Paulson Says Markets Emerging from Crunch: Report

NEW YORK (Reuters) – U.S. Treasury Secretary Henry Paulsonsaid U.S. financial markets are emerging from the credit crunchthat many economists believe has pushed the country to thebrink of recession, according to The Wall Street Journal.

"I do believe that the worst is likely to be behind us,"Paulson told the newspaper in an interview.

The Journal said Paulson’s comments appear to be the Bushadministration’s most optimistic assessment yet about thefinancial turmoil that began last year with defaults onsubprime home loans and spread through financial institutionsthat owned tens of billions of dollars in mortgage-backedsecurities.

In the interview, however, the Treasury Secretary predictedthere would be further "bumps along the road," and that itwould take "some months longer" for the market distress tofully dissipate. Some financial markets, he said, still aren’tfully functioning.

The Journal said Paulson pointed to the Federal Reserve’sdecision to help prevent the collapse of Bear Stearns (BSC.N: Quote, Profile, Research)and to provide liquidity to other investment banks as "aninflection point" in the crisis.

The newspaper said Paulson also believes Congress will soonpass two measures he considers critical: one to improve theregulation of Fannie Mae (FNM.N: Quote, Profile, Research) and Freddie Mac (FRE.N: Quote, Profile, Research), thegovernment-chartered mortgage companies, and another tooverhaul the Federal Housing Administration.

(Reporting by Mark McSherry; Editing by Braden Reddall)