Paulson says Congress should aid automakers

WASHINGTON (Reuters) - 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.

In an interview with Bloomberg Television, Paulson said there were “other paths” to help automakers than the Treasury’s Troubled Asset Relief Program, or TARP.

“The intent of the TARP was to deal with financial institutions and major systemic issues and getting lending going,” Paulson said.

“Congress, I believe, should address the question of the auto industry. I encourage Congress to come up with a pot, to get money, to deal with this issue. And again, I don’t think that bankruptcy (for U.S. automakers) is a good thing,” he said.

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 cautioned that any federal aid must be accompanied by a plan to put General Motors Corp. GM.N, Ford Motor Co. F.N and Chrysler LLC 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.”

Paulson said the Treasury decided to shift the financial rescue program’s focus away from purchasing mortgage-related assets because the scale of the crisis meant that Treasury needed a “more powerful,” faster plan to shore up bank capital.

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.

Reporting by David Lawder; Editing by Leslie Adler