Paulson: Housing Will Weigh On Economy For "Some Time Yet"

Includes: AGG, DIA, SPY
by: Judith Levy

The housing slump will continue to affect the capital markets "for some time yet" and is "the most significant current risk to our economy," Treasury Secretary Henry Paulson said Tuesday at Georgetown University. "The ongoing housing correction is not ending as quickly as it might have appeared late last year," he said. "The problem today is not limited to subprime mortgages, as the number of homeowners having trouble making payments on prime mortgages is also increasing." Paulson said it is part of the government's responsibility to help homeowners avoid foreclosure, but added that any such actions should be weighed against the risk of moral hazard -- the rescue of investors from the consequences of their own bad decisions. "I have no interest in bailing out lenders or property speculators," he said. Paulson said the Senate ought to approve regulatory reforms to government-backed mortgage companies Fannie Mae and Freddie Mac, and advised regulators to devise "interim improvements" to the mortgage regulatory system while evaluating wider reform. Paulson did not indicate that any new federal initiatives were in the offing to directly combat problems in the credit and mortgage markets. He and other Treasury officials recently urged Citigroup, JPMorgan Chase and Bank of America to create an emergency fund to buy debt and avert a more severe credit crunch (full story).

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