Treasury Secretary: Housing Market Risks Contained

U.S. Treasury Secretary Henry Paulson said Tuesday that rising mortgage problems and a weakened housing market will not have a major impact on the U.S. financial sector, which he described as quite healthy.

In a round table session with reporters during his visit to Tokyo, Japan, Paulson said the housing downturn had had some impact on certain types of mortgage loans but he did not see it as a major problem.

“Some of the credit issues are there, but they’re largely contained,” Paulson said.

The U.S. Treasury chief was on the first leg of a three-country trip that will also take him to South Korea and China before he returns to Washington on Thursday.

Even with home mortgage demand slipping, Paulson described global economic conditions as very healthy and played down the recent declines in global equity prices.

“The global economy is more than sound. It’s as strong in the last couple of years as I’ve seen in a lifetime,” Paulson said.

“All the economies are growing, inflation is low, and liquidity is high,” he said.

Global equity markets have been roiled over the past week and a half by several factors, including the Chinese stock market’s sharp drop last week and a comment by former Federal Reserve Chairman Alan Greenspan that a larger-scale economic recession was possible.

In addition to the threats of bad credit mortgage transactions to the real estate market, another factor cited in recent market declines was a reversal of support from a long-running phenomenon known as the carry trade, which involves using Japanese yen to invest in global equities and other higher-yielding assets.

Asked whether an unwinding of such trades was a concern, Paulson said he had no comment on yen carry trade.

Paulson described the Japanese economy as being on “a very good trajectory” but said it was very important for Japan to continue with economic reforms.

The secretary’s comments were seen as a promising development as investors continue to worry about the impact of a slowing real estate market.

SOURCE: MSN Money