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Thursday, August 16, 2007

Paulson: Turmoil to Slow Growth

by Calculated Risk on 8/16/2007 01:07:00 AM

From the WSJ: Paulson Expects Markets to Slow, Not Stall, Growth

Treasury Secretary Henry Paulson, in his first public comments since the sharp downturn in financial markets, said the turmoil "will extract a penalty on the growth rate" of the U.S. economy. But he expressed confidence that "the economy and the markets are strong enough to absorb the losses" without provoking a U.S. recession.
[Paulson] said that, beyond the steps already taken to encourage more transparency among hedge funds and the like, the ability of the Bush administration to react constructively is limited. It has largely relied on the Federal Reserve and other central banks to fight the financial fire by pumping large amounts of liquidity into parched money markets.

"There is nothing, in my judgment, that we should be doing in terms of guaranteeing market participants against losses or in terms of restraining risk taking," Mr. Paulson said. "One of the natural consequences of the excesses is that some entities will cease to exist."

He hesitated to specify areas where he and regulators will focus in coming months as they draw lessons from recent weeks. "Clearly, there really needs to be a focus on mortgages and how the product is originated and sold," he said. A major source of today's problems was deterioration of the standards used to issue mortgages, particularly in the subprime market, and the ripple effects when delinquency rates on those loans began to rise.
What happened to "containment"? And what happened to calling the housing bottom?