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Treasury Secretary Henry Paulson Holds News Conference; Politics of Race
Aired October 08, 2008 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
(BEGIN VIDEOTAPE)
RICK SANCHEZ, CNN ANCHOR (voice-over): Coming at you now, a question being asked: With the economy tanking, Republicans in charge, and a consensus debate victory, why isn't Obama further ahead?
DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: I think it is too early to declare victory, Anderson, because Barack Obama is black -- because Barack Obama is black.
SANCHEZ: A Reagan adviser, one of America's brightest political minds, talking about this attitude.
UNIDENTIFIED MALE: And she flat-out said to me, "I can't vote for that black boy."
SANCHEZ: It is flat-out racism or fear of unchartered territory, something subtle, something we are not comfortable talking about? We will talk about it this hour, your voices, your comments, a national discussion as we look at debate moments.
TOM BROKAW, MODERATOR: And you are in my way of my script there, if you will move.
(APPLAUSE)
SANCHEZ: We go unscripted with what you have to say on Twitter, Facebook and more. Like nowhere else, your newscast starts now.
(END VIDEOTAPE)
SANCHEZ: And hello again, everybody. I'm Rick Sanchez.
A very important newscast, something all of us as Americans should and will be talking about during this hour.
First things first, though, a couple of live events that we are going to be getting to. You see the Dow there. It is up 42, very different from the situation yesterday. We have got an hour to go, and we're going to e following it very carefully. We are also going to be following some of the comments that may be made by world leaders.
They are meeting because we are all concerned about this rescue the bailout that is taking place in our country. The same thing is now going on in countries all over the world, and that is why world leaders are in Washington as we speak.
One other thing. Let me tell you that Henry Paulson is to going to be speaking any moment now. And, as soon as he goes to the mike, we're obviously going to be taking his comments as he brings them to you.
But something happened yesterday during this hour, something that hit a nerve, a conversation about politics and race in this country as we get down to the last month in this campaign. Listen here. We are going to take you to Fort Myers, Florida. This is a sheriff in the Fort Myers area. He's speaking just before Sarah Palin speaks at her rally.
Take a listen.
(BEGIN VIDEO CLIP)
MIKE SCOTT, LEE COUNTY, FLORIDA, SHERIFF: On November 4, let's leave Barack Hussein Obama wondering what happened.
(CHEERING AND APPLAUSE)
(END VIDEO CLIP)
SANCHEZ: Barack Hussein Obama. And he is a public official. It didn't end there. After that, according to reports, in some of the rallies in Florida, there was also at least one reporter who was called a racial slur. He was a sound man for one of the news organizations.
And then, during a John McCain speech, someone blurted out a word that sounded an awful lot like terrorist. In another conversation, there was a word that sounded like "kill him," not known at this point who are they referring to, but it's making people think.
In fact, we have one of those.
Let's go ahead and put that up now, Roger.
(BEGIN VIDEO CLIP)
SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL NOMINEE: In short, who is the real Barack Obama?
(SHOUTING)
MCCAIN: But -- but, my friends...
(END VIDEO CLIP)
SANCHEZ: The word, according to most who were in the audience, was terrorism.
And then there is this. This is a conversation that was had last night on CNN after the debate. The question is where Barack Obama is right now, after most people concluded that he had done very well in the debate. This is the comment that was made by David Gergen.
(BEGIN VIDEO CLIP)
GERGEN: I think it's too early to declare victory Anderson, because Barack Obama is black. And until we play out the issue of race in this country, I don't think we'll know and maybe unless -- late in the campaign.
ANDERSON COOPER, HOST, "ANDERSON COOPER 360": Do you think that despite the lead in the polls, people might change their minds once they're actually in the voting booth?
GERGEN: I'm not sure the polls are totally believable, I think there's -- there maybe built in. Over the years there's a study now that's come out of Stanford University and Associate Press along with Yahoo!, saying that is -- that his blackness may cost him as much as six points I think he's in a commanding position coming out of this second debate. Having won two, having done as well as he has, I think he's established in the public's mind now that he is certainly as qualified to be president as John McCain.
And that's a -- and he's come a long way in this and I think it's much more sure-footed, he's very presidential tonight. But we don't know what the race factor in America now.
(END VIDEO CLIP)
SANCHEZ: The race factor in America now. It was an important conversation then. We decided to continue it today.
And we are being joined now by two people who are going to help us do that.
Amy Holmes is joining us, as is Hilary Rosen. Both of them are strategists, politically.
Amy, let me just start with you.
Is David Gergen right in his assessment? Because it may be one of the first times that anyone has actually put that thought process into words on the air.
AMY HOLMES, CNN POLITICAL ANALYST: Well, you know, I think, David, he makes an interesting point, but I think it oversimplifies it.
And Barack Obama, he is unknown. And he is also liberal. So, I think those things are also weighing on voters' minds. Who is Barack Obama? What does he really believe? We don't have that much experience with Barack Obama on the national stage. So, I think there has been some resistance to him. This is something that Hillary Clinton, she was pointing out in a Democratic primary, that Barack Obama has a pretty thin resume, so he is a bit of a Rorschach test for voters.
Some voters project their hopes and their dreams onto him. Other ones have a question mark, I don't know a lot about this guy. This is the same people said that people that -- people cling to guns and religions and yet he talks about how important his religious faith is to him.
So, I think we are still trying to work out who this national figure is.
SANCHEZ: Hilary Rosen, do you buy that?
HILARY ROSEN, CNN POLITICAL CONTRIBUTOR: No, actually, I don't.
I think, interestingly, I might have bought it a year and half ago, but I think that over the course of this campaign, America has really gotten comfortable with Barack Obama. And when -- elections are about matchups. And when you see kind of the erratic nature of John McCain over the last month, when you see how Barack Obama has been kind of cool and steady in crisis, under attack ads and the like, I think that he actually looks like kind of a safer choice in many respects.
I think the point that David raised, though, is something that there has been some, you know, expert pollsters talking about, which is, how much do people lie in the -- in polls and how much will that affect the campaign in the voting booth?
SANCHEZ: Given the economy, given the record of the Bush administration, given the fact that his approval ratings are down to 24 percent, and given the fact that he has a D after his name and not an R and John McCain does, and let me just ask the question flat out as it's being asked in editorial columns all over the country -- if Barack Obama were not black, would he be ahead by much more?
ROSEN: You know, I don't know the answer to that. I think there might be...
SANCHEZ: Are you afraid of the question?
ROSEN: No, I am not afraid of the question. I truly don't know the answer to it, for this reason, because it is a holistic person. If he were not black, might he be as appealing to people in terms of his really revolutionary way to think about politics, his appeal to independents, his desire to move past the kind of politics of the old days?
And so, in many respects...
SNOW: Well, let me stop you there. It is an important discussion. And you know what? There was the Kennedy factor in the 1960s as to whether Americans would be comfortable with a Catholic. And it is as much about comfort as it is about race.
But Henry Paulson is going up to microphone. Let's take him. We will continue this on the other side.
(JOINED IN PROGRESS) HENRY PAULSON, U.S. TREASURY SECRETARY: ... the Federal Reserve and the FDIC with important new authorities to complement existing ones.
We will continue to coordinate with other federal regulators and use these tools to implement our strategy to address the four key challenges in our financial markets today: confidence, capital, systemic risk, and liquidity.
Although we are facing particularly difficult circumstances, I remain confident that we will work through this challenge as we have always successfully worked through every economic challenge in the history of the United States.
We are a strong and a wealthy nation with the resources to address the needs we face. I am confident that, with the right policy response, time and effort, we will conquer these challenges, as well.
U.S. and global financial markets continue to be severely strained. A chain of events caused by the ongoing housing correction has reverberated throughout -- through U.S. banks and financial institutions and has seriously impacted the underlying economy, reaching American households and businesses.
A root cause of this situation is the housing correction and a lack of confidence in mortgage assets, as well as a lack of confidence in many of the financial institutions that hold these assets.
Because of this widespread uncertainty, investors are hesitant to commit capital to financial institutions. Investor confidence is critical to restore liquidity and enhance the stability of our financial system.
This financial turmoil is now directly affecting more families and businesses.
When banks cannot finance at reasonable levels and cannot or are not willing to lend, everyone in our economy who depends on credit suffers. The capital markets are the pipes through which money flows to finance student loans, car loans, home loans, and small businesses' payrolls and inventory.
And uncertainty and a lack of confidence have clogged our basic financial plumbing.
While our actions have been aimed at restoring financial markets and institutions, our purpose is to prevent financial market difficulties from further impacting businesses and families across the country.
Over the last six months, the U.S. government has addressed a number of significant problems on a case-by-case basis. In my judgment, these actions, a number of which were quite significant, were necessary, but not sufficient.
By September, uncertainty had led to a credit market freeze, and it became clear that we needed to take a systemic approach on a significant scale to get at the underlying cause of much of this turmoil.
We went to Congress and asked for broad new authorities to address the current troubles affecting our financial markets, including the root cause of the financial system freeze, the illiquid mortgage assets weighing on balance sheets.
And Congress met the very difficult challenge of providing these authorities by passing the EESA. Specifically, the EESA empowers Treasury to use up to $700 billion to inject capital into financial institutions to purchase or insure mortgage assets and to purchase any troubled assets that the Treasury and the Federal Reserve deem necessary to promote financial market stability.
The new law also gives the Federal Reserve the authority to pay interest on reserves and temporarily increases FDIC and NCUA deposit insurance from $100,000 to $250,000.
Two days ago, the members of the President's Working Group on Financial Markets, the PWG, made clear that we will coordinate the use of our existing and new authorities to restore market confidence by strengthening financial institutions, preventing systemic impact from bank failures, increasing liquidity to financial markets, and keeping mortgage or credit available and affordable.
The Treasury Department is moving rapidly to implement the EESA to help strengthen financial institutions while also protecting taxpayer interests.
As I have said before, the ultimate taxpayer protection will be a stable financial system that supports normal economic activity. Towards that goal, the EESA adds broad flexible authorities for Treasury to buy or insure troubled assets, provide guarantees, and inject capital.
We will use all the tools we've been given to maximum effectiveness, including strengthening the capitalization of financial institutions of every size. We will design programs that encourage healthy institutions to participate.
Much attention is focused on the use of auctions to purchase troubled assets from financial institutions. We are moving as quickly as possible to organize and implement the most effective process possible. We expect it will be several weeks before our first purchase.
Consistent with EESA, I have appointed an interim assistant secretary to manage the program and begin its rapid implementation. I am currently working with the president to identify a leader to submit for confirmation, as called for in the legislation, to manage the program and help ensure its long-term success.
I will also consult with congressional leaders and Senator McCain and Senator Obama during this process. It is our intent to have an appointee confirmed by the Senate as soon as possible, and I look forward to working with the Senate when they return in November to ensure we maintain strong leadership and continuity for this unprecedented effort.
We have also identified and retained other very experienced interim leaders for the office, including an interim chief financial officer. We have published guidelines on our procurement and conflict management processes.
We have already sent out several essential requests for proposals that require 48-hour turnaround so we can contract with private-sector experts, some even as early as later this week, who will bring complementary skills and expertise to the Treasury team.
We have several policy teams designing detailed programs to purchase mortgage-backed securities, whole loans, and other instruments.
In addition, we have begun work on compliance, executive compensation guidelines, foreclosure mitigation, and oversight.
Our teams have already been working with Treasury's inspector general and are scheduled to meet with the General Accounting Office. Yesterday, we held our first meeting of the program's Oversight Board, and we are committed to transparency in all aspects of the program.
We will implement our new authorities with one simple goal: to restore capital flows to the consumers and businesses that form the core of our economy.
One thing we must recognize: Even with the new Treasury authorities, some financial institutions will fail. The EESA doesn't exist to save every financial institution for its own sake.
Therefore, a second prong in our strategy is designed to mitigate financial market disruption when a bank fails. In addition to insuring deposits up to the new, temporary level of $250,000, the FDIC has the ability to use its insurance fund and its substantial lines of credit with Treasury to address systemic financial risk that may be posed by a bank failure.
It is the policy of our federal government to use all resources at its disposal to make our financial system stronger. In light of current conditions, the FDIC, with the full support of the Fed and the Treasury, will use its authorities and resources, as appropriate, to mitigate systemic risk, by, as appropriate, protecting depositors, protecting unsecured claims, guaranteeing liabilities, and adopting other measures to support the banking system.
As we address issues of capital and financial strength in our banks, we must also address the liquidity in our markets. The Federal Reserve has introduced innovative facilities and policies to enhance the liquidity that is vital to market stability and has frequently done so in coordination with the European Central Bank.
Today's announcement of a coordinated rate cut, including Europe, China, and other large economies, is a welcome sign that central banks around the world are prepared to take the necessary steps to support the global economy during this difficult time.
The EESA granted the Fed permanent authority to pay interest on depository institutions' required and excess reserve balances held at the Federal Reserve. This will allow the Fed to expand its balance sheet to support financial stability while maintaining its monetary policy priorities.
In recent weeks, the commercial paper market has suffered severe stress and illiquidity. Businesses ranging from financial institutions to industrial companies rely on the commercial paper market every day to fund their business activities.
In particular, financial institutions sell commercial paper and use the funds to lend to millions of consumers and businesses across the nation.
In the wake of the uncertainty surrounding financial institutions' balance sheets, many investors are reluctant to buy commercial paper from financial institutions, in essence, unwilling to hold this unsecured debt for any significant length of time, even when the particular institution is healthy, because of the -- and this is because of the fear of not having access to liquid markets.
Yesterday, the Federal Reserve announced a new facility to provide a liquidity backstop to U.S. issuers of commercial paper. Through a U.S. -- excuse me, through a special purpose vehicle, the Fed will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers.
I expect this initiative to significantly improve the availability of funding for financial institutions and corporations that depend on the commercial paper market. Until those that depend on commercial paper can issue it again in significant maturities, funding pressures will continue to ripple through our economy, dramatically shrinking the availability of credit to support families and businesses.
As I have long said, the housing correction is the root cause of the current financial market turmoil. We must continue to keep mortgage credit available and support the housing market so that we can more quickly turn the corner on the housing correction.
To provide critical additional funding to our mortgage markets, FHFA has directed Fannie Mae and Freddie Mac to increase their purchases of agency mortgage-backed securities. Supporting the availability of mortgage finance is the mission of the GSEs.
There is headroom over $150 billion between the current GSE portfolios and their regulatory limit. FHFA will supervise the growth in these portfolios, under its current expanded authorities to monitor GSE risk management.
We also expect Fannie and Freddie to increase direct support to the mortgage market through their ongoing securitization activities.
To further support the availability of mortgage credit, Treasury has also established a program to purchase agency MBS directly. The program began in September.
This will complement the capital provided by the GSEs and help facilitate mortgage availability and affordability.
Stabilizing Fannie and Freddie to support mortgage availability has been constructive. As the rest of our markets experienced increased turmoil, the interest rate on 30-year fixed-rate mortgages has come down from its peak of 6. 6 percent earlier this year to a low as 5. 9 percent this week, a decrease that helps American households reduce monthly mortgage payments and increase the potential for more homeowners to refinance mortgages at lower rates.
As Treasury and the GSEs increase their purchases, mortgage affordability should improve for Americans. If we were not actively engaged at the GSEs, we would have expected the rate to increase and further slow the progress of the housing correction.
We see the evidence every day that world economies and financial markets are more connected and interdependent than at any time in history. Economic momentum has slowed substantially across the industrialized countries as a consequence of the ongoing financial turmoil, the acute stresses facing our financial institutions, continuing housing and market adjustments in the United States and other countries, and volatile, albeit moderating, commodity prices.
Emerging markets are also beginning to show signs of slowing. We see evidence that the freezing of credit markets is having a tangible impact on everyday lives of citizens all around the world.
Addressing these challenges requires the dramatic steps we are taking here in the United States, and it requires strong international partnerships.
Governments have and must continue to take individual and collective actions to provide much-needed liquidity, strengthen financial institutions through the provisions of capital and the deposition -- excuse me, disposition of troubled assets, prevent markets abuse, and protect the -- the savings of our citizens.
We must also take care to ensure that our actions are closely coordinated and communicated so that the action of one country does not come at the expense of others or the stability of the system as a whole.
Over the past 12 months, President Bush and I have been in regular contact with our international counterparts, and we have collaborated in a variety of ways.
This weekend, I will be meeting with my G-7 colleagues to discuss the steps each of us are taking to confront this crisis and ways to further enhance our collective efforts.
In addition, in consultation with Brazil, the G-20 president, I am calling for a special meeting of the G-20 that will include senior finance officials, central bankers, and regulators from key emerging economies to discuss how we might coordinate to lessen the effects of the global turmoil and the economic slowdown on all of our countries.
Although the tasks are not easy, I am regularly heartened as I work with my international colleagues who are also committed to securing stability and growth in their domestic economies and to promoting the orderly functioning of the international financial system.
While most Americans understand that economic cycles occur, we are experiencing some extraordinary and difficult challenges at home and abroad, challenges that make it clear that Congress was correct to take swift and bold action, and that we have no time to waste in implementing the new law.
We also know that getting it right is as important as getting it done quickly. We can and we will do both.
The President's Working Group on Financial Markets and all financial regulators are working together to achieve our necessary goal of restoring stability and orderly to our -- excuse me, orderliness to our financial markets.
Every effort will require careful analysis, deliberation, and transparency, and some measure of patience from the American people, as we create the most effective process possible.
We have already taken a number of extraordinary bold actions on the liquidity front that I am convinced have been exactly the right policy steps, including the emergency action to provide a guarantee to our money market funds, actions to stabilize the GSEs and drive down mortgage rates, and the Fed's new program to provide 90-day liquidity to commercial paper issuers.
It is the policy of the federal government to use all resources at its disposal to make our financial system stronger, to safeguard depositors and savers, to help ensure an adequate flow of capital, and to minimize systemic risk.
The Congress has recently provided the Treasury with broad powers to acquire financial assets, and to make capital available, and to strengthen the balance sheets of individual institutions.
The Federal Reserve has also been given new authority to ensure that the system has sufficient liquidity.
The FDIC has the authority and the access to resources necessary to protecting the banking system.
The Treasury, the Federal Reserve, and the FDIC will use all of their authorities to promote the process of repair and recovery and to contain risks to the financial system that might rise from problems at individual institutions.
But patience is also needed, because the -- because the turmoil will not end quickly and significant challenges remain ahead.
Neither passage of this new law nor the implementation of these initiatives will bring an immediate end to current difficulties. It will take time and bipartisan leadership, cooperation, and collaboration, as well as well-conceived and -executed policies to overcome the challenges our nation is facing. And we will overcome them.
Despite our problems, the U.S. economy is the largest and wealthiest in the world. We will, as we have in the past, emerge stronger and better able to provide new opportunities for our workers and increased prosperity for our families.
Thank you. I will now take some questions.
QUESTION: Thank you, Mr. Secretary. Your counterpart in the U. K. , Gordon Brown, has suggested that the G-7 should guarantee interbank lending. What do you think of that proposal?
PAULSON: Well, there are a number of proposals. And what I would say is that the -- that we're going to find different -- different solutions based upon the particular needs in different countries, the needs of financial institutions in different countries.
So we're going to see that. And I think the important thing is for all of us to have very good communication and good coordination as we -- as we work through this. Thanks.
QUESTION: So are you saying that the chances of a -- sort of a coordinated fiscal response from the G-7 are small and that each country is going to do its own thing?
PAULSON: Well, that may be an overstatement. But what I will say is we have the -- I think the -- you're seeing the E. U. is -- is coordinating. You've seen, I think, some very helpful statements coming out of the E. U.
I think that, when we look at the G-7, we have very different countries, economies of different sizes, financial systems with -- with different needs. And so I think it would not make sense to have -- to have identical policies.
I think you're going to have -- you're going to have different policies, but the key thing is that we continue to work closely together, we continue to communicate, we continue to coordinate, and there are plenty of instances where -- where -- where close coordination is -- is -- is necessary and it's going on.
And I would say the way that the, you know, the central bank coordinated a response today is -- is -- is an indication of that kind of action.
QUESTION: Senator John McCain has unveiled his Homeownership Resurgence Plan that would direct the secretary of the Treasury to purchase mortgages directly from homeowners and mortgage-servicers and replace them with manageable fixed-rate mortgages. Are you planning to do this anyway? And to what extent?
PAULSON: Well, let me say, I need to learn more about the plan and the details of the plan. But let me say that what we have right now, with the new authorities -- and we not only have the authorities, but the plan to buy not only the mortgage-backed securities, but whole loans from financial institutions, number one.
Number two, we're already working hard with the -- with the -- the Hope for Homeowners legislation. We're working hard at FHA and other places in the administration to do what we can to avoid preventable foreclosures.
And as I have emphasized to Congress, and as we're directed to by the legislation that -- the EESA legislation, when we -- to the extent we -- we are owners of -- of -- of securities, we will have more leverage as we work to make efforts to keep homeowners in -- in their homes.
So, generally, we're going to be working to unclog the system, going to be buying mortgage and mortgage-related assets, and we're going to be working to avoid foreclosures.
And I -- yes?
QUESTION: Thank you, sir.
Is Russia included in the international coordination efforts? Are you aware of their own ideas for resolving the crisis, as presented today by their president? What are your plans to work with the Russian -- your Russian counterpart when he comes for the G7/G8 meeting?
PAULSON: Well, I would say I need more details. I've been reading about the Russian plan. I have talked regularly with my Russian counterpart, Minister Kudrin. I've visited him in Russia, but talked regularly as we've gone through this period. So he's called, posted me on actions they've taken and vice versa.
So, yes, I look forward to discussing these issues with him this weekend, as I have all the way through this.
Yes?
QUESTION: The EESA program, do you think it will help -- the purchasing program...
PAULSON: Yes.
QUESTION: The Troubled Asset Relief Program -- will it help to actually rebuild the capital base of the financial institutions?
PAULSON: Yes. Yes, that is -- that's what's critical is there is -- capital has been reluctant to come into certain financial institutions because a lack of visibility, in terms of the uncertainty, in terms of the value of some of these assets. So the prime motivation is to lead to the recapitalization and stronger capitalization of the industry.
Yes, let me -- I -- let me go to the far back. QUESTION: On the same program, you said a few weeks before you can make the first purchases.
Are there certain hurdles that you're facing right now in terms of choosing the process by which you'd buy them?
PAULSON: Well...
QUESTION: And a related question for you, are there pros and cons of different options you're looking at?
PAULSON: Yes. I would say that all of the above.
First of all, we -- as I said, we're moving as quickly and as expeditiously as we can do it. But we've got to get it right. And so we're going through all of the processes you would expect us to go through, in terms of conflict resolution, in terms of getting out to contractors and going through that -- going through that process.
We're also working to formulate programs. And so we're working as quickly as we can. And it will be several weeks.
Yes, the gentleman...
QUESTION: What steps are you taking -- what guidelines or policies do you have in determining which institutions you will allow to fail and which institutions you may step into?
PAULSON: Yes, well the -- in terms of what we've -- what we've said right now is that the stability of the financial system is of paramount importance. And today there's a heightened awareness of the fragility of the system.
And so we've been pretty clear in saying that -- that we've been reminding people of the authorities that the FDIC has -- you know, the -- when there's a systemic risk declaration. We've been clear about that. We've been clear about all of the various tools we have.
And so we're very aware of the fragility right now in the marketplace. And that's going to be paramount as we work through -- work through the months ahead.
Yes?
QUESTION: Mr. Secretary, would you be willing to support the Federal Reserve in a program of unsecured term lending to banks, along the lines that you've supported the program to purchase commercial paper?
PAULSON: Well, we have worked in close cooperation with the Fed in a number of programs. And I think I'll just leave it at that. We've got a very good working relationship and where we -- each of us agree that something makes sense and it makes sense to cooperate and work together, then we work together.
And there are some things where, you know, we're doing them in Treasury and I seek their advice and counsel and rely heavily on their advice. And, you know, other areas, where we provide advice for them and some areas where we provide more support than advice.
So we'll do what makes sense.
Yes?
QUESTION: Given that the U.S. is buying the frozen mortgage assets to free up banks to do traditional lending, is there any requirement in the legislation that was passed that requires them to do that lending or are there any reporting requirements for them to show progress on a regular basis?
PAULSON: The question is anything that require banks to do lending?
No, there's no requirement. And I don't know how anyone would ever enforce a requirement like that.
It's -- the key is to increase the confidence, increase the liquidity, the capitalization. And only there are you going to -- are you going to get the kind of lending we need to see.
Yes?
QUESTION: Mr. Secretary, since the bankruptcy of Lehman Brothers, the crisis of confidence in the markets has worsened.
Looking back, do you feel that that was a mistake not to have (INAUDIBLE) and saved them?
PAULSON: Yes. I think that looking back, we've taken the right moves. And there was there was no buyer for Lehman Brothers. There was no buyer. There was no hole to fill. And as I think we've said repeatedly, we did not have the wind down authorities we needed for financial institutions that -- non-banking financial institutions. So I'll leave it at that.
Yes?
QUESTION: Gary (INAUDIBLE).
(INAUDIBLE) qualifications from the markets as you progress your efforts. They seem to have reacted with considerable impatience today.
Is it conceivable, therefore, that the Treasury might have to take far more far-reaching measures (INAUDIBLE)?
And, in particular, might that include the U.S. having to do some sort of recapitalization of its banking system?
PAULSON: Yes. I'm not going to speculate on all of the things we may have to do. I would just simply say we have a broad range of authorities and tools in the TARP. And so we've emphasized the purchase of the liquid assets, but we have a broad range of authorities. And I'm confident we have the authorities that we need to work with going forward here.
I've got time for one more. That -- yes?
QUESTION: If you ask the American public to be patient, how long is it going to take, do you think, for the economy to recover from this?
PAULSON: The -- I'm not going the make predictions on the time it's going to take the economy to recover. But what I'm looking to do is to take all of the steps that we need to take to stabilize the financial system in order to mitigate the negative impact that a weakened financial system is having on our economy. And that's our priority. And I don't have forecasts -- economic forecasts.
QUESTION: (INAUDIBLE) credit markets just in the last couple of days here?
PAULSON: Well, I would -- I would say that I think it's too early to look for encouraging signs in the credit markets, that the -- you know, we continue to have a good number of the markets performing as normal, but there's still many of the markets that aren't performing as normal. And it's going to take a while to work through this problem.
Thank you all.
SANCHEZ: And there you have it.
Your comments, the last one regarding what the Treasury secretary is going to be doing about the situation in Russia -- something that, by the way, is interconnected. That's why world leaders are in Washington today, because the same rescue or bailout package, whatever you want to call it, in the United States, that's being considered or has been talked about is also going on in countries all over the world.
We've got four people to try and talk about this now.
We're bringing in Ali Velshi, Susan Lisovicz, Amy Holmes, Hilary Rosen -- all of them with us throughout this hour.
Ali, let's begin with you. The word seemed to be recapitalization.
ALI VELSHI, CNN SR. BUSINESS CORRESPONDENT: Yes.
SANCHEZ: And many of the folks who are talking to me on Twitter are saying, you know, I don't know what this guy is talking about.
Can you try and...
VELSHI: They'd like to get recapitalized.
SANCHEZ: Yes. Translate this for us.
VELSHI: Yes. SANCHEZ: What was he saying?
VELSHI: All right. What he's saying is these banks -- when you -- when your assets disappear, when you have these bad loans, that's a liability.
And when you have greater liabilities than you have assets, you have no capitalization. You can't go out and get loans. You can't build up your company.
So this $700 billion plan, this was his first detailed explanation as to how the process of this plan is going to work.
He said a few interesting things that stood out to me.
One is that he said some banks will fail. Despite the fact that they've got this money, they can't save everybody with this money. I think that's a big deal. Explaining to people some banks will fail, but he did say that whether you're in a credit union that is covered by the NCUA or a bank account covered by the FDIC, those loans are ensured.
He also says it will be several weeks before the first purchases are made with that $700 billion and that they're looking at it right now. And I think that's important because, Rick, what we have here is we have a bailout, we have the decision yesterday by the Fed to loan money directly to companies and we have today's interest rate cuts. That's a lot of strong medicine, none of which is instant.
The first thing that will happen is the Federal Reserve will be able to make loans to companies, probably starting next week.
The second thing that will happen is in several weeks, they'll be able to start using the $700 billion. And the interest rate cut, that usually takes about 12 months, at least, to work through the system.
So it's all long-term medicine -- a lot of medicine. But for those of you out there looking for an instant reaction, none of this is designed for an instant reaction (INAUDIBLE).
SANCHEZ: And yet you know what's funny, Susan Lisovicz, we've got the big board there and we're looking at the numbers. We're all looking for that instant reaction.
What are you seeing? I mean, what is it at, 14 right now or minus 28?
SUSAN LISOVICZ, CNN CORRESPONDENT: Well, I mean the Dow is at its low. It was down 250 points. At its high it was up 180 points. There's a lot of indecision, a lot of emotion riding this stock market right now. And I think what the Treasury secretary, who understands the markets quite well, having come from Goldman Sachs, is saying that, you know, while the government is coming to the rescue, he's basically saying take a deep breath, we're doing everything we can. We're aware of the extreme distress we're seeing in the financial markets, not only here, but around the world. It's going to work overnight. You know, and he detailed what's been done with that landmark legislation, with the FDIC raising the insurance on deposits to $250,000, talking about the coordinated effort today, but basically saying it's going to take a while and that the stress we're seeing in the financial markets, the worry, has spread into the greater economy.
And, in fact, about an hour and 40 minutes ago, we got something from The Conference Board, which is an independent, not-for-profit group, saying that the economy will continue to contract -- this is their words -- through the first half of next year and the housing market won't improve until the second half of next year, at the earliest -- and housing prices may go down further, which will continue to, you know, reign in consumer spending.
So basically, this is what the Treasury secretary is worried about. He's worried about the distress in the financial markets just making a worse -- making it worse for the overall economy.
SANCHEZ: Yes. And even that, according to some of what I've read today, is still somewhat of a hope and a prayer that some people have at this time, that things will better by the end of last year.
Let's do this. We're going to keep all four of our guests on. We're going to continue this discussion about what's going on, obviously.
We're with Ali Velshi and Susan Lisovicz, watching the market. You see Amy Holmes there and Hilary Rosen. Because there's another part of this. We are a month away from an election.
What is the impact of having the Treasury secretary talking to the American people in the middle of the afternoon on this particular election cycle that we're looking at now -- who wins, who loses and how? That's what we'll talk about soon.
Stay with us. We'll be right back.
(COMMERCIAL BREAK)
SANCHEZ: I'll tell you, we're going from Henry Paulson's comments to some of our analysts' comments to your comments, as well.
Let's do that now. We're getting a lot of folks talking to us during this hour.
This is Jessica, who's watching our show, and she says: "Rick, how can Paulson say it will take several weeks before they can make their first purchased bailout money? How many jobs are going to be lost? How many people will be forced from their homes by that time? Americans should be worried."
And now, hey, guys, let's go over to our Twitter board. Here's another comment. This one comes in from ICanDo. Let's -- Robert, let's take the Twitter board, if we can.
You've got it?
OK, Johnny B. Good (ph), you've got it. Good.
ICanDo says: "Paulson's socialist plan only for large banks that fell to greed. Small community banks continue business as usual loans with 20 percent down."
Now, go just above that. Here, let me bring that one down for you Johnny. There it goes.
Look at this one from sammiandcali, who are both watching our show. And they want us to say this: "Everyone, cash out now. Don't trust any of them."
You know, it's interesting, when you read comments like that, that there's a sense in this country that people are either angry or confused or a little bit of both.
Let's bring in our political analysts, Amy Holmes and Hillary Rosen -- Amy Holmes, to you, what is a candidate to do when he's hearing this kind of frustration in the American public, with an administration that doesn't seem to have the trust of the American people?
HOLMES: Well, the very first thing he needs to do -- or she -- is to listen and to listen to those constituents who want an explanation. You know, Rick, I was watching the Twitter board as Paulson was speaking. And a lot of people were raising that trust issue.
You know, I look at the political angle to this -- do we trust our Congressional leaders -- which, by the way, are Democrats?
Do we trust the last eight years of an administration?
And here we are at this point, with $700 billion being, it seems, to a lot of Americans, being given to the people who got us into mess.
So both candidates -- they need to reassure voters that they can be trusted with these so-called complicated decisions that so many of us simply -- we just don't understand...
SANCHEZ: But isn't it...
HOLMES: I mean when Paulson is talking, a lot of people said I don't even know what he's talking about.
SANCHEZ: Isn't it going to be harder for the guy with the "R" after his name, though, one would think, given that George Bush has been in the White House all this time and Henry Paulson represents him -- Hilary Rosen, to you?
ROSEN: Well, you know, I think we're talking about a day by day issue here. And I think it's pretty hard for Barack Obama or John McCain to kind of inject themselves into this process. We saw John McCain try to do that a couple of weeks ago and fail miserably. I'm really struck by, in essence, how inarticulate Secretary Paulson was in describing the process he sees going forward for the American people over the next couple of weeks. You know, the first rule in a speech and in television is sort of know your audience. Who was he talking to?
You know, he's on national TV. He certainly wasn't saying anything that was decipherable to the average citizen.
You know, again, go back to this notion of, you know, if Ali or Susan or others were making those speeches, they would do it differently. And so I think it's really important that the process get clear.
Note, just one extra point. He said that there are some constraints in the law that was passed by Congress last week about the process. He has to consult with Congress about who he's going to appoint to take over this big job. He appointed an interim financial person recently this week and there was some flutter about whether he was old enough, whether he was experienced enough...
SANCHEZ: Thirty -- yes, 35 years old, Mr. Kashkari.
ROSEN: And so, you know, now it's pretty clear that he got pushed back on that a little bit and he's got to talk to Congress. But Congress isn't in session. They're not going to be in session until after the election.
SANCHEZ: Let's hold that there.
But you did raise an interesting point about what he should have said, how he should have addressed the American people.
We've got two experts who are joining us, Ali Velshi, Susan Lisovicz. Our Twitter board is lighting up, because people want to hear as much what they have to say and how they would have said it.
So let's take a break. And when come back, how they would have done it.
We're joined by Susan and Ali, who've got a lot of fans, by the way, here on these Twitter boards.
(COMMERCIAL BREAK)
SANCHEZ: Let's bring Ali Velshi into this conversation.
You know, Ali, I've got to tell you something, this isn't me talking, all right?
This is people on Twitter and MySpace and Facebook all talking. And what they're saying is that there's an incredible disconnect right now, at this particular point in history, between the people of the United States and their government and their economic leaders.
What is Paulson or anyone to do to try and somehow get rid of that?
VELSHI: Rick, you know, we have learned this from our own viewers. We are trying to get people to make decisions and understand things that are deeply rooted in economics. And I would suggest most people didn't choose that as their degree or their area of study.
So what we've been attempting to do is give people a bit of a lesson in economics over the course of the last month. And you can't just throw words out there and do that.
We have done everything possible, by drawing analogies, by making graphs -- I mean everything possible to say do you understand this, do you understand this?
And we get e-mails from people who say, no, I don't really understand that. And we try again and we try again.
The government needs to understand that people have to be brought along to understand what it is. Failure number one was letting this thing be called a Wall Street bailout, not understanding how it connects to individuals, like the individuals that you are getting messages from on your Twitter board.
The fact is people do not have much of an idea of how this affects them. And that has been the failure here. They need to draw pictures. The need to draw analogies. They need to make this understandable to you. And that's what's been difficult.
So all it sounds like is they're taking our money and they're making decisions, they didn't catch this when it was coming, even though people said it was coming.
That's -- that's been the failure. And that's what we are trying to do. And I...
SANCHEZ: You know, it's interesting...
VELSHI: I...
SANCHEZ: Let me bring Susan Lisovicz into this -- Susan, you deal with these guys all day long. I mean you're there on Wall Street talking to these guys.
Do they get -- and I know they understand each other when they're talking to each other and when they're talking to you -- but do they get the fact that most of us no clue what they're talking about most of the time?
LISOVICZ: Yes. And I guess that sometimes that works in their favor, right, you know, I mean, if you're a good salesman. But I mean -- I guess, Rick, you know, the point hasn't been made that we are in a crisis. And in real crises, whether it's the Great Depression or 9/11, people should be coming together.
This is not just a Wall Street-created event, although there certainly is plenty of blame to be laid with the financial institutions that took far too much risk.
But there was also problems with regulators and credit agencies, people who bought things they couldn't afford, as well as mortgage brokers who sold people homes that they shouldn't have been buying. It's across the board.
And beyond that, the greater good now is to protect the financial institutions so that more of us won't suffer. And you haven't been seeing that in, as Ali said, in the way that this legislation was sold. But also with the finger-pointing, it does no good right now. There is a crisis that is unfolding in real time. And not only that, not only here, around the world. And in big crises, again, the government and people have come together.
SANCHEZ: And I'll tell what you, though, there is a rebellious spirit out there in the populace. And I probably don't have to tell you -- I can do this. I can show you.
Let's go over here. This is MySpace, right?
Yes, we're going to MySpace. Look what she just sent us. She says -- one of our viewers: "I have to say that I think it's about time for the new American revolution. How can we, as Americans, allow the people that we have elected and whose salaries our tax dollars pay get away with passing the fallout of their bad judgments onto us? I think that we'd better start fighting for our rights before we have nothing -- nothing left to fight for."
Amy Holmes, pick up on that thought.
HOLMES: You know, I think it's a really important point. And I think what has been forgotten in explaining this to the American people is that we want to have clear moral imperatives here. And when this thing first started getting rolling, a lot of Americans said, hey, if you bought a house that you couldn't afford, don't put that responsibility on me. Pay your mortgage. Take personal responsibility.
And with this bailout or rescue plan, it hasn't been explained in a way that's simple.
How do we do this, how do we do this fairly, how do we -- you know, Susan was saying we need to all band together. But a lot of Americans feel like, oh, yes, I need to band together to help out the people who got us into this mess?
It really hasn't been explained. And I think Susan and Ali did a better job than Paulson did just 15 minutes ago.
SANCHEZ: Hillary Rosen...
ROSEN: Yes?
SANCHEZ: Barack Obama is up in the polls right now.
Does this guy really want to be president, given what he's going to be undertaking? ROSEN: Well, of course, that -- you know, that's the million dollar question that they've -- they're actually seeking this job.
But, you know, I think that comments like that, like just, you know, throw the bums out, I'm mad at everybody, are almost sort of too, you know, Lou Dobbsian for real people.
(LAUGHTER)
ROSEN: You know, you can't -- just moral outrage doesn't really do anything. The fact is that leadership is about people. And I think that is actually why we're seeing Barack Obama move up in the polls. He has had this sort of steady drumbeat of consistent, I'm looking forward, I think we're going to be better tomorrow than we are today. And that's really what people want to hear.
I think you need that combination of real solid experts who understand what they're doing with the system, combined with real inspirational leadership. And I think currently, the leadership in Washington is just so stymied by...
HOLMES: But we could...
ROSEN: ...by the low approval ratings of the president and of the Congress...
SANCHEZ: We've got 10 seconds.
ROSEN: ...that people are unhappy.
SANCHEZ: Ten seconds.
HOLMES: Sure, but if I could jump in there for just a minute.
SANCHEZ: Amy, pick it up for us.
HOLMES: This is such...
SANCHEZ: Ten seconds now.
HOLMES: This has been such a tough issue, it's divided Republicans and Democrats, because their constituents don't like it. And let's remember, Barack Obama, he said on the stump this is something we need to support. But behind-the-scenes, he didn't pick up the phone to call Democrats in that first round of voting to tell them to vote for it. He knew that constituents are outraged.
SANCHEZ: All right. We'll follow this along. And our apologies to the Lou Dobbsian philosophy comment. Obviously, Dobbs will be -- one of my dear colleagues and friends -- will be commenting on that, as well.
(LAUGHTER)
HOLMES: My colleague, too.
SANCHEZ: We'll come right back with more on this and the closing bell. Where will it end?
We'll be right back.
(COMMERCIAL BREAK)
SANCHEZ: All right. A lot to get to and we've only got about a minute left.
First of all, we were going to bring you a newscast today that centered on race and politics -- differences and some of the things that have been going on in the last couple days.
Amy and Hillary, can you come back tomorrow?
Can we do that show tomorrow?
VELSHI: It would be my pleasure.
ROSEN: Sure.
SANCHEZ: I think it's an important topic. I think it's one that we should discuss.
Susan Lisovicz, let's close with you, if we can, because we're getting back to the final bell.
And give us the sense of import, not only the bell, but the other rescue policy -- the other rescues that are going on all over the world.
LISOVICZ: Well, there are other -- they're not rescuing the stock market. The sixth day in a row, the major -- three major averages are down. In the past five, $2.2 trillion market value gone -- Rick.
SANCHEZ: I guess -- my thanks to Susan Lisovicz and everybody else. I'd like to thank you now -- and especially you, the viewer, by the way, for all the great comments.
John Roberts is standing by in New York -- John, pick it up.
