"Bailout" still a dirty word in Washington

By Emily Kaiser - Analysis

WASHINGTON (Reuters) - U.S. Treasury Secretary Henry Paulson worked the phones and airwaves on Sunday in a bid to reassure financial markets that the government stood ready to help, but he left the heavy lifting to the Federal Reserve.

As Wall Street prepares for what is shaping up to be another tumultuous week, the message from Washington was that the U.S. central bank did the right thing by riding to the aid of Bear Stearns (BSC.N: Quote, Profile, Research, Stock Buzz) on Friday, although the Bush administration still considers "bailout" a dirty word.

The week kicks off with Bears Stearns reporting earnings on Monday, earlier than originally planned, and a meeting between President George W. Bush and his President's Working Group on Financial Markets. On Tuesday, Fed officials gather to decide how far to cut interest rates.

"Can we outlaw the forces of gravity? You know, how much can government do?" Paulson said in a "Fox News Sunday" interview, arguing that markets must go through a painful correction before they can resume normal function.

That suggests scant White House support for proposals from Democrats Rep. Barney Frank and Sen. Christopher Dodd that would allow the Federal Housing Administration to offer guarantees to help refinance mortgages that banks and borrowers agree to write down.

Indeed, Paulson told "ABC This Week" that proposals calling for major government intervention "do more harm than they would do good" by prolonging the time needed for markets to correct.

Paulson said he was "on the phone for a couple of days straight and throughout the weekend" trying to make sure that financial markets were sound, and he praised the Fed.

In the span of one week, the U.S. central bank announced plans to inject some $400 billion into tight credit markets via two separate programs and provided emergency funding to Bear Stearns, the latest in a series of efforts aimed at preventing fraught financial markets from toppling a fragile economy.