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LEAD: Paulson opposes gov't bailout for auto industry+
(Japan Economic Newswire Via Acquire Media NewsEdge) WASHINGTON, Nov. 18_(Kyodo) _ (EDS: RECASTING WITH WAGONER'S REMARKS)
U.S. Treasury Secretary Henry Paulson voiced opposition Tuesday to using part of the government's $700 billion financial rescue program to bail out the ailing auto industry.
But General Motors Corp. Chairman Rick Wagoner warned that the U.S. economy will suffer a "catastrophic collapse" if domestic automakers fail, and appealed anew for federal assistance.
"I believe that the auto companies fall outside of that purpose," Paulson said during a hearing at the House Financial Services Committee, referring to the financial rescue plan enacted in October.
Automaker executives, supported by congressional Democrats, say they need another $25 billion in emergency loans, in addition to the $25 billion already approved to specifically help the industry make more fuel-efficient cars.
Wagoner, testifying before the Senate Banking Committee, said in the event of an industry failure, 3 million jobs will be lost within the first year and government tax receipts will be $156 billion less over three years.
"Such a level of economic devastation would far exceed the government support that our industry needs," he said. "This is about much more than just Detroit. It's about saving the U.S. economy from a catastrophic collapse."
Paulson said "there are other ways" to help the auto industry. Specifically, he urged Congress to modify the first $25 billion package to provide short-term financial relief to the industry.
But he also said, "I think it would be not a good thing -- it would be something to be avoided having one of the auto companies fail, particularly during this period of time."
Paulson defended the government's decision to back away from its original plan to buy up troubled bank assets with the $700 billion rescue plan, formally called the Troubled Assets Relief Program or TARP.
"There is no playbook for responding to turmoil we have never faced," he said. "We adjusted our strategy to reflect the facts of a severe market crisis."
"The purpose of the financial rescue legislation was to stabilize our financial system and to strengthen it. It is not a panacea for all our economic difficulties," Paulson added.
Federal Reserve Chairman Ben Bernanke told the same House panel that the Treasury Department's capital infusion into banks will be important to restore confidence and bring credit markets back to normalcy.
The central bank chief also said the government's efforts to stabilize the financial industry with TARP are beginning to produce favorable results.
"These actions...appeared to stabilize the situation and to improve investor confidence in financial firms," he said. "There are some signs that credit markets, while still quite strained, are improving."
"Overall, credit conditions are still far from normal, with risk spreads remaining very elevated and banks reporting that they continued to tighten lending standards through October," Bernanke said.
"It is imperative that all banking organizations and their regulators work together to ensure that the needs of creditworthy borrowers are met in a manner consistent with safety and soundness," he said.
The ongoing financial turbulence erupted in August last year and surfaced in the rest of the world in September this year, triggering fears of a global recession.
Copyright ? 2008 Kyodo News International, Inc.
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