Paulson Says U.S. Hasn't `Hit Bottom Yet in Housing'

Oct. 30 -- Treasury Secretary Henry Paulson said it's too soon to call an end to the U.S. housing slump, as the Federal Reserve meets to discuss cutting interest rates in the world's biggest economy.

``We haven't hit the bottom yet in housing,'' Paulson said today at a conference in New Delhi. Still, he added ``there is enough strength in the economy that we can grow through this.''

Lloyd Blankfein, Paulson's successor as head of Goldman Sachs Group Inc., the world's most profitable investment bank, described the housing crisis as a ``concern'' at the conference. The Fed may cut its benchmark rate tomorrow to help prevent falling house prices from driving the economy into recession.

``The Fed wants to give a lower rate'' to people who are refinancing mortgages that have become more expensive, said Kazuaki Oh'e, a debt salesman at CIBC World Markets in Tokyo.

Fed policy makers meet today and tomorrow to set interest rates. They'll cut the benchmark rate a quarter-point to 4.5 percent, according to the median estimate of 106 economists surveyed by Bloomberg News.

Recent data indicate the housing recession is still taking its toll. U.S. manufacturers fired workers for a 16th consecutive month in October, according to the median forecast of economists surveyed by Bloomberg News ahead of the monthly employment report later this week. Home foreclosures doubled in September from a year earlier as borrowers with poor or risky credit histories struggled to meet payments, according to researcher RealtyTrac Inc.

Regulatory Backlash

Goldman's Blankfein said he's concerned that the mortgage crisis will trigger a regulatory backlash.

``Housing is one of the U.S.'s great institutions, so when the pendulum swings, don't kill home ownership,'' Blankfein said. ``My concern is the backlash to subprime.''

The fallout from the U.S. subprime market has cost the world's biggest securities firms and banks more than $30 billion in bad loans and trading losses in the third quarter.

The U.S. administration is studying what went wrong, with an emphasis on the role of credit-rating companies and accounting rules related to structured investment vehicles, Paulson said.

``We need to shed light on it and make the policy adjustments so this doesn't happen again,'' Paulson said.

The Treasury chief also reiterated his support for a ``strong'' U.S. currency, a day after the dollar fell to a record low against the euro. The dollar traded at $1.4393 at 8:17 a.m. in New York, from $1.4425 late yesterday.

``I am strongly committed to a strong dollar,'' Paulson said.

Home Ownership

The U.S. has benefited from lending in the subprime market because it resulted in higher levels of home ownership, he also said. ``I don't think we would want it the other way around,'' Paulson said, referring to stricter regulation that might have choked innovation in financial markets.

Record foreclosures in the U.S. caused credit to dry up because investors worried how badly lenders were exposed to subprime loans. While markets will take a while to work through the fallout of the subprime crisis, they are doing better every day, he said.

``Major parts of the capital markets are performing well,'' Paulson said. Still, markets for highly structured debt, asset- backed paper and high-yielding debt are taking longer to ``reprice'' risk, he said.

Paulson is ending a four-day visit to India, his first to the world's most populous democracy as a government official. His visit comes as Indian Prime Minister Manmohan Singh's government fights to overcome domestic political opposition to the 2005 civilian nuclear agreement with the U.S.

Improving Ties

Paulson said relations between the U.S. and India are the strongest he's seen in more than three decades. China, on the other hand, has become the ``face'' of anti-trade sentiment in capitals around the world, he said.

Paulson said he was optimistic about a nuclear accord. ``We value that India must come to its own conclusion'' on the agreement, which is good for both countries, Paulson said.

Prime Minister Singh's government will need to work on taking forward the accord, he said.

``This is something India has to work through,'' Paulson told reporters. ``I believe it would be perceived positively by the business community.''

He declined to say whether there was a link between the nuclear agreement and commercial relations with the U.S.