WASHINGTON (Reuters) - Treasury Secretary Henry Paulson urged Congress on Tuesday not to weigh down a proposed $700-billion financial system bailout with unrelated provisions that would delay addressing key issues.
“We saw market turmoil reach a new level last week, and spill over into the rest of the economy,” Paulson said in testimony prepared for delivery later on Tuesday to the Senate Banking Committee and obtained by Reuters. “We must now take further, decisive action to fundamentally and comprehensively address the root cause of this turmoil.”
He said removing illiquid assets from markets through the proposed bailout will cost taxpayers less in the long run than having credit markets fail to work. He said Congress should “avoid slowing it down with other provisions that are unrelated or don’t have broad support.”
Several Democratic lawmakers have objected that there should be limits on corporate executives’ pay for companies that are able to unload so-called toxic assets and that there should be more accountability in the bailout program, including for Paulson whose department will be buying the assets.
Toxic assets have been used as a term to describe mortgages and other assets on the books of financial institutions that they no longer produce income and that they cannot readily sell.
“FLAWS AND EXCESSES”
Paulson acknowledged that broader reforms of the financial regulatory system are needed, including strong measures to deal with ”flaws and excesses, but said that can wait for another day.
“We must have that critical debate, but we must get through this period first,” he said.
He said the case-by-case approach to dealing with financial system woes up to now, as was done in the takeover of Fannie Mae and Freddie Mac, the bailout of insurer AIG and in preparing markets for the failure of Lehman Brothers had been “necessary but not sufficient.”
Taking the wider step of buying illiquid assets should ultimately benefit taxpayers by restoring stability, Paulson said.
“I am convinced that this bold approach will cost American families far less than the alternative -- a continuing series of financial institution failures and frozen credit markets unable to fund everyday needs and economic expansion,” Paulson said.
Editing by Walker Simon