The Next Paulson’s bailout phase is shifting to consumers; not to purchase troubled bank assets

Treasury Secretary Henry Paulson officially abandoned the original centerpiece of its $700 billion rescue effort for the financial system and will not use the money to purchase troubled bank assets. The focus of bailout now is shifting to consumers. Treasury and the Fed are working to develop a lending facility that would encourage investors to buy securities backed by credit cards, auto loans or even mortgages. Details are still being worked out. Mr. Paulson said TARP would likely make an investment in the facility and the Fed would provide liquidity.

The shifting plans is to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.

The plans is based on The market supporting consumer finance which now is currently in distress, costs of funding have skyrocketed and new issue activity has come to a halt. Treasury would try to increase the availability of student loans, auto loans, credit cards and also examining ways to help prevent foreclosures.

Of the $350 billion made available by the government thus far, Treasury has just $60 billion left in its TARP fund. It may face a hostile reception by lawmakers if it tries to tap the second half of its promised $700 billion.

About using the first half to buy bank stakes, some lawmakers are also calling for greater oversight over use of the funds. Senator Charles Schumer of New York today reiterated his calls for Paulson to require banks taking public capital to increase lending rather than use the money to finance takeovers. ``The TARP really gave no incentive for the banks to lend the money, carrot or stick, and that's a big problem,'' he said on a conference call with reporters.

While Mr. Paulson is designing new programs, they will take weeks and hundreds of billions of dollars to implement. Of the $350 billion made available by the government thus far, Treasury has just $60 billion left in its TARP fund. It may face a hostile reception by lawmakers if it tries to tap the second half of its promised $700 billion.

Congress is unhappy that Treasury isn't forcing banks to make loans with funds they receive from the government.

Related Posts :

Ben Bernanke: the U.S. faces “a very serious too-big-to-fail problem.”

Sources :

Bloomberg: Paulson Shifts Focus of Rescue to Consumer Lending (Update6), November 12, 2008 20:04 EST
The Wall Street Journal: Bailout's Next Phase: Consumers, November 13, 2008
Bloomberg Video: Video: Paulson: Troubled Assets Will Not Be Purchased, November 12, 2008 EST

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