Bear Stearns bailout necessary, Paulson says
WASHINGTON -- Treasury Secretary Henry Paulson on Sunday defended the Federal Reserve's decision to help rescue Bear Stearns Cos., the teetering Wall Street investment bank. He sidestepped questions about whether other firms are on shaky ground and the possibility of additional interventions of this kind.
At the same time, Paulson sought to send a calming message that the Bush administration is on top of the turbulent situation. "The government is prepared to do what it takes" to ease turmoil in the financial system and minimize any damage to the national economy, Paulson said during a series of broadcast interviews. The Fed's intervention "was not a difficult decision. It was the right decision."
The Fed, using a Depression-era procedure, raced to Bear Stearns' aid Friday along with JPMorgan Chase & Co. Bear Stearns had made a fortune in mortgage-backed securities but faced a possible collapse after those investments soured. Wall Street nose-dived as fears spread about whether other big firms were in jeopardy.
"When you go through a period like this," Paulson said, "policymakers need to balance various consequences."
Some critics contend that the Fed's move was akin to a government bailout — something the Bush administration has repeatedly said it is against.
"Well, every situation is different. We have to respond to the circumstances we're facing today," Paulson said. "And my concern is to minimize the impact on the broader economy as we work our way through this situation, and again, the stability of our financial situation."
Asked whether other financial companies may be in a situation similar to Bear Stearns', Paulson did not directly answer. He did seek to strike a confident tone.
"Well, our financial institutions, our banks and investments banks are very strong," he said. "And I'm convinced that they're going to come out of this situation very strong."
Paulson would not discuss what would have happened if the government didn't extend a financial lifeline to Bear Stearns. "I'm not going to speculate about what ifs," he said.
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