Paulson: Markets will respond to economy

Washington -- U.S. Treasury Secretary Henry Paulson said Tuesday wavering financial markets will respond to the underlying strength of the U.S. and world economies.

In an interview aired on CNBC, Paulson said credit problems "we're experiencing right now are coming from bad lending practices, and during extended periods of benign markets, excesses creep in. We've had some bad lending practices. This will take time to work itself out, for the markets to readjust.

A major part of "that readjustment is recalibrating risk," he added.
He conceded that the administration is concerned about millions of people who could lose their homes because of foreclosure, and without being specific, said officials were looking at a number of solutions.

Democrats in Congress have been pressing for government-sponsored agencies such as Fannie Mae and Freddie Mac to buy more endangered mortgages.

But Paulson insisted markets will eventually right themselves.

"We've been seeing stresses and strains in a number of capital markets," he said, "but this is against the backdrop of a very strong global economy, a very healthy U.S. economy … markets ultimately follow the economy."

Copyright 2007 by United Press International.