Paulson Changes Tack on Financial Rescue (Greg Robb)

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Fat Cat

Consumer-finance sector will get help, but mortgage asset plan's shelved

12:12 p.m. EST Nov. 12, 2008 WASHINGTON (MarketWatch) -- Treasury Secretary Henry Paulson laid out details for the next stage of the government's financial-market rescue package Wednesday, announcing he has shelved a plan to buy troubled mortgage assets while turning his attention to non-banks and consumer finance.{xtypo_quote_right} Some of the money saved from not buying mortgage assets will now be used to shore up the market for credit-card receivables, auto loans and student loans, Paulson said. "This market, which is vital for lending and growth, has for all practical purposes ground to a halt," Paulson said. "With the Federal Reserve, we are exploring the development of a potential liquidity facility for highly-rated AAA asset-backed securities," Paulson said. {/xtypo_quote_right}

In a broad and dense review of the controversial $700 billion rescue effort, Paulson defended the steps taken to date, but in the same breath he said that financial markets remain fragile and that the focus must remain on "recovery and repair."

"I believe we have taken the necessary steps to prevent a broad systemic event. Both at home and around the world, we have already seen signs of improvement," Paulson said in a speech at the Treasury Department. See text.

But in a striking admission, Paulson said that buying up mortgage assets "is not the most effective way" to use government funding.