By Peter Cook and John Brinsley
Nov. 13 (Bloomberg) -- U.S. Treasury Secretary Henry Paulson urged Congress to come up with money to rescue U.S. automakers from the brink of bankruptcy, saying his $700 billion financial rescue plan isn't intended for manufacturers.
``The intent of the TARP was to deal with financial institutions and major systemic issues and getting lending going in capital institutions,'' Paulson said today in a Bloomberg Television interview, referring to the Troubled Asset Relief Program his department is overseeing. ``Congress, I believe, should address the question of the auto industry.''
House Financial Services Committee Chairman Barney Frank yesterday proposed giving General Motors Corp., Ford Motor Co. and Chrysler LLC $25 billion in loans from the TARP. Paulson yesterday said he will focus the program on relieving pressures on consumer credit, abandoning the original intent of buying devalued mortgage assets.
Any rescue plan for GM or its rivals ``should be something that's a path to long-term viability,'' Paulson said in the interview. ``I encourage Congress to come up with a pot -- to get money -- to deal with this issue,'' he said.
President-elect Barack Obama is pushing Congress to approve as much as $50 billion this year to save the automakers, and his economic advisers think GM will have to file for bankruptcy by the end of January, people familiar with the matter said. GM may need as much as $30 billion in U.S. aid through 2010, and its stock price may keep sliding after tumbling almost 90 percent this year, analysts and an investor said today.
Congress to Act
Senator Charles Schumer, a New York Democrat, today said the Senate will likely approve aid during its lame-duck session. ``Whether there will be enough support to override a presidential veto, that I don't know,'' Schumer said.
Senator Christopher Dodd, chairman of the Senate Banking Committee, said he would be careful about bringing up an auto- aid package that may fail in the Senate. ``I don't know of a single Republican who is willing to support'' auto aid, he told reporters today.
Paulson suggested in the interview that the U.S. economy could withstand the failure of a car company, in contrast with his actions to bail out mortgage companies Fannie Mae and Freddie Mac, and insurer American International Group Inc.
``I understand how important the automakers are to this country and I understand a bankruptcy or a failure in that industry wouldn't be a good thing,'' he said. ``The country can withstand a lot of things -- I just simply said it's something I think should be avoided.''
`In Their Wisdom'
Congress passed $25 billion in potential aid for carmakers, provided it is used toward producing more energy-efficient vehicles. Lawmakers ``in their wisdom, they put restrictions on that money for the auto industry that apparently doesn't make it readily available to deal with this situation,'' Paulson said.
The Treasury has committed $290 billion of the $350 billion already allocated through capital injections to banks and insurer AIG. The plan is designed to help alleviate a financial crisis that has led to more than $950 billion in writedowns and losses worldwide.
Paulson said U.S. financial markets are better off than they were a month ago, although the economy faces ``challenges.'' The U.S. is working with policy makers around the world to address ``structural imbalances,'' which will be a topic of this weekend's meeting of leaders from the Group of 20 nations in Washington, he said.
``We know we need to do something with the regulatory systems in our individual countries in harmonizing them on a global basis,'' Paulson said.
Treasury, FED Program
The Treasury chief reiterated that he is working with the Federal Reserve to create a plan to ease strains in automobile and student loans, as well as credit-card debt, using ``a relatively small amount of TARP assets.''
Paulson also said he had ``no timeline'' for going to Congress for the second half of the $700 billion.
In a separate interview with National Public Radio, Paulson said he did not think financial markets were as worried as they have been about a new collapse of a big financial firm. He said the banking system had been at a ``tipping point'' before the Treasury's rescue programs kicked in.
``I think our major institutions have been stabilized. I believe that very strongly,'' Paulson said on NPR's ``All Things Considered.''
$700 Billion Insufficient
Paulson said on NPR one of the reasons the Treasury changed course on the bank rescue was because the $700 billion would not have been enough to buy all of the troubled assets that are weighing down banks' books.
``No one is asking themselves anymore, is there some major institution that might fail and that we would not be able to do anything about it,'' he told the radio program. ``So I think that is a positive.''
He also said the recent financial performance of mortgage companies Fannie Mae and Freddie Mac has been consistent with the government's expectations. The two firms were taken over by the Treasury on Sept. 7.
Speaking later on PBS Television's ``The NewsHour With Jim Lehrer,'' Paulson rebuffed calls from lawmakers including Schumer to compel banks taking public money to use the funds to lend rather than to finance takeovers.
``If this works, lending will be much more than it would have been,'' he said. ``I can exhort banks to lend, but I'm not a regulator.''
To contact the reporters on this story: Peter Cook in Washington at Pcook6@bloomberg.net; John Brinsley in Washington at jbrinsley@bloomberg.net
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