Major Institutions Now Secure

Citigroup has a relatively new management team that has had a lot thrown on its plate to deal with,and is dealing with it well,Hank Paulson remarked.We are not expecting another major financial institution to fail.We have what we need to manage the financial crisis.We're doing everything we know how to work with the transition team.The President-elect made a great decision on Tim Geithner.I take great comfort that this is someone who's got great judgement and knowledge which is there,Mr.Paulson said of the Treasury Secretary-designate,with whom he has worked closely throughout the financial crisis.

Banks Should Open Up

It's critical to have our major banks lending,Mr.Paulson stated.They can't be hoarding capital.Were it not for the actions by the Federal Reserve and Federal Deposit Insurance Corporation taken to date,lending would be even less than it is today.Most people say the banks aren't lending enough.Although we don't want to nationalize our banking system,you're gonna continue to see us do more to encourage banks to lend more.Regardless of what you do,banks are not gonna lend as much as you would like.That's what banks do in such conditions,Mr.Paulson admitted.

Paulson Reacts To Cut

We're all very fortunate that we have a Federal Reserve that's willing to do what is necessary,Treasury Secretary Hank Paulson feels.To date,we've stemmed a cycle of financial failures.The president's made a decision that the failure of automakers would not be a good thing,but no single action is gonna be a silver bullet.A lot of consumer finance takes place outside the banking system.I'm worried consumer credit will be cut off.Much of consumer lending is based on the capital markets.The Federal Reserve can rescue banks,but we didn't have the tools to rescue non-financial firms,Mr.Paulson reflected.

Who Is Timothy Geithner ?

Mohamed El-Erian,co-CEO and co-Chief Investment Officer of PIMCO,says he met Timothy Geithner,President-elect Obama's Treasury Secretary-designate,in the midst of the Russian and Asian crisis.He is very cool,Mr.El-Erian said.He has the crisis management experience that you need at this point.Hank Paulson,the current Treasury Secretary,and Mr.Geithner have worked together.The more certainty we can get,the more the healing process can go forward in a good manner,Mr.El-Erian thinks.

Buffett's New Bank

Warren Buffett,the Omaha billionaire,has added Goldman Sachs(GS) to his Berkshire Hathaway(BRKa)holdings.Calling Goldman an exceptional institution,Mr.Buffett will acquire five billion of perpetual preferred shares,yielding 10%,plus warrants for another five billion of common shares of Goldman,which recently became a commercial bank.Goldman CEO Lloyd Blankfein says they have a great relationship with Mr.Buffett.His investment is a strong validation of Goldman's future prospects,Mr.Blankfein asserted.Goldman went to the Federal Reserve with its request to become a commercial bank the weekend of September 19-21.On September 21,the central bank approved the request,waiving the normal 30-day waiting period.Now Goldman can access the Federal Reserve's Discount Window for loans,but will also be tightly regulated.Mr.Buffett revealed that if he hadn't thought the government would act on a rescue plan,he wouldn't have made the investment.He is thankful to Treasury Secretary Hank Paulson for having the imagination to step up with a plan.The government stands to make a profit from buying distresed assets,in Mr.Buffett's opinion.We were facing an economic Pearl Harbor,the revered investor reflected,referring to the Japanese attack on Hawaii in 1941 that drew the U.S. into World War II.

Of Things Known and Unknown

U.S. Treasury Secretary Paulson admitted that the thing we don't know is,is there fraud going on,is there collusion.I won't have a view until I see the evidence,Mr.Paulson stated.Naked short-selling is wrong anywhere.Our banking system is safe and sound.I don't think you're going to see any insured depositors lose a penny.The most important thing we can do to support the dollar is have confidence in our economy,he added.In a black suit,light blue shirt and red tie,and seated before a backdrop of U.S. Treasury seals,Mr.Paulson held that America's long term prospects are strong compared with any other economy.

The Importance of Housing Reform

The housing correction needs to run its course,U.S. Treasury Secretary Hank Paulson believes.Only at that time will we be entirely through this period of stress in the financial markets.One key in the housing crisis is having mortgage finance available.Housing reform is more important in magnitude than anything else.I'm focused on the job in front of me,not what happens after the U.S. presidential election.The more flexible the authorities are,the more confidence there will be in the marketplace.Government shouldn't try to impede the correction in housing,the Secretary continued.

Special Access:With the Treasury Secretary

U.S. Treasury Secretary Hank Paulson says he is speaking,and he listens.One of the things they're going to hear is,keep marking to market,and if you need to,go out and raise some capital.Banks need to keep marking books to assets.We are seeking to show stability for the capital markets.If necessary,the Treasury is ready to put capital in the Government-Sponsored Enterprises Fannie Mae and Freddie Mac,which are so important to the stability of the capital markets,the former Wall Street executive said.

Industrialized Leaders See Threats

The finance ministers of the Group of Eight industrialized nations,which include the U.S.,U.K.,Japan,France,Germany,Italy,Canada and Russia,are alarmed by surging oil and food prices.These prices pose a threat to the world economy as a serious challenge to stable growth,with serious implications to the most vulnerable and global inflationary pressure.Meeting over the weekend in Osaska,Japan,the ministers stated that tight supply and increasing demand was the main factor in high oil prices,though geopolitics and speculation were also to blame.U.S. Treasury Secretary Hank Paulson noted that oil production capacity hadn't risen in 10 years.The oil-producing countries should open themselves up to more exploration and production.British Chancellor of the Exchequer Alistair Darling said what we need to do,as a matter of urgency,is to increase supplies.Italy's finance minister,Giulio Tremonti,described the effect of speculation as enormous,and wants to increase the margins required of oil traders.The G-8 ministers also praised two new funds to help developing countries fight global warming.They said they remained vigilant in the face of uncertainty and downside risks in the world economy.They will take appropriate actions,individually and collectively,to secure stability and growth at home and abroad.

Jon Corzine

The governor of New Jersey,Jon Corzine,believes we are in a recession.The former Goldman Sachs(GS) executive isn't sure the the federal Govrnment's stimulus plan gives us the most bang for the buck.There's a real risk of getting into a deeper recession.He's afraid people will walk away from their homes.They're being squeezed by the cost of living.Governor Corzine feels that Paulson and Bernanke are taking steps in the right direction,but haven't gone far enough.Recession talk isn't helpful to the folks getting pinched.We're in the heart of a consumer economy.New Jersey's revenues are not coming in.There will have to be more budget cuts.We need a system that will help people lower their debt level,that will target homeowners with mortgages,Governor Corzine said.

Listening to Leaders:Hank Paulson

Hank Paulson,the U.S. Treasury Secretary and a former Goldman Sachs(GS) executive,has been focusing on proposed new financial regulations.He would not implement them until the markets stabilize.The highest priority is limiting the impact of current disruptions.The current system creates interagency conflict.Even with new rules,market stress will inevitably occur.The new structure would be phased in over a 2-8 year period.Consumer protection would be improved under the new system.A new insurance regulator would be housed in the Treasury.Mr.Paulson is confident in the resiliency and strength of the capital markets.He is not looking to outlaw innovation.We have excess complexity in many areas.There would be a prudent financial regulator for banks.They would look for issues and problems such as excess complexity.The Federal Reserve would have the authority to examine financial companies,and could require limiting exposure to certain asset classes.

A Cascade Of Caution

As the hills of Malibu burn,investors are facing their own persistent hazards-many of them so obscure that even the elite are puzzled.John Mack,CEO of Morgan Stanley(MS),says it will take 6-9 months to figure out what the losses are.We are not out of the woods yet.The credit market has improved,but mortgage securities will take a long time to work through.What is the collateral behind these packaged mortgages? That is the challenge.Treasury Secretary Hank Paulson calls for an aggressive response to the housing crisis.It is a significant threat to the U.S. economy,and is still unfolding.The longer housing prices are stagnant or fall,ther greater the penalty on our economy.Scott Sperling of Thomas H. Lee Partners,a private equity firm,says it is a very dangerous time for his business.It is a time for great caution.We haven't seen the last of the troubles.We have improved a little,notes Paul McCulley of Pimco,but the mortgage area is very restricted.There is a lot of downside on the economy.The equity market is a call option.Asset-backed commercial paper remains a problem,and structured investment vehicles still need to be unwound.To Carter Worth of Oppenheimer,it seems we will go back down to where we were before the Federal Reserve cut interest rates on 9-18.The market is wobbly and increasingly thin,so why rush to buy? Jeffrey Saut of Raymond James notes a big uptick in credit card debt.That suggests the peak of a credit cycle,and a slowdown to follow.To prepare,some investors are looking to the Vanguard Total Bond Fund(BND) for their protection.Others are buying shares of General Electric(GE),which is relatively cheap at this time,pays a dividend and has an international presence.