Treasury Secretary Henry Paulson defended his management of the $700 billion economic bailout today to the House Financial Services Committee, whose members are questioning the wisdom of the government’s new direction of dispensing funds.
In prepared testimony to the House Financial Services Committee oversight hearing on the Troubled Asset Relief Program, Paulson said that the program has helped “prevent the collapse” of the U.S. financial system, but there’s still work to be done.
“There is no playbook for responding to turmoil we have never faced,” said Paulson. “We adjusted our strategy to reflect the facts of a severe market crisis always keeping focused on Congress’s goal and our goal – to stabilize the financial system that is integral to the everyday lives of all Americans.”
Members of Congress took Paulson to task on recent changes he made to TARP, expressed their concern about his lack of consistency, and questioned his reasons for not supporting a bailout to automakers.
Also at the hearing were Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair.
Last week, the Bush administration abandoned the original strategy behind the rescue. Instead of stabilizing the financial system by buying bad assets from financial institutions, the centerpiece of the original plan, the government is now focusing TARP on putting billions into banks to boost their capital and bolster lending to customers.
“We recognized that a troubled asset purchase program, to be effective, would require a massive commitment of TARP funds,” Paulson said. “It became clear that, while in mid-September, before economic conditions worsened, $700 billion in troubled asset purchases would have had a significant impact. Half of that sum, in a worse economy, simply isn’t enough firepower. If we have learned anything throughout this year we have learned that this financial crisis is unpredictable and difficult to counteract. So early last week, we concluded it was only prudent to reserve our TARP capacity, maintaining not only our flexibility, but that of the next administration.
Several members of Congress including Rep. Barney Frank, chair of the House Financial Services Committee expressed concern that the $700 billion given to the Treasury Department isn’t being used appropriately and that the businesses and individuals who need it most do not have access to bailout funds.
“I have serious concerns about the improvised and ad hoc nature of Treasury’s implementation of the Capital Purchase Program and other elements of the TARP,” said Rep. Spencer Bachus (R-AL), a ranking member on the committee in his opening statement. “We all understand that when conditions on the ground change, policymakers must be agile enough to adjust to those changed circumstances. But changing too quickly, without adequately explaining why you’ve changed or what you’re going to do next, risks sending mixed signals to a