Be Patient!

from www.nytimes.com

July 23, 2008
Paulson Urges Americans to Be Patient on Economy
By MICHAEL M. GRYNBAUM

Treasury Secretary Henry M. Paulson Jr., said on Tuesday that Americans need to remain patient as the economy works through its problems, and he warned of “continued stresses” in the months ahead before a full recovery can be made.

“Our markets won’t make progress in a straight line, and we should expect additional bumps in the road,” Mr. Paulson said in remarks at the New York Public Library in Midtown Manhattan. “We have been experiencing more bumps recently, and until the housing market stabilizes further we should expect some continued stresses in our financial markets.”

Although Mr. Paulson acknowledged the need for broad reforms of the nation’s existing regulatory structure, he sought to assure Americans that he expects the nation to “work through this period,” and “emerge stronger and better poised for robust growth.”
“The American people have every reason to remain confident that the U.S. banking system is sound,” he said.

Mr. Paulson spoke just a week after the government announced a plan to help prop up Fannie Mae and Freddie Mac, the giant mortgage buyers that were recently at the center of widespread market anxiety. The episode, Mr. Paulson said, made it “all the more apparent” that systemic reforms are necessary.

“Now, more than ever, we need Fannie and Freddie out there, financing mortgages,” he said. “Their continued activity is central to the speed with which we emerge from this housing correction and remove the underlying uncertainty in our financial markets and financial institutions.”

Mr. Paulson said there were currently no plans for the companies to tap any federal money, even though the administration’s proposal calls for extending billions of dollars in credit if necessary. Asked about the effect of the plan on taxpayers, he said the credit lines offered a “flexibility” that “minimizes the likelihood they will be used.”

In his remarks, Mr. Paulson repeated his calls for greater transparency and effective regulation of the financial industry, saying such changes would “add to market stability and mitigate the likelihood that a failing institution can spur a systemic event.”

“We need to get to the point where large, complex financial institutions are not perceived to be too big or too interconnected to fail,” he said. He also singled out certain sophisticated markets — including over-the-counter credit derivatives — as particularly in need of greater oversight.

Mr. Paulson pointed to the recent failure of IndyMac Bancorp as an example of the government’s ability through the Federal Deposit Insurance Corporation to protect depositors when a large bank collapses. “No one has or will lose a penny of insured deposits,” he said. “The F.D.I.C. took over the bank on a Friday, worked effectively over the weekend, and on Monday morning the bank reopened for business as usual.”

In a question-and-answer session after his speech, Mr. Paulson tried to end the appearance on a more positive note. “As I look around the world, I don’t see other industrial nations, developed industrial nations that have better long-term prospects than we do,” he said.

Limited Role Seen for Fed

KING OF PRUSSIA, Pa. (Reuters) — The Federal Reserve has a limited role in a government plan to provide financial support for the ailing mortgage finance companies, Fannie Mae and Freddie Mac, the president of the Philadelphia Federal Reserve, Charles I. Plosser, said Tuesday.

“We were not the lead instigators” in the plan, Mr. Plosser said after a speech to local business leaders. “The Fed is not intentionally seeking to expand its powers.”

Mr. Plosser is a voting member this year on the Fed’s interest rate-setting Federal Open Market Committee and is known to be one of the Fed’s more hawkish members.

So... which large, complex, interconnected institutions is Paulson talking about really? List of suspects are well known.