Bush upbeat about credit crisis

The Treasury secretary also tried to reassure investors.

WASHINGTON (AP) — President Bush sought to calm nervous investors, while the Federal Reserve plowed $3.75 billion into the financial system Tuesday, the latest efforts to stanch a spreading credit crisis that has unhinged Wall Street.

Wrapping up a summit in Montebello, Quebec with the prime minister of Canada and the Mexican president, Bush took the opportunity to point out that the U.S. economy remains in good shape and should be able to weather the financial storm.

“The fundamentals of the U.S. economy are strong,” Bush said. “The fundamental question, ‘Is there enough liquidity in our system?’ And the answer is ‘Yes, there is,”’ the president declared.

Treasury Secretary Henry Paulson also tried to strike a reassuring tone.

“We’re going to work through this problem just fine,” Paulson said in an interview with CNBC. He urged patience as investors reassess their appetite for risk, saying: “There’s not going to be a quick solution” to some of the problems. “I think what the American people need to understand, these things take a while to play out.”

On Wall Street, the Dow Jones industrials were down nearly 30 points in afternoon trading.

Concerns for homeowners

Paulson, meanwhile, said the administration is concerned about soaring foreclosures and late payments, especially among people with spotty credit histories, and is exploring ways to deal with the problem.

“We’re really focused on the subprime market, and we’re really focused on the homeowners — mortgage holders — who are in danger of losing their homes,” Paulson said. The administration “is thinking through policy options to address that segment of the market,” he added, but provided no specifics.

After a five-year boom, the housing market turned to bust last year. And the combination of higher interest rates and weaker home values have clobbered homeowners, especially those with higher-risk subprime mortgages. Mounting defaults have forced some lenders out of business. Credit problems have spread to other borrowers. Nervous lenders have tightened standards, making it harder for individuals and companies to obtain credit — the lifeblood of the economy.

Increasingly restrictive lending conditions can crimp peoples’ ability to buy big-ticket goods, such as homes, cars and appliances and it can chill businesses’ capital investment and hiring. Such a scenario would slow overall economic growth.

Paulson acknowledged the turmoil “will in all likelihood ... take a toll out of economic growth” but predicted the economy would still make its way safely through the troubles.

Cash transfusion

Trying to further stabilize wobbly markets, the Federal Reserve on Tuesday pumped an additional $3.75 billion into the financial system. It was the latest in a series of cash transfusions that have topped more than $100 billion since last week. That’s aimed at helping banks and other institutions get over the hump and carry out their business more smoothly.

In another move Tuesday, the Fed cut the fee bond dealers pay to borrow Treasury securities directly from the central bank. It was temporarily lowered from 1 percent to 0.5 percent.

In the past few weeks, financial markets in the U.S. and around the globe have been shaken by fears about spreading credit problems that started with home mortgages. Investors are worried that these problems will infect the larger financial system and possibly hurt the U.S. economy. As a result, stocks on Wall Street have careened wildly.

Senate Banking Committee Chairman Christopher Dodd, meanwhile, urged Federal Reserve Chairman Ben Bernanke to use “all the tools available” so the credit crisis and home mortgage mess don’t undermine the national economy.

Dodd, a Connecticut Democrat seeking his party’s presidential nomination, did not specifically ask Bernanke to lower a key interest rate in a meeting he had privately with the Fed chairman and Paulson. Dodd, did, however, urge policymakers to do all they could to ease the credit crunch, he said after the meeting.