Paulson and Bernanke appear before committee

Calcutta News.Net
Tuesday 18th November, 2008

The US treasury chief and central bank chairman have given evidence to the US Congress to defend their management of the $700 billion financial rescue program.

Treasury Secretary Henry Paulson, and Federal Reserve Chairman Ben Bernanke, have testified on Capitol Hill before the House Financial Services Committee.

Facing tough questions about the spending of the bailout money, Paulson said negative developments in US and global market conditions since Congress approved a multi-billion bank bailout, had forced a change in direction.

Mr Paulson revealed last week that the Congress approved fund would now be used to prop up capital liquidity and lending capabilities of banks and other institutions, rather than to purchase troubled assets.

Under questioning he said: "It is clear that an effective mortgage asset purchase program would require a massive commitment. In September, before economic conditions worsened, $700 billion in troubled asset purchases would have had a significant impact. But half of that sum in a worse economy simply is not enough fire power."

Committee representatives said legislators had been unhappy with the way banks and institutions were using money from the government program, and their failure to significantly expand lending to home owners.

They pointed to media reports that banks had used money from the government assistance program to purchase other banks, pay investor dividends and extend bonuses to executives.

In his testimony, Ben Bernanke said while capital injections reduced pressure on and provided some stability to banks, credit conditions were still far from normal, with risk spreads remaining very elevated, causing banks to further tighten lending standards.

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