Paulson, Thain: Credit Crunch Is Easing

The Treasury secretary and the Merrill Lynch CEO see signs for optimism, but challenges remain.
By TSC Staff ,

Treasury Secretary Henry Paulson and Merrill Lynch CEO John Thain each said in interviews published Wednesday that they see signs the credit crunch easing.

Paulson, in an interview with

The Wall Street Journal

, said the "worst is likely to be behind us" and Thain, in a visit to Merrill's India operations, said he sees banks' losses tied to mortgages growing smaller in the coming quarters, according to

Reuters

.

Both

Goldman Sachs

(GS) - Get Report

alums tempered their optimism. Paulson said it would take several months more to sort out the full effects of the credit markets' disruptions that began last summer and further "bumps along the road" remain, the

Journal

said.

And Thain said banks with heavy exposure to U.S. consumers could take another hit as the economy deals with falling home prices, rising food and energy prices and higher unemployment over the next six months to a year, according to

Reuters

.

But Paulson pointed to actions by the

Federal Reserve

-- including the central bank's aid to

JPMorgan Chase

(JPM) - Get Report

in buying a near-bankrupt

Bear Stearns

(BSC)

in March and unprecedented actions to provide liquidity to commercial and investment banks -- as soothing to the markets, the

Journal

said.

On the political front, Paulson urged Congress to approve legislation improving the regulation of government-sponsored mortgage lenders

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

, the

Journal

reported.

That comes as the White House signaled it would veto a bill sponsored by Democrats that would provide Federal Housing Administration insurance for $300 billion in troubled mortgages.

Also on Tuesday, Treasury met with about 10 lenders, including

Countrywide Financial

(CFC)

,

Bank of America

(BAC) - Get Report

and

Citigroup

(C) - Get Report

to urge them to standardize voluntary procedures for helping qualified borrowers modify existing mortgages into more affordable terms.

This article was written by a staff member of TheStreet.com.

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