November 18, 2008 -

On Tuesday, Treasury Secretary Henry Paulson and members of Congress clashed over the best use for the $700-billion financial bailout fund, with lawmakers demanding money to stem a national wave of mortgage foreclosures.

At a House of Representatives Financial Services Committee hearing where he was grilled over his handling of the program, Paulson said the bailout plan wasn't "a panacea for all our economic difficulties" and would be more effectively used by investing in financial companies to shore up the system.

"The rescue package was not intended to be an economic stimulus or an economic recovery package. It was intended to shore up the foundation of our economy by stabilizing the financial system," the Treasury chief insisted.

Under stiff questioning from lawmakers who charged Treasury was making up strategy as it went along, Paulson conceded he hadn't totally ruled out using bailout funds to help homeowners, but said he had "reservations" about a proposal put forward by the Federal Deposit Insurance Corp.

Rep. Barney Frank, the Massachusetts Democrat who chairs the panel, lectured Paulson, telling him mortgage relief was spelled out as an option under the bailout passed by Congress.

"The fundamental policy issue is our disappointment that funds are not being used out of the $700 billion to supplement mortgage foreclosure reduction," Frank said. "There, I believe, is an overwhelmingly ... powerful set of reasons why some of the ... money must be used for mortgage foreclosure."

Paulson was also pressed about possibly tapping bailout funds to help distressed U.S. automakers but again ruled that out. He said any solution for automakers, who are pressing their case in Congress on Tuesday, should be one that helped them to re-tool to make more energy-efficient vehicles, and that wasn't what the bailout fund was set up to do.

He said Treasury was working with the U.S. central bank on a potential program, to be run by the Fed, that could be used to buy highly rated debt backed by auto loans, which could help automakers and make it easier for consumers to obtain loans.

FDIC Supports Credit Help to Slow Foreclosures

FDIC Chairman Sheila Bair, at the same hearing, told lawmakers it was "essential" Treasury offer loan guarantees and credit help to slow foreclosures, and warned that 4 million to 5 million mortgages will enter foreclosure over the next two years if nothing is done.

The FDIC says its plan could avert about 1.5 million foreclosures by encouraging lenders to restructure loans by having the government share in the cost of defaults. It is estimated the plan could cost the federal government about $24 billion.

"We are clearly falling behind the curve," Bair said. "Much more aggressive intervention is needed if we are to curb the damage to our neighborhoods and broader economic health."

U.S. Auto Executives Visit Capital Hill to Beg for Money

U.S. auto executives warned Congress on Tuesday that their industry was teetering on the brink of disaster as they pleaded for a $25 billion aid package despite political opposition to another multibillion-dollar government bailout.

The hearings come as government and business officials around the globe decide if, and how, they should commit billions of taxpayer dollars to bolster struggling automakers.

Rick Wagoner, the head of General Motors Corp, bluntly told the Senate Banking Committee why the executives were there. "This is about much more than just Detroit," Wagoner said in his testimony. "It's about saving the U.S. economy from a catastrophic collapse."

The hearings came a day after Senate Democrats proposed to bail out the ailing industry with $25 billion in government-backed loans. Wagoner; Robert Nardelli, head of Chrysler LLC; Alan Mulally, CEO of Ford Motor Co; and Ron Gettelfinger, head of the United Auto Workers union all testified on Tuesday.

"While the domestic auto industry has made mistakes in the past, the current problems have been exacerbated by one of the worst economies in nearly three decades," Mulally said. "We are hopeful that we have enough liquidity based on current economic planning assumptions and planned cash improvement actions, but we know that we live in tumultuous economic times."

Yahoo Climbs as Yang Resigns

Yahoo! Inc., owner of the second- largest U.S. Internet-search engine, rose 8.7 percent in Nasdaq trading after Chief Executive Officer Jerry Yang agreed to step down, opening the door for a fresh Microsoft Corp. bid.

Yahoo, based in Sunnyvale, California, climbed 92 cents to $11.55 at 4 p.m. New York time on the Nasdaq Stock Market. The gain was the largest in a month.

Before today, the company's market value had fallen by more than $20 billion since Yang took over last year as discussions with Microsoft failed, an ad partnership with Google Inc. collapsed and talks with Time Warner Inc.'s AOL stalled. Goldman Sachs Group Inc. said the resignation may fuel speculation of renewed talks with Microsoft or another suitor.