Paulson publicly acknowledged not only that the administration had shifted gears but also that the government's financial rescue mission had entered a "time out" period as Obama prepared to take office. During that interval, Obama and the Congress must decide the role federal officials should play in the housing market, Paulson said.
The Treasury secretary's views on two key components of that role are at odds with those of Obama and many congressional Democrats.
Paulson said far-reaching proposals to dramatically reduce home foreclosures by modifying existing mortgages would "require substantial government subsidies" that still needed to be justified. And he turned aside calls to use some of the $700-billion Troubled Asset Relief Program fund to aid General Motors Corp. and other tottering U.S. automakers.
"We care about our auto industry in the U.S. They're a key part of our manufacturing industry," Paulson said. "We need a solution, but the solution has got to be one that leads to viability. The intent of the TARP was to deal with the financial industry."
The change wasn't received well on Wall Street, which this week has been reeling amid deepening economic worries. The Dow Jones industrial average dropped 411.30 points Wednesday, or 4.7%, to close at 8,282.66. Shares of Citigroup, which would have been a chief beneficiary of the buying plan, plunged nearly 11% to a decade-plus low of $9.64.
On Capitol Hill, reactions ranged from nonplused to I-told-you-so.
"My mouth is open," Rep. Jane Harman (D-Venice) told a television interviewer, comparing Paulson to a football team's quarterback changing the play at the line of scrimmage. "It was a very hard vote for many of us who voted for that package, and now all of a sudden we have an audible and we're spending it on something else."
Sen. Charles E. Schumer (D-N.Y.) chairman of the Joint Economic Committee, said he was pleased the Bush administration had changed its strategy on how to spend the giant rescue fund. Schumer had been skeptical about the logistics of buying troubled mortgage-backed securities when the legislation was being crafted in September.
He and other lawmakers successfully pushed to give Paulson the flexibility to use the money for other purposes.
"Congress gave the secretary the authority without him asking for it," Schumer said. "Now I suppose he's happy we did."
