Housing decline, subprime mortgage crash 'largely contained,' Paulson says

From Reuters
via Yahoo News
Tuesday, March 13, 2007

http://news.yahoo.com/s/nm/20070313/bs_nm/usa_subprime_paulson_dc;_ylt=A...

WASHINGTON -- U.S. Treasury Secretary Henry Paulson said on Tuesday a decline in U.S. housing activity has caused some damage in subprime mortgage markets but was not hurting the overall economy.

"I continue to believe the U.S. economy is healthy," Paulson said in an interview on CNBC Television when he was asked about a big drop in the stock market.

"We have had a significant housing correction in the U.S.," Paulson added. "You can't have a correction like that without causing some dislocations. It's too early to tell whether it's bottomed. I believe it has."

The U.S. Treasury chief said it "shouldn't be a surprise to anyone that there's some fallout in the subprime mortgage market ... but it's largely contained."

Paulson said the U.S. economy was "diverse" with growth in exports outstripping imports and consumers still spending.

"Inflation would appear to be contained so again I continue to believe we are making a successful transition from an economy that was growing at an unsustainable rate to one that is growing at a more sustainable rate," Paulson said.

After hosting a day-long session on capital markets and regulation, Paulson avoided a direct answer when asked whether the threat of rampant lawsuits was driving capital away from the United States to other centers.

"We have the best capital markets in the world. They're the most liquid, the most competitive capital markets in the world and they're very important to our economy," he said.

Paulson was interviewed on a day when U.S. stock markets posted their second-worst selloff of the year.

On another issue, he was asked whether pressuring China to let its yuan currency appreciate risks potential backfire if China becomes reluctant to buy U.S. debt securities.

But Paulson, who visited Beijing and Shanghai last week, said China does not yet have a market-determined currency exchange rate and indicated he was not about to back off in demanding that China move toward one.

"They need to show more flexibility," he said.

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