securitization market has played a critical role, for many years, in lowering the cost and increasing the availability of consumer finance.

This market is currently in distress; costs of funding have skyrocketed; and new issue activity has come to a halt.

Today, the illiquidity 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: With the Federal Reserve, we are exploring the development of a potential liquidity facility for highly rated AAA asset-backed securities.

We are looking at ways to possibly use the TARP to encourage private investors to come back to this troubled market by providing them access to federal financing while protecting the taxpayers' investment.

By doing so, we can lower costs and increase credit availability for consumers.

Addressing the needs of the securitization sector will help get lending going again, helping consumers, and supporting the U.S. economy.

While this securitization effort is targeted at consumer financing, the program we are evaluating may also be used to support new commercial and residential mortgage-backed securities lending.

Third, we are examining strategies to mitigate mortgage foreclosures. In crafting the financial rescue package, we and the Congress agreed that Treasury would use its leverage as a major purchaser of troubled mortgages to work with servicers and achieve more aggressive mortgage modification standards.

Now that we are not planning to purchase illiquid mortgage assets, we must find another way to meet that commitment.

FDIC Chairman Bair has given us a model in the mortgage modification protocol she developed with IndyMac Bank. Through the end of October, the FDIC has completed loan modifications for 3,500 borrowers, with several thousand more modifications currently being processed.

These modifications have helped reduce payments for participating homeowners by an average of $380 month, or about 23 percent.

PAULSON: We have worked with the FHFA, the GSEs, HUD and Hope Now alliance, who, yesterday, announced a streamlined industry-wide modification program that, for the first time, adopts an explicit affordability target similar to the model pioneered at IndyMac.

With this commitment, the GSEs and large portfolio investors are setting a new industry standard for foreclosure mitigation. Potentially hundreds of thousands more struggling borrowers will be enabled to stay in their homes at an affordable monthly mortgage payment.

Beyond these efforts, there has been significant work to design and evaluate a number of proposals to induce further modifications. Each of these would, however, require substantial government subsidies. The FDIC has, for example, developed a proposal that Treasury and others in the Administration continue to discuss.

I believe it is an important idea. As we evaluate the merits of any new proposal, we'll also have to identify and justify the means to finance it. We must be careful to distinguish this type of assistance, which essentially involves direct spending, from the type of investments that are intended to promote financial stability, protect the taxpayer, and be recovered under the TARP legislation.

Maximizing loan modifications, nonetheless, is a key part of working through the housing correction and maintaining the quality of communities across the nation, and we will continue working hard to make progress here.

PAULSON: We will continue to pursue the three strategies I have just outlined: how best to strengthen the capital base of our financial system; how best to support the asset-based -- excuse me -- the asset-backed securitization market that is so critical to consumer finance; and how to increase foreclosure mitigation efforts.

All of these strategies are important, but ensuring the financial system has sufficient capital is essential to getting credit flowing to consumers and businesses, and that is where the bulk of the remaining TARP funds should be deployed --- in a program to support the system and as a contingency reserve for addressing any unforeseen systemic events.

We are focused on developing and preparing programs which can be implemented for each of these strategies. We will continue to brief President-elect Obama's transition team on all of these issues.

Of course, managing through this market turmoil while mitigating the impact of the credit crisis is -- is global -- is a global as well as a national issue. We in the U.S. are well aware and humbled by our own failings and recognize our special responsibility to the global economy.

The U.S. housing correction exposed gaping shortcomings in the outdated U.S. regulatory system, shortcomings in other regulatory regimes, and excesses in U.S. and European financial institutions.

These institutions found themselves with large holdings of structured products, including complex and opaque mortgage-backed securities. Some European institutions were characterized by high leverage, exposure to their own housing markets, exposure to the Central European institutions, weak business models or overly aggressive expansion, while others faced weaknesses because of inadequate depositor protection systems.

PAULSON: It should not be surprising, that after 13 months of stress of the global markets, banks from the U.S. to the U.K., from Germany to Iceland, from Russia to France, have difficulties that expose some of these weaknesses for the first time. For some of these banks, it's proved to be a hurdle too high, and government action was necessary to support financial stability. In that regard, the Chief Seven Finance Minister's meeting last month presented a major turning point in stabilizing the global financial system, as the ministers came together to support a number of powerful strategies that were soon turned into effective actions in the United States and Europe.

It is also clear that our first -- first priority must be recovery and repair. And of course, we must take strong actions to fix our system so that the world does not have to suffer something like this ever again. The Leader's Summit President Bush will be hosting this weekend marks a very -- important step in what will be an on- going process of recovery and reform.

And to adequately reform our system, we must make sure that we fully understand the nature of the problem, which will not be possible until we are confident it is behind us. Of course, it is already clear that we must address a number of significant issues, such as improving risk management practices, compensation practices, oversight of mortgage origination and the securitization process, credit rating agencies, over-the-counter derivative market infrastructure and regulatory policies, practices and regimes in our respective countries.

PAULSON: And we recognize that our financial institutions and our markets are global, but our regulatory regimes are national, so we will examine how best to improve cooperation and information sharing to foster global financial system stability.

But let us not forget one fundamental issue which lies at the heart of our problems. Over a period of years, persistent and growing global imbalances fueled a dramatic increase in capital flows, low interest rates, excessive risk taking and a global search for return.

These excesses cannot be attributed to any single nation. There is no doubt that U.S. -- there's no doubt that low U.S. savings are a significant factor. But the lack of consumption and accumulation of reserves in Asia and oil-exporting countries, and structural issues in Europe have also fed the imbalances.

If we only address particular regulatory issues -- as critical as they are -- without addressing the global imbalances that fueled the recent excesses, we will have missed an opportunity to dramatically improve the foundation for global markets and economic vitality going forward. The pressure from global imbalances will simply build up again until it finds another outlet.

The nations attending this weekend's summit represent the 20 largest economies in the world -- over 77 percent of global GDP.

PAULSON: President Bush is convening this group of countries to discuss and address problems such as global imbalances, making regulatory regimes more effective, fostering cooperation among regulators, and reforming international institutions to better address today's global economy.

We can't simply task the IMF, the FSF or other international financial institutions to solve the problem unless member nations all see that they have a shared interest in a solution.

There are no easy answers, because until we reach a consensus on a broad-based reform agenda, we will not reach a solution. This weekend provides an opportunity for nations to take an important step, but only one step on the necessary path to reform.

The road ahead for the U.S. economy and the global economy is full of challenges. And it will take strong leadership to address them.

I am confident the United States under this and the next administration will rise to these challenges.

I will do everything I can to put us on the right path, both by working diligently through the end of my term and by working closely to ensure the smoothest transition possible.

Thank you.

And I'll now take some questions. QUESTION: (inaudible) if I may, two quick questions on TARP.

(CROSSTALK)

PAULSON: Yes.

QUESTION: Federal (inaudible) needed for state and local governments and their transportation agencies either through TARP or something the Fed can do?

PAULSON: The question is the federal response to state and local agencies.

QUESTION: Governments.

PAULSON: Governments. I think you would have to ask the Fed for the answer there, but I don't believe that is something that -- that they can do.

QUESTION: Not the TARP?

PAULSON: And it's not the focus of TARP. The focus of TARP, as you know, is to -- is to stabilize financial institutions and strengthen the financial system, promote lending and so on.

Yes?

QUESTION: Thank you.

You mentioned that under TARP you still have a duty to encourage and try to aid borrowers facing foreclosure.

QUESTION: This model the FDIC has used -- there's talk of, maybe, a co-pay. This is a plan that's been aired out, a co-pay. The Treasury would -- TARP would pay some of that mortgage payment.

Can you say anything about what could work, what the Treasury could get behind?

PAULSON: Yes, what I -- what I said here, which is to just lay it out, really, quite clearly, when we were putting forward the idea of TARP, to Congress and the American people, the focus was buying illiquid assets. And it was an investment program.

But owning these assets was going to give us leverage to more forcefully drive more mortgage modifications. As I've said now, this is not going to be the focus. We've -- you know, we've kept open the possibility of targeted responses, but that's not the focus.

So the -- and now, when we look at the program you're mentioning, the FDIC program, which is something we spent a lot of time on, and we're continuing to discuss and work through, and it's -- it's an important program.

But that is a subsidy or spending program. And so we have a -- TARP, which was investment, not spending. And so we're dealing with that and we're continuing to work through that issue.

QUESTION: Secretary Paulson, absent government action, at least one U.S. auto maker may fail before the end of the year. What actions do you see your Treasury taking to forestall such an event?

PAULSON: Well, first of all, rather than focusing on any particular company, let me say that, first of all, I believe and I know that this administration believes the auto industry is a very important, critical industry in this -- in this country. We're very supportive of management -- excuse me. We're very supportive of -- of manufacturing.

And so, again, it's a critical industry. It's critical to the country. Manufacturing is critical to the country.

The -- our position all the way along is that any solution has got to be a -- a solution leading to viability. So any solution has got to be leading to -- to long-term viability.

And I think what you've heard the administration say so far is that -- that the 136, which was the congressional bill, where $25 billion was set aside for the auto industry, one option would be to amend that -- amend that bill to make it available.

Yes?

QUESTION: Securitization. Two-part question. You talk about asset-backed securitization. It's a technical issue, but it kind of works in the background and makes consumer credit available.

What specifically are you guys thinking to get in there and target that market that's frozen? (inaudible) supporting, backstopping the securitizers or guaranteeing the product because nobody wants to buy it?

PAULSON: Well, the -- what -- again, we're in the process of working with the Fed to design it. And what we were -- the idea I presented very generally was a program of liquidity which would make financing available to the buyers of this so -- on a non-recourse basis -- so to make financing available so that it encouraged their participation, you know, investors' participation in the market.

QUESTION: Mr. Secretary, almost all of the first $350 billion has been allocated through TARP. When are you going to go to Congress to discuss accessing the remaining $350 billion? And is the total, is $700 billion, going to be enough?

PAULSON: Well, first of all, I have no timeline for going to Congress to ask for the drawdown of the second $350 billion. We have -- we're working to continue to design, develop programs that could be -- it could be used.

And when it's the right time to use them, we will roll -- we will roll them out. And if it then makes sense to go to Congress, we will go to Congress and ask for the drawdown of the second $350 billion.

And, as you know, that's the -- that's really the process that Congress laid out for us.

Now, in terms of the -- of the $700 billion size, I still am comfortable that with $700 billion we have what we -- what we need.

QUESTION: Mr. Secretary, on the illiquid asset program (inaudible), what was your main reason for scrapping that? There have been thoughts (ph) that you had a problem pricing the assets.

PAULSON: No, it was the -- let's step back, give you a longer response to this. From the time we first focused on this issue, it was about capital -- and capital in our financial institutions.

PAULSON: Our institutions have illiquid assets and there's no doubt that buying illiqid assets serves two purposes. It freezes up capital and there's a price discovery process which encourages -- makes it easier for -- for additional capital to come in. That's still a very valid concept. But what -- what changed -- the facts changed, and the situation worsened. And given the situation we confronted, we said, the right way to use the taxpayers' money -- it would be through an investment program in -- in -- directly into capital -- taking capital, because there's -- it's much more powerful and there's more leverage that goes with a -- with the taxpayer dollars in such a program.

QUESTION: (inaudible) rechanged (ph) the (inaudible) some people say (inaudible). I'm wondering if you could walk us through your decision on why you think (inaudible)?

PAULSON: Well, first of all, this was -- this was done through a -- an administrative process. It was quite legal, and let me explain to you just in -- in layman terms what we're dealing with. And again, I'm, you know, I'm not going to go through all of the technicalities, but the way the system worked was that if you're an institution and you have a loss that isn't realized -- and when -- then after a merger or acquisition, that loss couldn't be used to off-set taxes if it was realized later. And in the situation we are dealing with in the market place, where values were very difficult to determine, this became a very impractical and unworkable, and it was an impediment to -- to activity that was very worthwhile activity, so we made the change.

QUESTION: What non-bank financial institutions do you have in mind? How do you define them in terms of helping them?

And if you're going to open it up to non-bank financial institutions, why not open it up to other critical companies which you have ruled out? Where do you -- why you draw the line there?

PAULSON: Again, let's go back to the TARP, OK. The TARP was focused on -- and the reason for getting these authorities was focused on the stability of our financial system, preserving the stability and stabilizing our financial system.

And we were focused on strengthening that financial system, getting lending going, OK. So it wasn't -- we didn't say "banking system." We said "financial system." And that's what the TARP was focused on. Now, what we're -- what we're doing right now is we are going to -- making it available to banks and thrifts that are -- you know, are savings and loans, that are thrifts, that are -- have a federal regulator. And that's where the focus is right now.

And as I said, if we go beyond that, there are certain advantages to going beyond it and there are different -- there are implementation difficulties to go to institutions where there is no federal regulator.

Yes?

QUESTION: From a macro perspective, do you think that the U.S. auto makers have systemic importance to the economy? Are you concerned -- I mean, I see numbers 2 million or 3 million jobs that could be lost if the industry were to fail. Is that a concern?

PAULSON: I would say that -- I think I was pretty clear earlier, and I'll just repeat it. You know, I know the automakers are important to the U.S. We care about our auto industry in the U.S. They're a key part of our manufacturing industry. Manufacturing is critical. So, when you look at autos, and you look at that whole food chain, and what it means to manufacturing, it's critical.

And, I've said very clearly, and I think the Administration said that, you know, we need a solution but the solution has got to be one that leads to viability. And, the -- and I've -- you know, and -- again, the TARP is -- the intent of the TARP was to deal with the financial industry.

QUESTION: President-elect has said that his first order of business in January will be to pass a new stimulus package unless it gets done before then. Will you guys support a lame duck stimulus package? And would you support a lame duck automobile industry assistance package?

PAULSON: Well, I would say -- let's start with stimulus, and say that my focus is on the financial sector getting credit going, getting lending going. I can't imagine anything else will have a bigger impact and a bigger positive impact, and a bigger stimulative impact than getting credit flowing again; getting lending flowing again.

Some of the things we're talking about, and that's where I'm -- my focus is. And, the -- I made my comments on the importance of the auto industry. I've said that one idea that this administration has had is, Congress has already passed legislation, appropriated funds. You know, so we have 136.

PAULSON: So we had a viewpoint that that legislation could be modified to make that money available.

QUESTION: Modifying legislation, sir -- back on the FDIC proposal, you said that the challenge there is that the TARP is an investment plan. Ms. Bair's proposal would be a spending plan because it would require a subsidy.

How do you fix that?

Would you need more legislation?

How do you get around that problem?

PAULSON: I wasn't speculating on that. I'm saying this is something -- you know, I told you what we are doing, and then I outlined three priorities.

And we're going to continue -- I've been working to prevent avoidable foreclosures for a long time, and working hard. And we're going to continue to work hard and discuss -- discussing various programs.

I just went through, with you, the trade-offs. And there are trade-offs. And so we're discussing the trade-offs publicly. We will keep discussing them, and that remains one of our priorities.

I did say, though, the top priority has to be stability, making sure we have, you know, the resources in reserve to deal with any systemic events and make sure that we've got capital to put in institutions. That's got to be the number one priority.

But an important priority is foreclosure prevention. And that was right there when we -- up front, when we talked about the TARP. And I -- I believe -- I've spent time looking at -- I just can't tell you how many proposals I've looked at to modify mortgages and keep people in their homes.

PAULSON: This is a very complicated area. There are no easy answers. The -- I think the FDIC program you're talking to is a -- is -- is -- is a good program because it's -- it's not perfect, and there continues to be work done on it.

But there's going to be no program that's perfect that's going to lead to -- to fast modifications and goes farther than -- you know, I just don't want you to lose sight of what was announced yesterday, because what was announced yesterday, which is underwriting so that families won't have to spend more than 38 percent of their income to get a modification is very important.

And the getting the GSEs to take that step, with all of the servicers, and then you look at what's happened with a number of these big banks, this is extraordinary progress.

But to go beyond that it may take spending. And so I've just tried to outline -- to be -- quite transparency put forward the tradeoffs we're looking at right now.

Yes?

QUESTION: On that -- on that question, yesterday all the action taken by the GSEs and others, did you force them to do that? Is that enough? Have you abandoned homeowners because you're no longer going to use TARP to help the homeowners? And on a broader question, you're using TARP now completely differently than you told Congress you were going to use it. Did you mislead Congress? What's happened?

PAULSON: Well, let me get to the -- what we -- what we said to Congress was we needed a financial rescue package because the credit markets were stopped up.

PAULSON: And we were focused on the problem. And the -- and when we went to Congress, the illiquid assets looked like the way to go. As the situation worsened, the facts changed. The thing I'm grateful for is we were prescient enough and Congress was, that we got a wide array of authorities and tools under this legislation.

And I will never apologize for -- for changing an approach or a strategy when the facts change. I think the apologies should come the other way if -- if someone doesn't change when the facts change.

So we -- I think we moved quickly; we moved powerfully to address the situation, and as it -- as it exists now.

But therein lies your -- you know, your second question, because this was never -- we never had the discussion in the context of not buying the illiquid assets. And so -- but, you know, foreclosure prevention is something I'm going to keep working on right up until I leave.

And in terms of what was done yesterday, with the GSEs and with Hope Now and others, we've been -- ordering is too strong, but we've been encouraging. And they've been looking, also for ways to be helpful.

But I think government can play a role in bringing people together. And, of course, given the conservator status ship (ph) of GSEs, it's easier to do that now.

QUESTION: (inaudible) change the focus from buying assets to...

PAULSON: The -- let me say, without getting into any particular details there, that -- that on Monday I had a meeting with the head of the Economic Transition Team, and a -- another individual who is going to have responsibility for -- for really staying very close to what we're doing with the TARP.

PAULSON: And I believe very much, anybody that knows me and -- open lines of communication -- I'm totally dedicated to a -- to a seamless transition. But in terms of, you know, what communications, I really think I should let them speak to that.

QUESTION: What advice to do you have...

(CROSSTALK)

QUESTION: The rescue package bill says that bonds can be used to purchase troubled financial instruments that the Treasury secretary deems appropriate. Do you see any limit to you given in the bill? PAULSON: Do I see limits?

Well, there's -- there's -- I want to first of all say, we got broad authority, and we asked for broad authority, and it was necessary for broad authority and if -- the way the situation has developed, if it's done anything, it's proved the importance of broad authority. There, obviously, are limits, and we welcome oversight, we have an oversight board. And I think what I'm trying to demonstrate in my comments here today is that I also think that it's very important for me to live within the intent of the bill, rather than try to find loop-holes or what have.

So there's -- we have broad authority and I'm doing what I can to live within the intent of the bill.

OK, one more.

QUESTION: Can you talk a little bit about the liquidity facility at the Fed, the timing for such (inaudible) and how big you think you might need it to be?

PAULSON: Well, the question is the securitization asset-backed paper liquidity facility and the timing.

This will take -- it's -- these things are complicated and they're not easy to get up and going and then have work smoothly. And so this will take -- this will take, in my judgment, weeks to design. And then it will take longer to get up and going.

And in terms of the size, decisions haven't been made on that yet. But -- but this is something that could be -- that could be significant in size and would really need to be significant to make a difference.

Thank you very much.