Paulson Urges Auto Aid, but Not from $700 Billion

U.S. Treasury Secretary Henry Paulson on Thursday encouraged Congress to come up with the funds to help ailing Detroit automakers, but stuck to his position that the government's $700 billion bailout fund is for financial institutions only.

AP Treasury Secretary, Henry Paulson

In interviews broadcast on Thursday, Paulson said General Motors , Ford Motor

and Chrysler were important to the U.S. economy and he didn't want to see any of them filing for bankruptcy protection.

"I think it would be harmful to see a bankruptcy of a major auto manufacturer, particularly during this period," Paulson told public television's "The Newshour With Jim Lehrer."

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"And so, clearly, I am of a view you should do something for the auto industry," he said.

But Paulson said using the Treasury's $700 billion Troubled Asset Relief program to help Detroit was not he right approach because the rescue plan was intended to stabilize financial institutions and prevent a major banking system meltdown.

The Detroit automakers, in crisis as sales have fallen to their lowest levels in years, are clamoring for aid, and key U.S. lawmakers have voiced their intention to provide help. On Thursday, Chrysler's chief executive said it would be "very difficult" for the company to survive without federal aid, while Goldman Sachs said GM needs at least $22 billion in federal aid.

Thus far, the Bush administration has been cool to such requests. 

Paulson repeated his view that one option for Congress would be to revise a law authorizing $25 billion to help automakers retool for more fuel-efficient vehicles, making the money available more quickly to bolster their liquidity.

But he said that any federal aid must be accompanied by a plan to put GM, Ford and Chrysler on a path toward long-term viability.

He stopped short of saying the companies do not have viable strategies to survive on their own, but said, "You've got to ask that question of any company that might be on the brink of failure."

Banking System Stabilized

Paulson said the U.S. economy was in for more difficulty until housing prices stabilized and recovery would take a long time. But he said he believes the banking system has been stabilized.

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"No one is asking themselves any more, 'Is there some major institution that might fail and we would not be able to do anything about it?" Paulson told National Public Radio's "All Things Considered" program. "I think our major institutions are stabilized."

Regarding his announcement on Wednesday to shift the bailout program's focus away from purchasing mortgage-related assets, he said this was necessary because the scale of the crisis meant that Treasury needed a "more powerful," faster plan to shore up bank capital. He told Bloomberg Television that injecting capital directly into banks was more effective.

The Treasury will devote a relatively small amount of the bailout funds—"much less" than the fund's second $350 billion—toward shoring up consumer credit markets.

Paulson said under this program, investors holding top-rated asset-backed securities could borrow against them from the Federal Reserve on a non-recourse basis, to invest in securitized consumer debt and mortgages, providing more liquidity and credit for households.

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