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Bush, Paulson see the sunny side

The Fed injects $3.75-billion more into the ailing financial system.

WASHINGTON - President Bush sought to calm nervous investors Tuesday as the Federal Reserve plowed $3.75-billion into the financial system, 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 is these things take a while to play out."

In another erratic session on Wall Street, the Dow Jones industrials finished down 30.49 points.

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.

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. Nervous lenders have tightened standards, making it harder for individuals and companies to obtain credit.

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.

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

So far the Fed has been reluctant to reduce the key rate, called the federal funds rate, which has stood at 5.25 percent for more than a year. It's the interest that banks charge each other on overnight loans and is the central bank's main lever to influence economic activity. A cut in the funds rate would cause commercial banks to lower the prime lending rate charged to many consumers and businesses.

The odds are growing, analysts say, that the Fed will cut the funds rate on or before Sept. 18, its next scheduled meeting.

[Last modified August 22, 2007, 01:03:55]