Paulson Praises Bear Sale, Fed Rate Cut
U.S. Treasury Secretary Henry Paulson said on Sunday he was pleased with the deal for
J.P. Morgan Chase to buy Bear Stearns and with the Federal Reserve's latest actions to enhance market stability.
Paulson, who was involved in the merger talks over the weekend, said in a statement: "Last Friday, I said that market participants are addressing challenges and I am pleased with recent developments. I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets."
J.P. Morgan Chase said on Sunday it would buy stricken rival Bear Stearns for just $2 a share in an all-stock deal valuing the fifth largest investment bank at about $236 million, a fraction of its value last week.
Under the deal, the Federal Reserve will provide special financing and has agreed to fund up to $30 billion of Bear Stearns' less liquid assets.
Earlier Sunday, Paulson defended the Fed's decision on Friday to help rescue Bear Stearns. 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 . 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.
Economists increasingly believe the spreading fallout from a severe credit crisis has pushed the country into its first recession since 2001. The situation has led to record-high home foreclosures, forced financial companies to take multibillion losses from bad mortgage-linked investments and rocked Wall Street.
"No one is debating the fact that this economy has slowed way down," Paulson said. "We feel it, we know it, the American people know it."
Consultations about the Bear Stearns situation continued through the weekend among representatives from the Fed, Treasury Department, financial institutions and others.
President Bush planned to meet on Monday with his advisory panel on financial markets, whose members include Fed Chairman Ben Bernanke and Paulson. The panel on Thursday recommended stricter regulation of mortgage lenders as part of a broad effort to prevent a repeat of a credit crisis threatening to drive the country into recession.
With the value of the dollar plunging, Paulson stuck to the position of past treasury chiefs when he said a strong dollar is in the national interest. The dollar has dropped to a new low against the euro and a fallen sharply against the Japanese yen. That helps sales of U.S. exports to foreign buyers because it makes U.S. goods less expensive. But the drooping dollar increases inflationary pressures.
Paulson appeared on ABC's "This Week," "Fox News Sunday" and "Late Edition" on CNN.