US Treasury Secretary Henry Paulson says the current crisis will take time to play out as Bank of England lends £314m of standby credit
US Treasury Secretary Henry Paulson today gave his views on the the credit crunch roiling America’s financial markets, insisting he was confident it would ease over time as investors re-price risk.
Mr Paulson, a former chief executive of Goldman Sachs, told television news channel CNBC that US economic growth will likely be dented by the credit turmoil, but added the global and US economies were strong.
“I have great confidence in the Fed,” he said.
He also dismissed current turmoil, insisting the market would ultimately rebound.
“Markets ultimately follow the economy,” he said. However, he added, "This is going to take a while to play out.”
Mr Paulson declined to answer questions about what he might be able to do at the Treasury Department to help the market. He did say the Treasury is considering options to help borrowers who might be about to lose their homes because of rising interest rates, but did not say what those options might be.
The Treasury Secretary's comments came ahead of a meeting today between three of America's most powerful financial leaders to discuss the US sub-prime credit crisis and market turmoil which prompted a surprise half-point cut in the Federal Reserve's discount rate on Friday.
The meeting has been called by Christopher Dodd, chairman of the US senate committee on banking, housing and urban affairs, and will be attended by Mr Paulson and Federal Reserve chairman Ben Bernanke.
The three will discuss "the broader implications for the US economy, as well as possible additional steps that can be taken to help stabilise mortgage and financial markets and help homeowners nationwide".
Mr Paulson said that he often speaks with Fed Chairman Ben Bernanke about how the Fed is handling the current credit crunch.
Stephen Roach, chairman of Morgan Stanley's Asian operation and the bank's former chief economist, yesterday accused the central banks of being "asleep at the switch" in managing their respective economies in the run-up to the current global credit crunch.
Mr Roach likened the US sub-prime mortgage market collapse to the dot-com bubble implosion in 2001. "As always, the cycle of risk and greed went to excess. Just as dot-com was the canary in the coal mine seven years ago, sub-prime was the warning shot this time."
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