(Agencies)
Updated: 2008-05-09 10:11

However, Paulson said he believes the turmoil that began last August in credit markets has calmed since mid-March when the crisis claimed its largest victim with the forced sale of Bear Stearns, the nation's fifth largest investment firm, to JP Morgan Chase & Co. "Again, I think we're on the right path," he said.

Even though the markets are "somewhat calmer now," Paulson said large portions of the credit markets -- ranging from mortgages to student loans to loans that banks make to each other -- still are not functioning in a normal way. "I wouldn't be surprised at all to see more bumps in the road," he said.

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Paulson rejected for now the notion of a second stimulus bill, including such things as extending unemployment benefits, an idea pushed by Democrats in Congress. He said it would be unprecedented to extend unemployment benefits from the current 26 weeks with unemployment at the relatively low level of 5 percent.

He said the administration's focus at the moment is on getting the current 130 million stimulus payments into the people's hands. The administration believes the rebates will energize overall economic growth and will create an additional 500,000 jobs later this year.

"Some families will use them to help fill up their gas tank, for a family vacation, or to help (buy) back-to-school clothes and a lot of other things that people are going to like to get done," Paulson predicted.

The Treasury chief spoke on a day when President Bush threatened to veto a broad housing rescue package being considered by Congress. Paulson said the measure being pushed by House Financial Services Committee Chairman Barney Frank, D-Mass., was too broad in its effort to insure up to $300 billion in new mortgages for homeowners facing the threat of default.

Paulson said the administration would continue negotiating with Congress to come up with an acceptable bill, but he did not offer any details of what type of mortgage relief the administration would support.

"Housing is an important area and there are certain things that we need to get done there from Congress," he said. "I view my job as to work to get something that is acceptable and that the president can sign."

The administration favors a narrower legislative housing fix -- including strengthening oversight of mortgage giants Fannie Mae and Freddie Mac, which play a major role in financing mortgages, and modernizing the Federal Housing Administration, which insures mortgages.

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