Paulson: Bailout Plans Have Changed

Treasury Secretary Henry Paulson said Wednesday that the $700 billion government rescue program will not be used to purchase troubled assets as originally planned.

"This market, which is vital for lending and growth, has for all practical purposes ground to a halt," Paulson said.

He said the Bush administration decided that using billions of dollars to buy troubled bank assets wasn't "the most effective way" to use the bailout package right now. Paulson said the administration will continue to use $250 billion of the program to purchase stock in banks as a way to bolster their balance sheets and encourage them to resume more normal lending.

In addition, nonbank companies as well as banks and financial institutions would receive capital and more would be done to prevent home foreclosures.

Paulson also announced a new goal for the program to support financial markets, which supply consumer credit in such areas as credit card debt, auto loans and student loans. The administration has been accused of not being tough enough with banks that are getting financial assistance. There are also complaints that troubled assets were not being bought as planned and that not enough is being done for people struggling with their mortgages.

Meanwhile, other problems have cropped up, such as pressure to give the auto industry $25 billion, and the need to pump another $40 billion into insurance giant AIG. On Tuesday, the Federal Housing Finance Agency announced a new plan to help struggling homeowners with mortgages from Fannie Mae and Freddie Mac. But the Federal Deposit Insurance Corp.'s chairman said the plan falls short of the big changes needed to help millions of homeowners with distressed mortgages.

The perceived weakness of the plan could be part of Wall Street's lackluster performance so far this week. Wall Street was down for the third straight day Wednesday. Investors worry that a severe pullback in consumer spending - which drives more than two-thirds of the U.S. economy - will prolong a global economic slump. The Dow stood at 8,693 after a decline of nearly 177 points Tuesday. The S&P fell just below 899 after a loss of 20 points. And the Nasdaq is at 1,580, having dropped nearly 36 points.

Asian stock markets also fell into negative territory again as evidence mounts that a worsening global economy has taken a toll on companies. Investors found few reasons to buy after Wall Street pulled back as it became clear that slowing consumer demand was hitting a wide cross-section of companies.

Major Asian indices all lost ground. They included the Shanghai Composite Index in China, where growing skepticism over the likely effectiveness of the country's $586 billion stimulus plan clouded sentiment.

One silver lining for investors: Gassing up their cars is getting cheaper and cheaper. Oil prices slipped below $59 a barrel Wednesday in Asia as investors come to grips with the prospect that global growth next year will slow more than originally feared, cutting demand for crude products such as gasoline. According to AAA, the average price of gasoline fell to $2.22 a gallon.

The latest decline in crude prices comes ahead of a report from the International Energy Agency, which some analysts expect will cut its 2009 oil demand forecast for the third consecutive month.

Will

US Dept of the Treasury