Paulson to Use All Tools to Protect Financial Markets

By John Brinsley

Sept. 29 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson will use ``all the tools at our disposal'' to protect financial markets after the House of Representatives rejected his $700 billion rescue plan, his spokeswoman said.

``The Secretary will be consulting with the President, the Chairman of the Federal Reserve, and Congressional leaders on next steps,'' Treasury spokeswoman Michele Davis said in a statement released in Washington. ``In the meantime, we stand ready to work with fellow regulators and use all the tools at our disposal, as we have over the last several months, to protect our financial markets and our economy.''

The House voted 228 to 205 against giving Paulson the authority to buy troubled assets from financial companies, in what would have been the biggest government intervention in the markets since the Great Depression. The Treasury chief on Sept. 23 warned it would be ``a grave mistake'' for Congress to curtail or delay the legislation.

U.S. stocks plummeted and Treasury bonds rose the most in two weeks after the House vote. The Standard & Poor's 500 Index fell as much as 8.3 percent and the Dow Jones Industrial Average dropped as much as 735.8 points or 6.6 percent.

About an hour after the vote failed, Paulson arrived at the White House to talk with President George W. Bush, who had personally lobbied lawmakers to support the measure.

To contact the reporters on this story: John Brinsley in Washington at jbrinsley@bloomberg.net