It would therefore follow that until the US housing market settles down there will be more financial pain on the way. He went on to predict that the worst would be behind us in a matter of months, not one or two, but months rather than years. This however might be slightly hopeful as there are still large scale auctions of US housing taking place.
In the wake of the Lehman collapse commenting on the US banking system Mr Paulson said that “ our banking system is a safe and sound one, and since the days when we have had federal deposit insurance in place we haven’t had a depositor who’s got less than a $100,000 in an account lose a penny. So the American people can be very very confident about their accounts and our banking system”, in a move to reassure deposit holders in retail banks.
Last week the US government bailed out the US mortgage market with the rescue of Fannie Mae and Freddie Mac, which it had little choice over due to statute and their sheer sizes, however the question arises of why Bear Stearns was helped out in March and Lehman was not in September. Mr Paulson was slightly evasive but identified the circumstances as being totally different. However it may just be a matter of timing, with the global crisis in full swing now, whereas in March they were still attempting to smooth over the cracks.
When asked if this meant the end of government help for troubled companies he indicated that this was necessarily the case, although he would have to think long and hard before putting tax payers money to such use. So it will be interesting to see what happens to AIG who are obviously in danger as they have exposure to the US housing market as they have insured property related bonds. When asked about AIG Mr Paulson suggested that private sector solutions were being progressed in New York.
So it would appear that Mr Paulson is intent on keeping the bond and credit markets open and operating as effectively as possible while allowing equity holders in the troubled companies who had participated in the previous “excesses”, to quite rightly carry the can.
