WASHINGTON — Treasury Secretary Henry Paulson yesterday said the Bush administration has been monitoring the health of municipal bond insurers, but declined to discuss whether it would provide any relief from the turmoil in the industry.
“We are obviously looking at monoline issuers … [and have been] carefully for some time,” Paulson said after a speech before the U.S. Chamber of Commerce. “We are actively engaged in watching that sector and talking with other policy makers about that sector.”
Paulson declined to provide any other details.
His comments came after an audience member asked whether the recent sell-off in international equity markets is a response to the sharp deterioration of the
financial health of the monoline insurers and whether the Treasury is considering any policy responses to address that issue.
The slump in international markets followed Friday’s downgrade by Fitch Ratings of Ambac Assurance Corp.’s insurer financial strength rating to double-A from triple-A after the insurer announced it would abandon the capital-raising plan it first announced last week in an effort to maintain its top rating. The downgrade affected 137,390 Ambac-insured municipal bond issues. The finances of municipal bond insurers, which insure bonds against the risk of default, have been stretched by the subprime loan crisis. Ambac was the first insurer to be downgraded.
In his speech, Paulson sought to reassure investors that the nation’s capital markets are healthy, despite expectations of slow growth or possibly a recession.
“The U.S. economy is resilient,” he said. “The unemployment rate remains low and job creation continues, albeit at a modest pace. The structure of our economy is sound and our long-term economic fundamentals are healthy.”
Paulson also spoke about the economic stimulus package that he is currently negotiating with Congress.
“I am optimistic that we can find common ground and get this done long before winter turns to spring,” he said. “By working together, we can disprove the old Washington axiom that partisan politics prevents most short-term growth packages from being enacted fast enough to do any good.”
Congressional leaders are hoping that a deal can be reached before the president’s day, Feb. 18.
Paulson called for quick action on a package.
“It must be swift,” he said. “The legislation must be enacted quickly, and the elements of the legislation must have immediate impact.”
Paulson also said the package must be “robust, broad-based and temporary.”