WASHINGTON : US Treasury Secretary Henry Paulson expressed confidence on Tuesday that the credit crunch roiling America's financial markets will ease over time as investors re-price risk. Paulson, a former chief executive of investment banking titan Goldman Sachs, told the CNBC business television channel that US economic growth will likely be dented by the credit turmoil, but said the global and US economies were strong.
"This will play out over time and liquidity will return to normal when the market has a better understanding, when investors have a better understanding, of the risk return trade-off," Paulson said.
The Treasury chief spoke after US stock markets have experienced strong volatility in the past week due to concerns about the ailing housing and mortgage markets.
Rising home foreclosures have seen investors shun mortgage-backed securities and prompted big banks to tighten their lending practices. Fears of evaporating credit have spooked Wall Street.
"We've been seeing stresses and strains in a number of capital markets, but this is against the backdrop of a very strong global economy, a very healthy US economy," Paulson said.
The Treasury secretary spoke ahead of a meeting later Tuesday with Federal Reserve chairman Ben Bernanke and Senator Christopher Dodd, the chairman of the powerful Senate Banking Committee and a Democratic presidential contender.
The Fed slashed the interest rate it levies on loans to commercial banks on Friday, to 5.75 percent from 6.25 percent, in a bid to lower borrowing costs and keep the banking system from gumming up. - AFP/de
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